Zacks_Analysts' Blog : Earnings Preview: Life Technologies - Analyst Blog

Global biotechnology company, Life Technologies (LIFE) is scheduled to report its fourth quarter and fiscal 2011 results on Tuesday, February 7, 2012, after market close. The company is expected to earn EPS of $1.03 on revenues of $965 million during the quarter and $3.70 on revenues of $3,734 million during the fiscal, according to the Zacks Consensus Estimate.

With respect to earnings surprises, over the trailing four quarters, Life Technologies surpassed the Zacks Consensus Estimate twice while meeting once. The four-quarter average earnings surprise of 2.05% implies that the company has exceeded the Zacks Consensus Estimate by this magnitude over the period.

Previous Quarter Highlights

Life Technologies reported an EPS of 94 cents in the third quarter of fiscal 2011, beating both the Zacks Consensus Estimate of 88 cents and the year-ago quarter’s adjusted EPS of 87 cents.

Revenues increased 7% year over year to $929 million, surpassing the Zacks Consensus Estimate of $916 million. Excluding the impact of foreign exchange movement, revenue growth for the quarter was 4%. On a geographical basis, revenue growth was witnessed across Europe – 5%, Asia-Pacific – 14% and the Americas – 2%. However, revenues derived from Japan declined 2%.

Life Technologies witnessed improvement in the Greater China business along with robust performance of Ion Torrent products. The company had witnessed a temporary slack in business in China in the second quarter but expected the situation to improve in the second half. Funding pressures for academic and government funded projects are expected to continue in the US and Europe.

Agreement of Analysts

Estimate revision trend among the analysts reveal their concern regarding the challenges troubling the life science tools market. Although Life Technologies maintained its guidance for fiscal 2011 (revenue growth of 2–4% and adjusted EPS of $3.70–$3.80), it indicated that both metrics are likely to remain on the lower end of the range. Over the past 30 days, 4 analysts have lowered their estimate for the fourth quarter with 2 doing the reverse. For the fiscal, 3 analysts have reduced their estimates with 2 upward revisions.

Given the weakness in academic and government markets (45% of Life’s revenues) over the past few quarters we await an updated commentary regarding the 2012 outlook. Besides, there is much hype and interest regarding the Benchtop Ion Proton Sequencer which is expected to hit the market in mid-2012. Based on the next generation semiconductor technology the device will be able to sequence the entire human genome in one day for $1,000.

Focus will also remain on the company’s reaction to Roche’s (RHHBY) hostile $45.50 per share bid for Illumina (ILMN). As a reminder, Illumina also plans to launch its HiSeq 2500 in the second half of 2012 that can sequence the entire human genome in one day.

Magnitude of Estimate Revisions

The current Zacks Consensus Estimate for the fourth quarter dropped by a penny to $1.03 over the past 30 days. The consensus estimate for fiscal 2011 remained unchanged at $3.70 over the same period.

Recommendation

Life enjoys a strong position in the life sciences market. Although the company witnessed several issues in the second quarter of 2011, it took some proactive measures that yielded results in the third quarter. Challenges, nevertheless, remain in the form of tighter budgets for academic and government funded research in both the US and Europe, a trend that is expected to continue.  The stock retains a Zacks #4 Rank (Sell) in the short term.

Although the company does not expect the scenario to worsen in the near future, it is repositioning itself for a slower growth environment by lowering its cost structure and focusing on R&D initiatives. The cost saving initiatives should result in margin expansion based on which Life expects to record mid-single-digit revenue growth and double-digit earnings growth in 2012.  Performance of the Ion PGM has been encouraging so far. Besides, launch of the Benchtop Ion Proton Sequencer in mid-2012 is eagerly awaited. Over the long term, we have a Neutral recommendation on Life Technologies.