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Biotech / Medical : Bio-Rad Labs: Things are changing
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To: Dave Chanoux who wrote (7)2/13/2000 10:32:00 PM
From: Dave Chanoux  Read Replies (1) of 18
 
Dave,

For pain - take an aspirin. Put the Shakespeare back in
your pocket.

Instead of complaining, take a look at a different cut at
the financials (below). Column 3 on the right is
Bio-Rad's income statement as reported, Bio-Rad + PSD.
Column 1 is the Bio-Rad without PSD, derived from the
company's press release text. And Column 2 is the result
of simple math.

Some simple observations jump out:

1. PSD is a breakeven operation at best. Bio-Rad has some
work to do to make this business profitable: keep the
customers (revenue), get the margins up (better gross
margins).

2. Is there potential for cross-selling: Bio-Rad products
to PSD customers, PSD products to Bio-Rad customers?
Cross-selling has the potential to increase revenue without
corresponding increases in SG&A. Is the French Mad-Cow test
kit an example of cross-selling?

3. Interest expense is funny as reported. PSD reportedly
cost $210 M. Prior to PSD interest expense was negligible.
If one were to assume $200 M in borrowing at 10%, the
expense would be $5M per quarter. How can the company
report $10.3M in interest expense? There must be some
non-recurring expense in the reported expense number.
Split the interest expense item into recurring $5M)and
non-recurring ($5.3) items. If you don't like that split
make your own.

4. Bio-Rad's business is healthy. PSD offers potential
for improvement. The risk is in execution. If you think
Bio-Rad can improve PSD's margins, make your own estimates,
derive your own eps estimates and make your investment.

Bio-Rad PSD Bio-Rad+PSD
Revenue 134.2 60.2 194.4
Gross Margin 71.1 26.1 97.2
Gross Margin percent 52.98% 43.36% 50.00%
SG&A 45.6 20.4 66.0
R&D-Continuing 13.4 5.4 18.8
R&D-Non-recurring 15.5
Operating Income 12.1 0.3 -3.1
Interest - recurring 0 0 5.0
Interest -non-recurring 0 0 5.3
Taxable Income 10.1 0.3 -15.7
Taxes (29%) 2.929 0.087 -4.553
Net Income 7.171 0.213 -11.147
EPS (12.125M shares) $0.59 $0.02 -$0.92

Stop complaining. Revenue and gross margin next quarter
will be the key. Watch for them.

Regards,

Dave Chanoux
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