SIAL beats revenue forecasts, but misses earnings by a penny, while reiterating '02 guidance.
>>ST. LOUIS--(BUSINESS WIRE)--Oct. 22, 2002--Sigma-Aldrich Corporation (NASDAQ:SIAL - News)
HIGHLIGHTS:
Continuing Operations:
Reported and currency adjusted sales in Q3 increased 11.7 % and 8.1%, respectively, as the U.S. dollar continued to weaken.
Sales growth in Q3 was driven by stronger Biotechnology demand, partially offset by lower Fine Chemicals sales to U.S. pharmaceutical customers.
Diluted EPS increased 10% to $.55 in Q3 and 6.9% to $1.71 YTD (including a one-time Commerce Department pending settlement that reduced diluted EPS by $.02 in 2002, but excluding goodwill amortization and a one-time charge for purchased in-process research and development in 2001). Currency changes added $.01 to Q3 diluted EPS, but reduced YTD diluted EPS by $.03.
Both sales and EPS growth for the final quarter of 2002 are expected to continue to benefit from the weaker dollar. Management forecasts full year 2002 diluted EPS (including the $.02 one-time pending settlement noted above) in the $2.26 to $2.28 range, in line with prior guidance.
Discontinued (Diagnostics) Operations:
Stronger than expected sales, coupled with reduced costs, produced net income of $.01 per diluted share in Q3, reducing YTD net operating losses to $.06 per diluted share.
The Q2 one-time charge of $63 million ($.85 per diluted share) for the cost of discontinuance declined by $5.6 million ($.07 per diluted share) as the sale of the coagulation product line to Trinity Biotech plc reduced expected employee separation and customer costs in Q3.
Efforts to sell remaining assets and/or transfer customer commitments continue, with the expectation that remaining products will be sold or activities concluded by end Q1 2003.
Financial Condition
Return on equity showed strong improvement to 18.5% at the end of Q3 2002.
1.4 million shares repurchased in Q3, bringing total share repurchases at 9-30-02 to 31.1 million.
Working capital management reduced inventory levels at 9-30-02 by $20 million (excluding currency effects) from year-end 2001.
Strong cash flow from operations and working capital management reduced outstanding debt by $130 million in 2002.
OVERALL RESULTS:
Continuing Operations:
The Company's Scientific Research, Biotechnology and Fine Chemicals businesses combined to produce reported sales growth of 11.7% in the third quarter of 2002 as compared to the third quarter of 2001. The weaker U.S. dollar enhanced this reported quarterly sales gain by 3.6%, resulting in currency adjusted sales growth of 8.1%. Earlier expectations for even better currency adjusted growth in the third quarter -- due primarily to the adverse impact of the events of September 11, 2001 -- were not fully realized. Improved demand for Biotechnology products was matched with continued growth for Scientific Research products, while Fine Chemicals growth slowed as sales to U.S. pharmaceutical customers declined. Reported year-to-date sales growth was 8.6%, with 0.7% of this gain coming from the positive benefit of currency rates.
Diluted net income per share for the third quarter (adjusting 2001 results to exclude goodwill amortization) rose 10.0% to $.55 in 2002 from $.50 in 2001. Year-to-date diluted net income per share (adjusting 2001 results to exclude goodwill amortization and a one-time charge for purchased in-process research and development) increased 6.9% to $1.71 in 2002 from $1.60 in 2001. Currency added $.01 to the third quarter 2002 EPS, while a one-time charge for a U.S. Commerce Department pending settlement (explained in our release of September 30, 2002) reduced otherwise reportable EPS by $.02. Otherwise reportable year-to-date diluted per share earnings were reduced by both the $.02 Commerce Department pending settlement and a $.03 currency impact.
Discontinued (Diagnostics) Operations:
As previously announced, the Company sold its coagulation product line to Trinity Biotech plc in August 2002. To date, the Company has sold product lines representing approximately 42% of Diagnostics sales in 2001(after reclassifying products that contributed $11 million to 2001 Diagnostics sales to the Company's Scientific Research unit in both 2001 and 2002). Efforts to sell other product lines continue, with an expectation that all activity will be completed by the end of Q1 2003. Activities to minimize costs, together with sales resulting from supplying customers under contract and inventory liquidations, provided diluted EPS of $.01 in the third quarter, reducing year-to-date operating losses to $.06 per diluted share. The previously recorded one-time charge of $63 million ($.85 per diluted share) was reduced by $5.6 million ($.07 per diluted share) in the third quarter of 2002 as the sale of the coagulation product line reduced expected employee separation and customer costs.
CEO's Statement:
Commenting on third quarter and year-to-date results, Chairman and CEO David Harvey said "Given the current economy, I am pleased with the growth in sales and earnings and continued improvement in return on equity that we have achieved. We are not entirely immune to economic slowdowns, but our broad product and customer base, major presence in growing life science and high technology markets, strong commitment to customer service and ongoing efforts to reduce costs through process improvement have kept us somewhat recession resistant. I'm particularly pleased that our efforts to gain recognition as a key supplier of biotechnology products paid off in the form of better than expected growth in this important part of our business. We expect continued increases in sales and earnings in the final quarter of 2002."
NET INCOME ANALYSIS:
The Company's reported Q3 and YTD net income and diluted earnings per share for continuing and discontinued operations -- before and after currency impacts in 2002, goodwill amortization in 2001 and one-time charges in 2002 and 2001 - are summarized below:
Three Months Ended Three Months Ended
Sept. 30, 2002 Sept. 30, 2001
------------------- -------------------
Diluted Diluted
Earnings Earnings
Net Income Per Net Income Per
(millions) Share (millions) Share
---------- -------- ---------- --------
Net income from continuing
operations before currency
impact and goodwill
amortization $41.2 $0.56 $38.3 $0.50
Currency impact on continuing
operations 0.9 0.01 -- --
Goodwill amortization for
continuing operations -- -- (1.3) (0.01)
---------- -------- ---------- --------
Net income from continuing
operations before one-time
charges 42.1 0.57 37.0 0.49
Purchased in-process R&D -- -- -- --
Department of Commerce pending
settlement (1.8) (0.02) -- --
---------- -------- ---------- --------
Reported net income from
continuing operations 40.3 0.55 37.0 0.49
Net income (loss) from
discontinued operations 0.6 0.01 (3.2) (0.04)
Net gain (loss) on disposition
of discontinued operations 5.6 0.07 -- --
---------- -------- ---------- --------
Total reported net income $46.5 $0.63 $33.8 $0.45
========== ======== ========== ========
Nine Months Ended Nine Months Ended
Sept. 30, 2002 Sept. 30, 2001
------------------- -------------------
Diluted Diluted
Earnings Earnings
Net Income Per Net Income Per
(millions) Share (millions) Share
---------- -------- ---------- --------
Net income from continuing
operations before currency
impact and goodwill
amortization $129.5 $1.76 $121.2 $1.60
Currency impact on continuing
operations (1.9) (0.03) -- --
Goodwill amortization for
continuing operations -- -- (3.8) (0.05)
---------- -------- ---------- --------
Net income from continuing
operations before one-time
charges 127.6 1.73 117.4 1.55
Purchased in-process R&D -- -- (0.8) (0.01)
Department of Commerce pending
settlement (1.8) (0.02) -- --
---------- -------- ---------- --------
Reported net income from
continuing operations 125.8 1.71 116.6 1.54
Net income (loss) from
discontinued operations (4.4) (0.06) (9.1) (0.12)
Net gain (loss) on disposition
of discontinued operations (57.4) (0.78) -- --
---------- -------- ---------- --------
Total reported net income $64.0 $0.87 $107.5 $1.42
========== ======== ========== ========
RESULTS FOR CONTINUING OPERATIONS
(all increases are to comparable periods in 2001):
Reported sales increased 11.7% to $304.8 million for the third quarter and 8.6% to $910.7 million year-to-date. On a currency-adjusted basis, third quarter and year-to-date sales gains were 8.1% and 7.9%, respectively. Sales volume gains of 4.8% remained consistent with first half 2002 levels, while ongoing price increases added another 3.1% to year-to-date growth. Reported and currency adjusted sales gains are as follows:
Three Months Ended Nine Months Ended
Sept. 30, 2002 Sept. 30, 2002
------------------ -----------------
Currency Currency
Reported Adjusted Reported Adjusted
-------- -------- -------- --------
Scientific Research 10.3% 6.6% 7.0% 6.3%
Biotechnology 18.5% 15.1% 12.8% 12.4%
Fine Chemicals 8.5% 4.7% 8.7% 7.6%
Total 11.7% 8.1% 8.6% 7.9%
Scientific Research sales gains in the third quarter (excluding currency impacts, but including product sales reclassified from Diagnostics for both 2001 and 2002) showed continued strength in U.S. and European markets while sales growth in other international markets, while still exceeding growth rates in the U.S. and Europe, did moderate from levels achieved earlier in 2002.
Biotechnology sales gains improved in Q3, again exceeding our expectations. Percentage growth in our key life science areas was in the mid- to high-teens, with sales of chromatography products achieving a second consecutive quarter of growth. Market opportunities, new product development efforts and enhanced sales activities all contributed to this improved growth.
Customers continued their migration to ordering through the Company's web site. Electronic orders increased to 22% of our U.S. and 15% of our worldwide research sales in Q3.
Fine Chemicals growth moderated in the third quarter. A decline in custom orders from U.S. pharmaceutical customers was only partially offset by strong double-digit growth in international markets. Booked orders, including those from pharmaceutical customers, remained strong, but at lower levels than experienced in earlier quarters of 2002.
Reported pretax income from continuing operations was 19.4% and 20.1% of sales for the third quarter and first nine months of 2002, respectively. Third quarter pretax income excluding the Commerce Department pending settlement of $1.8 million was 20.0% of sales. After adjusting 2002 results for the settlement and 2001 results for goodwill amortization and a one-time charge for purchased in-process research and development, YTD 2002 pretax income of 20.3% of sales was equal to that for the entire year of 2001. Price gains, process improvement savings, lower interest costs and the abatement of higher utility costs experienced in the first half of 2001 all benefited these results. But these benefits were offset by new costs to operate our Life Science and High Technology Center, higher insurance and employee benefit costs and the reassignment of roughly 80 former Diagnostics employees to various open positions in our continuing businesses.
OUTLOOK:
We expect reported sales gains in the final quarter of 2002 for our Scientific Research and Biotechnology businesses to continue to benefit from the weakening U.S. dollar, special pricing initiatives, the recent distribution of new Aldrich and Fluka/Riedel-de Haen catalogs and growth of web-based sales. We also expect Biotechnology sales to further benefit from new product initiatives in key life science areas. But, we expect Fine Chemicals sales to grow only in line with third quarter results, as stronger anticipated sales to international accounts may well continue to be offset by weaker demand from U.S. pharmaceutical customers. Operating our discontinued Diagnostics business in the final quarter of 2002 might reduce otherwise reportable diluted earnings per share by as much as $.01. We expect profit improvement initiatives, lower interest cost, benefits from the weaker U.S. dollar and possible continued share repurchase activities to continue to enhance earnings and EPS from continuing operations in the fourth quarter. Including the $.02 adverse impact of the Commerce Department pending settlement noted above, management expects EPS from continuing operations for all of 2002 in the $2.26 to $2.28 range.
OTHER INFORMATION:
Share Repurchase: At September 30, 2002, a total of 31.1 million shares (out of an authorized repurchase of 35 million shares) had been acquired at an average purchase price of $32.86 per share. There were 72.3 million shares outstanding at September 30, 2002. Additional shares purchased to date in October bring total repurchases to 31.5 million shares. The Company expects to continue share repurchases to acquire the remaining 3.5 million authorized shares, but the timing and number of shares purchased, if any, will depend upon market conditions and other factors.
Working Capital, Capital Expenditures, Debt and ROE: Working capital management initiatives provided major benefits in the third quarter. Accounts receivable days outstanding of 59 at September 30, 2002 represent a decline of two days from June 30, 2002 and a one-day improvement from the prior year-end. Active inventory management programs reduced inventory quantities by $20 million from prior year-end levels, but the impact of currency rates used in valuing inventories offset roughly $15 million of that reduction. These initiatives, much lower capital expenditure levels and reduced tax payments related to the one-time charge for Diagnostics combined to generate sufficient cash flow for us to reduce total borrowings by $130 million in the first nine months of 2002 to $318 million. Capital expenditures for all of 2002 are expected to total less than $60 million, representing a $45 million reduction from spending levels in 2001. At September 30, 2002, short-term borrowings were $141 million at a weighted average interest rate of 1.8% and long-term debt was $177 million at a weighted average interest rate of 6.6%. The Company's return on equity improved to 18.5%. We remain committed to pursuing our goal of achieving a 20% return on equity by 2004.
Financial Statement Audits: In June 2002, KPMG LLP was selected to replace Arthur Andersen LLP as the Company's external auditor. As a result of our decision to discontinue Diagnostics, accounting standards require the restatement of prior period financials solely to present separate results for continuing and discontinued operations. Due to the inability of our previous external auditor to issue an opinion on such restatements, we have engaged KPMG to audit the Company's full financial statements for 2000 and 2001. KPMG's audit opinion for 2000, 2001 and 2002 will be provided with the Company's 2002 annual report. Management does not expect any other changes to the previously released financial statements.
About Sigma-Aldrich: Sigma-Aldrich is a leading Life Science and High Technology company. Our biochemical and organic chemical products and kits are used in scientific and genomic research, biotechnology, pharmaceutical development, the diagnosis of disease and chemical manufacturing. We have customers in life science companies, university and government institutions, hospitals and in industry. Sigma-Aldrich operates in 34 countries and has 6,000 employees providing excellent service worldwide. We are committed to the success of our Customers, Employees and Shareholders through leadership in Life Science, High Technology and Service. For more information about Sigma-Aldrich, please visit our award-winning web site at www.sigma-aldrich.com
Cautionary Statement: This release contains forward-looking statements relating to future performance, goals, strategic actions and initiatives and similar intentions and beliefs, including without limitation the "Highlights", "Overall Results-Discontinued (Diagnostics) Operations" and "CEO's Statement", and "Outlook" sections contained above and other statements regarding the Company's expectations, goals, beliefs, intentions and the like regarding future sales, earnings, return on equity, the discontinuance of its Diagnostics business, including the effect on sales and earnings from running the discontinued business as assets are held for sale and possible cash proceeds from the discontinuance, and other matters. These statements involve assumptions regarding Company operations, investments and acquisitions, conditions in the markets the Company serves and the sale of assets and actions related to the discontinuance of its Diagnostics business. Although the Company believes its expectations are based on reasonable assumptions, such statements are subject to risks and uncertainties, including, among others, certain economic, political and technological factors. Actual results could differ materially from those stated or implied in this news release, due to, but not limited to, such factors as changes in pricing and the competitive environment, other changes in the business environment in which the Company operates, changes in research funding, uncertainties surrounding government healthcare reform, government regulations applicable to the business, the impact of fluctuations in interest rates and foreign currency exchange rates, the effectiveness of the Company's further implementation of its global software systems, expectations for the discontinuance of the Diagnostics business, including the ability to supply customers while assets are held for sale and the ability to retain customers, suppliers and employees. The Company does not undertake any obligation to update these forward-looking statements.
SIGMA-ALDRICH CORPORATION
Consolidated Statements of Income (Unaudited)
(in thousands except per share amounts)
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
------------------- -------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Net sales $304,830 $272,816 $910,723 $838,774
Cost of products sold 152,115 134,396 447,484 402,546
--------- --------- --------- ---------
Gross profit 152,715 138,420 463,239 436,228
Selling, general and
administrative expenses 80,416 73,094 238,626 226,870
Research and development
expenses 9,855 9,263 30,436 28,272
Purchased in-process research
and development -- -- -- 1,200
Interest, net 3,269 4,598 11,030 13,243
--------- --------- --------- ---------
Income from continuing
operations before income taxes 59,175 51,465 183,147 166,643
Provision for income taxes 18,888 14,454 57,318 50,081
--------- --------- --------- ---------
Net income from continuing
operations 40,287 37,011 125,829 116,562
Discontinued operations:
Net income (loss) from
operations of discontinued
business, net of taxes 617 (3,228) (4,474) (9,090)
Net gain (loss) on disposition
of discontinued operations,
net of taxes 5,600 -- (57,400) --
--------- --------- --------- ---------
Net income $46,504 $33,783 $63,955 $107,472
========= ========= ========= =========
Supplemental net income
information
Net income from continuing
operations $40,287 $37,011 $125,829 $116,562
Add back: goodwill
amortization, net of taxes -- 1,286 -- 3,778
--------- --------- --------- ---------
Adjusted net income from
continuing operations $40,287 $38,297 $125,829 $120,340
========= ========= ========= =========
Weighted average number of
shares outstanding - Basic 72,979 74,196 73,083 75,011
========= ========= ========= =========
Weighted average number of
shares outstanding - Diluted 73,623 74,826 73,677 75,666
========= ========= ========= =========
Net income per share - Basic
Net income from continuing
operations $0.55 $0.50 $1.72 $1.55
Net income (loss) from
operations of discontinued
business, net of taxes 0.01 (0.04) (0.06) (0.12)
Net gain (loss) on disposition
of discontinued operations,
net of taxes 0.08 -- (0.78) --
--------- --------- --------- ---------
Net income $0.64 $0.46 $0.88 $1.43
========= ========= ========= =========
Net income per share - Diluted
Net income from continuing
operations $0.55 $0.49 $1.71 $1.54
Net income (loss) from
operations of discontinued
business, net of taxes 0.01 (0.04) (0.06) (0.12)
Net gain (loss) on disposition
of discontinued operations,
net of taxes 0.07 -- (0.78) --
--------- --------- --------- ---------
Net income $0.63 $0.45 $0.87 $1.42
========= ========= ========= =========
Supplemental net income per
share - Diluted
Net income from continuing
operations $0.55 $0.49 $1.71 $1.54
Add back: goodwill
amortization, net of taxes -- 0.01 -- 0.05
--------- --------- --------- ---------
Adjusted net income from
continuing operations $0.55 $0.50 $1.71 $1.59
========= ========= ========= =========
SIGMA-ALDRICH CORPORATION
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)
Sept. 30, Dec. 31,
2002 2001
----------- -----------
ASSETS
Cash and cash equivalents $39,718 $37,637
Accounts receivable, net 198,775 181,450
Inventories 422,456 427,094
Other current assets 37,165 35,231
Current assets held for sale 5,064 45,899
----------- -----------
Total current assets 703,178 727,311
Property, plant and equipment, net 531,634 531,391
Other assets 151,426 140,844
Noncurrent assets held for sale -- 40,256
----------- -----------
Total assets $1,386,238 $1,439,802
=========== ===========
Sept. 30, Dec. 31,
2002 2001
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $141,118 $270,382
Accounts payable 58,647 59,509
Accrued expenses 73,085 54,281
Accrued income taxes 21,541 13,391
Current liabilities of discontinued operations 9,939 --
----------- -----------
Total current liabilities 304,330 397,563
Long-term debt 176,708 177,700
Noncurrent liabilities 58,153 54,824
Stockholders' equity 847,047 809,715
----------- -----------
Total liabilities and equity $1,386,238 $1,439,802
=========== ===========
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Nine Months Ended
Sept. 30,
-------------------
2002 2001
--------- ---------
Cash flows from operating activities:
Net income $63,955 $107,472
Adjustments:
Net loss from operations of discontinued
business 4,474 9,090
Net loss on disposition of discontinued
operations 57,400 --
Depreciation and amortization 50,346 49,426
Purchased in-process research and development -- 1,200
Net changes in assets and liabilities 70,010 (58,519)
--------- ---------
Net cash provided by operating activities
of continuing operations 246,185 108,669
Net cash provided by (used in) operating
activities of discontinued operations 9,582 (5,805)
--------- ---------
Net cash provided by operating activities 255,767 102,864
--------- ---------
Cash flows from investing activities:
Net property additions (41,232) (75,277)
Acquisitions -- (37,574)
Proceeds from disposition of discontinued
operations 3,559 --
Other (7,255) (5,307)
--------- ---------
Net cash (used in) investing activities of
continuing operations (44,928) (118,158)
Net cash (used in) investing activities of
discontinued operations (2,286) (4,124)
--------- ---------
Net cash (used in) investing activities (47,214) (122,282)
--------- ---------
Cash flows from financing activities:
Net (repayment) borrowings of debt (131,298) 165,319
Payment of dividends (18,693) (18,632)
Treasury stock purchases (69,008) (142,986)
Exercise of stock options 18,893 21,366
--------- ---------
Net cash (used in) provided by financing
activities (200,106) 25,067
--------- ---------
Effect of exchange rate changes on cash (6,366) 566
--------- ---------
Net change in cash and cash equivalents 2,081 6,215
Cash and cash equivalents at January 1 37,637 31,058
--------- ---------
Cash and cash equivalents at September 30 $39,718 $37,273
========= =========
SIGMA-ALDRICH CORPORATION
Supplemental Financial Information - Continuing Operations (Unaudited)
(in thousands)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
------------------- -------------------
Business Unit Sales 2002 2001 2002 2001
--------- --------- --------- ---------
Scientific Research $179,480 $162,710 $536,907 $501,726
Biotechnology 69,688 58,811 202,697 179,660
Fine Chemicals 55,662 51,295 171,119 157,388
--------- --------- --------- ---------
Total $304,830 $272,816 $910,723 $838,774
========= ========= ========= =========
Nine Months Ended
Sept. 30,
-------------------
Selected Financial Information 2002 2001
--------- ---------
Property, plant and equipment
additions, net $41,232 $75,277
Share repurchase 69,008 142,986<<
Cheers, Tuck |
