Pall Corporation Reports Second Quarter Results

PORT WASHINGTON, N.Y.--()--Pall Corporation (NYSE:PLL) today reported financial results for the second quarter of fiscal year 2015 which ended January 31, 2015.

  • Diluted EPS in the quarter of $0.78, up 4%; pro forma diluted EPS of $0.88, up 7%
  • Free cash flow in the six months of $213 million, up 25%
  • Reducing full-year pro forma EPS guidance to $3.65‒$3.85, due to FX impact

Second Quarter and Six Months Sales and Earnings Overview

Second quarter sales were $673.8 million compared to $677.0 million last year. Sales in local currency (“LC”) were up 6%, and about 2% excluding acquisitions. Diluted EPS were $0.78 in the quarter, compared to $0.75 last year. Pro forma diluted EPS(1) were $0.88, a 7% increase compared to $0.82 a year earlier, including a headwind of approximately $0.11 from foreign currency translation.

Sales in the six months were $1.4 billion, an increase of 5% year over year. Sales in LC were up 10%, and about 5% excluding acquisitions. Diluted EPS were $1.59 in the six months, compared to $1.38 last year. Pro forma diluted EPS(1) were $1.77, a 16% increase compared to $1.52 a year earlier, including a headwind of approximately $0.15 from foreign currency translation.

Larry Kingsley, Pall Chairman and CEO, said, “We delivered a solid operating quarter. Our consolidated results were significantly impacted by foreign currency translation, particularly due to the strong U.S. dollar. Despite our global revenue profile and U.S.-centric cost structure, we delivered a modest increase in reported operating margin.”

Life Sciences – Second Quarter Highlights

(Dollar Amounts in Millions and Discussion of Sales Changes are in Local Currency)
       

Sales:

JAN. 31, 2015 JAN. 31, 2014 % CHANGE % CHANGE IN LC
BioPharmaceuticals $ 232 $ 218 6 13
Food & Beverage 43 44 (2 ) 8
Medical   54   57 (5 ) 2
Total Consumables 329 319 3 11
Systems   30   34 (12 ) (6 )
Total Life Sciences segment $ 359 $ 353 1 9
 
Gross profit $ 197 $ 200
% of sales 54.9 56.6
Segment profit $ 89 $ 91
% of sales 24.8 25.7

BioPharmaceuticals: Consumables sales grew 13% compared to last year, on overall market strength, growth in single-use systems and acquisition benefit.

Food and Beverage: Consumables sales were up 8% compared to last year, on growth in all regions.

Medical: Consumables sales were up 2% compared to last year.

Systems: Sales were down 6% compared to last year, on timing of BioPharmaceuticals and Food & Beverage capital projects.

Industrial – Second Quarter Highlights

(Dollar Amounts in Millions and Discussion of Sales Changes are in Local Currency)
       

Sales:

JAN. 31, 2015

JAN. 31, 2014 % CHANGE % CHANGE IN LC
Process Technologies $ 132 $ 140 (6 ) 0
Aerospace 55 53 4 8
Microelectronics   74   77 (4 ) 3
Total Consumables 261 270 (3 ) 2
Systems   54   54 1 9
Total Industrial segment $ 315 $ 324 (3 ) 3
 
Gross profit $ 144 $ 144
% of sales 45.7 44.5
Segment profit $ 51 $ 47
% of sales 16.2 14.5

Process Technologies: Consumables sales were flat compared to last year, with acquisition benefit offset by broad based weakness in Machinery & Equipment and timing of Fuels & Chemicals plant shipments.

Aerospace: Consumables sales increased 8% compared to last year, on strong Commercial and Military sales.

Microelectronics: Consumables sales grew 3% compared to last year, on continued strength in Asia.

Systems: Sales increased 9% compared to last year, on timing of Process Technologies capital projects.

Conclusion/Outlook

Kingsley concluded, “At prevailing rates, we’ll see a $200 million full-year headwind to revenue – or around 7%. The impact to EPS will be even greater – increasing to around 40 cents, principally from foreign currency translation. Accordingly, we’re reducing our full-year pro forma EPS guidance to $3.65–$3.85, which represents a 6–12% increase over fiscal 2014. While the forecasted impact of the strong U.S. dollar represents a very large headwind to our reported results, the underlying operating performance of the company reinforces our confidence that we can continue to perform and deliver year-over-year earnings growth for the full year.”

Conference Call

On Tuesday, February 24, 2015, at 8:30 am ET, Pall Corporation will host a conference call to review these results. The call can be accessed at www.pall.com/investor. The webcast will be archived for 30 days.

About Pall Corporation

Pall Corporation (NYSE:PLL) is a filtration, separation and purification leader providing solutions to meet the critical fluid management needs of customers across the broad spectrum of life sciences and industry. Pall works with customers to advance health, safety and environmentally responsible technologies. The Company’s engineered products enable process and product innovation and minimize emissions and waste. Pall Corporation is an S&P 500 company serving customers worldwide. Follow us on Twitter @PallCorporation or visit www.pall.com.

Forward-Looking Statements

The matters discussed in this press release contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Results for the second quarter of fiscal year 2015 are preliminary until our Form 10-Q is filed with the Securities and Exchange Commission on or before March 12, 2015. Forward-looking statements are those that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future. All statements regarding future performance, earnings projections, earnings guidance, management’s expectations about our future cash needs and effective tax rate, and other future events or developments are forward-looking statements. Forward-looking statements are those that use terms such as “may,” “will,” “expect,” “believe,” “intend,” “should,” “could,” “anticipate,” “estimate,” “forecast,” “project,” “plan,” “predict,” “potential,” and similar expressions. Forward-looking statements contained in this and other written and oral reports are based on management’s assumptions and assessments in light of past experience and trends, current conditions, expected future developments and other relevant factors.

Our forward-looking statements are subject to risks and uncertainties and are not guarantees of future performance, and actual results, developments and business decisions may differ materially from those envisaged by our forward-looking statements. Such risks and uncertainties include, but are not limited to, those discussed in Part I-Item 1A.-Risk Factors in the 2014 Form 10-K, and other reports we file with the Securities and Exchange Commission, including: the impact of disruptions in the supply of raw materials and key components for our products from suppliers, including limited or single source suppliers; the impact of terrorist acts, conflicts and wars or natural disasters; the extent to which special U.S. and foreign government laws and regulations, such as the Foreign Corrupt Practices Act and the U.K. Bribery Act, and regulations and procurement policies and practices, including regulations on import-export control, may expose us to liability or impair our ability to compete in international markets; the impact of a significant disruption in, or breach in security of, our information technology systems or we fail to implement, manage or integrate new systems, software and technologies successfully; the impact of economic, political, social and regulatory instability in emerging markets, and other risks characteristic of doing business in emerging markets; fluctuations in foreign currency exchange rates and interest rates; our ability to successfully complete or integrate acquisitions; product defects and unanticipated use or inadequate disclosure with respect to our products; our ability to develop innovative and competitive new products; the impact of global and regional economic conditions and legislative and political developments; our ability to comply with a broad array of regulatory requirements; the loss of one or more members of our senior management team and our ability to recruit and retain qualified management personnel; changes in the demand for our products and business relationships with key customers and suppliers; changes in product mix and product pricing, particularly with systems products and associated hardware and devices for our consumable filtration products; our ability to deliver our backlog on time; increases in manufacturing and operating costs and/or our ability to achieve the savings anticipated from our structural cost improvement initiative; the impact of environmental, health and safety laws and regulations, and violations; our ability to enforce patents or protect proprietary products and manufacturing techniques; costs and outcomes of pending or future litigation and the availability of insurance or indemnification rights; changes in our effective tax rate; the impact of certain risks associated with potential labor disruptions; our ability to compete effectively in domestic and global markets; and the effect of the restrictive covenants in our debt facilities. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We make these statements as of the date of this disclosure and undertake no obligation to update them, whether as a result of new information, future developments or otherwise.

Management uses certain non-GAAP measurements to assess the Company’s current and future financial performance. The non-GAAP measurements do not replace the presentation of the Company’s GAAP financial results. These measurements provide supplemental information to assist management in analyzing the Company’s financial position and results of operations. The Company has chosen to provide this information to facilitate meaningful comparisons of past, present and future operating results and as a means to emphasize the results of ongoing operations. Reconciliations of the non-GAAP financial measures used throughout this release to the most directly comparable GAAP measures appear in the accompanying tables at the end of this document and are also available on Pall’s website at www.pall.com/investor.

PALL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in Thousands)
   
JAN. 31, 2015 JUL. 31, 2014
 
Assets:
 
Cash and cash equivalents $ 1,029,673 $ 964,110
Accounts receivable 527,847 615,713
Inventories 377,210 404,878
Other current assets   153,897   152,522
Total current assets   2,088,627   2,137,223
 
Property, plant and equipment 741,845 805,327
Other assets   837,436   909,963
Total assets $ 3,667,908 $ 3,852,513
 
Liabilities and Stockholders' Equity:
 
Short-term debt $ 801,208 $ 512,898
Accounts payable, income taxes and other current liabilities   496,005   584,748
Total current liabilities 1,297,213 1,097,646
 
Long-term debt, net of current portion 375,342 375,826
Deferred taxes and other non-current liabilities   445,221   483,684
Total liabilities 2,117,776 1,957,156
 
Stockholders' equity   1,550,132   1,895,357
Total liabilities and stockholders' equity $ 3,667,908 $ 3,852,513
 
 
PALL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Amounts in Thousands, Except Per Share Data)
       
 
SECOND QUARTER ENDED SIX MONTHS ENDED
JAN. 31, 2015 JAN. 31, 2014 JAN. 31, 2015 JAN. 31, 2014
 
Net sales $ 673,794 $ 676,969 $ 1,370,286 $ 1,306,748
Cost of sales   332,776     332,710     667,860     636,775  
Gross profit   341,018     344,259     702,426     669,973  
% of sales 50.6 % 50.9 % 51.3 % 51.3 %
Selling, general and administrative expenses 191,834 196,299 394,490 391,183
% of sales 28.5 % 29.0 % 28.8 % 29.9 %
Research and development   24,458     24,979     49,235     48,246  
Operating profit 124,726 122,981 258,701 230,544
% of sales 18.5 % 18.2 % 18.9 % 17.6 %
Restructuring and other charges ("ROTC") (2) 11,534 9,170 20,774 18,368
Interest expense, net   6,238     5,195     12,940     11,172  
Earnings before income taxes 106,954 108,616 224,987 201,004
Provision for income taxes   22,555     24,950     52,315     45,825  
Net earnings $ 84,399   $ 83,666   $ 172,672   $ 155,179  
 
Average shares outstanding:
Basic 107,139 110,720 107,639 111,263
Diluted 108,507 111,980 108,896 112,532
 
Earnings per share:
Basic $ 0.79 $ 0.76 $ 1.60 $ 1.39
Diluted $ 0.78 $ 0.75 $ 1.59 $ 1.38
 
Pro forma diluted earnings per share (1): $ 0.88 $ 0.82 $ 1.77 $ 1.52
 
 
PALL CORPORATION
RECONCILIATION OF PRO FORMA EARNINGS
(Unaudited)
(Amounts in Thousands, Except Per Share Data)
         
 
SECOND QUARTER ENDED SIX MONTHS ENDED
JAN. 31, 2015 JAN. 31, 2014 JAN. 31, 2015 JAN. 31, 2014
 
Net earnings as reported $ 84,399 $ 83,666 $ 172,672 $ 155,179
Discrete items:
ROTC, after pro forma tax effect (2)   11,074   8,265   19,799   15,783
Total discrete items   11,074   8,265   19,799   15,783
Pro forma net earnings (1) $ 95,473 $ 91,931 $ 192,471 $ 170,962
 
FISCAL YEAR
SECOND QUARTER ENDED SIX MONTHS ENDED 2015 (ESTIMATE
JAN. 31, 2015 JAN. 31, 2014 JAN. 31, 2015 JAN. 31, 2014 AT MIDPOINT)
 
Diluted earnings per share as reported $ 0.78 $ 0.75 $ 1.59 $ 1.38 $ 3.57
Discrete items:
ROTC, after pro forma tax effect (2)   0.10   0.07   0.18   0.14   0.18
Total discrete items   0.10   0.07   0.18   0.14   0.18
Pro forma diluted earnings per share (1) $ 0.88 $ 0.82 $ 1.77 $ 1.52 $ 3.75
 
 

(1) Pro forma earnings measures exclude the items described below in footnote 2 as they are deemed to be non-recurring in nature and/or not considered by management to be indicative of underlying operating performance. The pro forma tax effects disclosed were calculated using applicable entity-specific tax rates.

(2) ROTC in the quarter and six months ended January 31, 2015 of $11,534 ($11,074 after pro forma tax effect of $460) and $20,774 ($19,799 after pro forma tax effect of $975), respectively, includes severance costs related to the Company's structural cost improvement initiative, as well as impairments of assets related to the exit of an immaterial product line and a redundant software project.

ROTC in the quarter and the six months ended January 31, 2014 of $9,170 ($8,265 after pro forma tax effect of $905) and $18,368 ($15,783 after pro forma tax effect of $2,585), respectively primarily includes severance costs related to the Company's structural cost improvement initiative. The six months ended January 31, 2014 also includes an adjustment to environmental reserves.

PALL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
   
 
SIX MONTHS ENDED
JAN. 31, 2015 JAN. 31, 2014
 
Net cash provided by operating activities $ 238,166   $ 205,595  
 
Investing activities:
 
Acquisitions of businesses (1,741 ) (5,299 )
Capital expenditures (25,240 ) (34,663 )
Proceeds from sale of assets 2,200 1,953
Other   (2,158 )   2,356  
Net cash provided/(used) by investing activities   (26,939 )   (35,653 )
 
Financing activities:
 
Dividends paid (62,796 ) (58,408 )
Notes payable and long-term borrowings/(repayments) 299,573 130,661
Purchase of treasury stock (304,105 ) (250,000 )
Other   7,651     16,574  
Net cash used by financing activities   (59,677 )   (161,173 )
 
Cash flow for period 151,550 8,769
Cash and cash equivalents at beginning of year 964,110 936,886
Effect of exchange rate changes on cash   (85,987 )   6,179  
Cash and cash equivalents at end of period $ 1,029,673   $ 951,834  
 
 

Free cash flow:

Net cash provided by operating activities $ 238,166 $ 205,595
Less capital expenditures   25,240     34,663  
Free cash flow $ 212,926   $ 170,932  
 
 
PALL CORPORATION
SUMMARY SEGMENT PROFIT BY SEGMENT
(Unaudited)
(Dollar Amounts in Thousands)
       
 
SECOND QUARTER ENDED SIX MONTHS ENDED
JAN. 31, 2015 JAN. 31, 2014 JAN. 31, 2015 JAN. 31, 2014
 

Life Sciences

Sales $ 358,456 $ 353,230 $ 710,920 $ 672,176
Cost of sales   161,518     153,167     315,428     290,034  
Gross profit 196,938 200,063 395,492 382,142
% of sales 54.9 % 56.6 % 55.6 % 56.9 %
 
Selling, general and administrative expenses 93,264 92,959 190,435 187,050
% of sales 26.0 % 26.3 % 26.8 % 27.8 %
Research and development   14,792     16,248     29,695     31,191  
Segment profit $ 88,882   $ 90,856   $ 175,362   $ 163,901  
% of sales 24.8 % 25.7 % 24.7 % 24.4 %
 

Industrial

Sales $ 315,338 $ 323,739 $ 659,366 $ 634,572
Cost of sales   171,258     179,543     352,432     346,741  
Gross profit 144,080 144,196 306,934 287,831
% of sales 45.7 % 44.5 % 46.5 % 45.4 %
 
Selling, general and administrative expenses 83,475 88,574 172,223 173,403
% of sales 26.5 % 27.4 % 26.1 % 27.3 %
Research and development   9,666     8,731     19,540     17,055  
Segment profit $ 50,939   $ 46,891   $ 115,171   $ 97,373  
% of sales 16.2 % 14.5 % 17.5 % 15.3 %
 

Consolidated:

Segment profit $ 139,821 $ 137,747 $ 290,533 $ 261,274
Corporate services group   15,095     14,766     31,832     30,730  
Operating profit 124,726 122,981 258,701 230,544
% of sales 18.5 % 18.2 % 18.9 % 17.6 %
ROTC 11,534 9,170 20,774 18,368
Interest expense, net   6,238     5,195     12,940     11,172  
Earnings before income taxes $ 106,954   $ 108,616   $ 224,987   $ 201,004  
 
 
PALL CORPORATION
SUPPLEMENTAL SEGMENT SALES INFORMATION BY PRODUCT/MARKET AND REGION
(Unaudited)
(Dollar Amounts in Thousands)
         
EXCHANGE % CHANGE
RATE IN LOCAL

SECOND QUARTER ENDED

JAN. 31, 2015 JAN. 31, 2014 % CHANGE IMPACT CURRENCY
 

Life Sciences

|------------ Increase/(Decrease) -----------|

By Product/Market:
BioPharmaceuticals $ 231,421 $ 218,625 5.9 $ (16,295 ) 13.3
Food & Beverage 43,185 44,054 (2.0 ) (4,322 ) 7.8
Medical   53,991   56,660 (4.7 )   (3,717 ) 1.8
Total Consumables 328,597 319,339 2.9 (24,334 ) 10.5
Systems   29,859   33,891 (11.9 )   (1,843 )   (6.5 )
Total Life Sciences $ 358,456 $ 353,230 1.5 $ (26,177 )   8.9
 
By Region:
Americas $ 112,418 $ 102,313 9.9 $ (1,699 ) 11.5
Europe 176,821 186,825 (5.4 ) (20,065 ) 5.4
Asia   69,217   64,092 8.0   (4,413 ) 14.9
Total Life Sciences $ 358,456 $ 353,230 1.5 $ (26,177 ) 8.9
 
 

Industrial

By Product/Market:
Process Technologies $ 131,402 $ 139,664 (5.9 ) $ (8,519 ) 0.2
Aerospace 55,336 53,322 3.8 (2,049 ) 7.6
Microelectronics   74,225   76,976 (3.6 )   (4,803 ) 2.7
Total Consumables 260,963 269,962 (3.3 ) (15,371 ) 2.4
Systems   54,375   53,777 1.1   (4,313 ) 9.1
Total Industrial $ 315,338 $ 323,739 (2.6 ) $ (19,684 ) 3.5
 
By Region:
Americas $ 118,088 $ 107,843 9.5 $ (1,468 ) 10.9
Europe 83,598 96,805 (13.6 ) (11,136 ) (2.1 )
Asia   113,652   119,091 (4.6 )   (7,080 ) 1.4
Total Industrial $ 315,338 $ 323,739 (2.6 ) $ (19,684 ) 3.5
 
 
PALL CORPORATION
SUPPLEMENTAL SEGMENT SALES INFORMATION BY PRODUCT/MARKET AND REGION
(Unaudited)
(Dollar Amounts in Thousands)
         
EXCHANGE % CHANGE
RATE IN LOCAL

SIX MONTHS ENDED

JAN. 31, 2015 JAN. 31, 2014 % CHANGE IMPACT CURRENCY
 

Life Sciences

|-------------- Increase/(Decrease) -------------|

By Product/Market:
BioPharmaceuticals $ 458,026 $ 414,743 10.4 $ (21,920 ) 15.7
Food & Beverage 86,353 87,623 (1.4 ) (6,431 ) 5.9
Medical   107,437   112,377 (4.4 )   (4,942 ) -
Total Consumables 651,816 614,743 6.0 (33,293 ) 11.4
Systems   59,104   57,433 2.9   (2,641 )   7.5
Total Life Sciences $ 710,920 $ 672,176 5.8 $ (35,934 )   11.1
 
By Region:
Americas $ 220,075 $ 200,089 10.0 $ (3,498 ) 11.7
Europe 352,854 348,755 1.2 (26,200 ) 8.7
Asia   137,991   123,332 11.9   (6,236 ) 16.9
Total Life Sciences $ 710,920 $ 672,176 5.8 $ (35,934 ) 11.1
 
 

Industrial

By Product/Market:
Process Technologies $ 276,328 $ 264,742 4.4 $ (12,404 ) 9.1
Aerospace 117,147 112,093 4.5 (2,383 ) 6.6
Microelectronics   149,391   148,392 0.7   (6,518 ) 5.1
Total Consumables 542,866 525,227 3.4 (21,305 ) 7.4
Systems   116,500   109,345 6.5   (6,597 ) 12.6
Total Industrial $ 659,366 $ 634,572 3.9 $ (27,902 ) 8.3
 
By Region:
Americas $ 243,025 $ 208,418 16.6 $ (2,833 ) 18.0
Europe 183,388 195,501 (6.2 ) (15,195 ) 1.6
Asia   232,953   230,653 1.0   (9,874 ) 5.3
Total Industrial $ 659,366 $ 634,572 3.9 $ (27,902 ) 8.3
 
 
PALL CORPORATION
SUPPLEMENTAL ORGANIC SALES GROWTH INFORMATION BY SEGMENT
(Unaudited)
(Dollar Amounts in Thousands)
         
EXCHANGE % CHANGE
RATE IN LOCAL

SECOND QUARTER ENDED

JAN. 31, 2015 JAN. 31, 2014 % CHANGE IMPACT CURRENCY
 
|-------------- Increase/(Decrease) -------------|
Life Sciences:
Organic $ 345,699 $ 353,230 (2.1 ) $ (26,177 ) 5.3
Acquisitions   12,757   -   -  
Total Life Sciences Sales $ 358,456 $ 353,230 1.5 $ (26,177 ) 8.9
 
Industrial:
Organic $ 300,234 $ 323,739 (7.3 ) $ (19,684 ) (1.2 )
Acquisitions   15,104   -   -  
Total Industrial Sales $ 315,338 $ 323,739 (2.6 ) $ (19,684 ) 3.5
 
Total Pall:
Organic $ 645,933 $ 676,969 (4.6 ) $ (45,861 ) 2.2
Acquisitions   27,861   -   -  
Total Pall Sales $ 673,794 $ 676,969 (0.5 ) $ (45,861 ) 6.3
 
 
EXCHANGE % CHANGE
RATE IN LOCAL

SIX MONTHS ENDED

JAN. 31, 2015 JAN. 31, 2014 % CHANGE IMPACT CURRENCY
 
|-------------- Increase/(Decrease) -------------|
Life Sciences:
Organic $ 685,021 $ 672,176 1.9 $ (35,934 ) 7.3
Acquisitions   25,899   -  
Total Life Sciences Sales $ 710,920 $ 672,176 5.8 $ (35,934 ) 11.1
 
Industrial:
Organic $ 627,373 $ 634,572 (1.1 ) $ (27,902 ) 3.3
Acquisitions   31,993    
Total Industrial Sales $ 659,366 $ 634,572 3.9 $ (27,902 ) 8.3
 
Total Pall:
Organic $ 1,312,394 $ 1,306,748 0.4 $ (63,836 ) 5.3
Acquisitions   57,892   -   -  
Total Pall Sales $ 1,370,286 $ 1,306,748 4.9 $ (63,836 ) 9.7

Contacts

Pall Corporation
R. Brent Jones
Senior Vice President Corporate Development & Treasurer
Telephone: 516-801-9871

Release Summary

Pall Corporation Reports Second Quarter Results

Contacts

Pall Corporation
R. Brent Jones
Senior Vice President Corporate Development & Treasurer
Telephone: 516-801-9871