Results out of Pall Corp (PLL) serve to confirm a strong industrial recovery, as net income jumped 57% to $69.7 million versus $44.2 million a year ago. On a per share basis the company earned 58 cents, which was 8 cents better than consensus analysts’ estimates. Pall, a diversified industrial company specializing in filtration systems, also experienced better than expected sales growth as revenue rose 11% to $616 million will ahead of the $598.7 million Wall Street expected. The results prompted Chairman and CEO Eric Krasnoff to say in an accompanying statement to the earnings report,
“The expected Industrial recovery appears to now be firmly underway. Overall, orders grew 27%. Gross margins continued their upward trend with ongoing efficiency enhancing and cost reduction programs, along with favorable mix, contributing to these results.”
Sales in the company’s industrial segment reversed recent declines gaining 5% in the quarter led by the Microelectronic segment which spiked 77%. Furthermore, future sales appear to be ahead of schedule as they saw orders increase 47% in industrials, which is great news for this company which still gets the majority of its business from industrial customers often to reduce waste. Management did a decent job of keeping costs low even as they were able to produce better sales and gross margin expanded to 50.9% versus 47.5% in the year ago quarter. Margins are strongest in their Life Sciences division which sells its filters to biopharmaceuticals firms for use in creating vaccines among other things. Pall derives nearly 40% of its sales from Europe which may cause trepidation among some investors, but sales from Europe were only slightly less impressive than the rest of their operations. In local currency Pall’s European sales increased 2.3% in Industrials and 5.7% in Life Sciences.
At Ockham, we recently upgraded Pall to Undervalued as of this week’s report as the stock had been hit hard by the recent downturn retreating from above $40 to just over $32 this week. After such a solid report, we are inclined to keep this positive rating despite the stock’s 11% gain on Wednesday. Pall management believes that earnings will come in on the high side of their previously guided range of $1.95 to $2.05. The stock currently sits near the low end of its historically normal price–to-cash earnings multiple which ranges from 16.9x to 28.2x. We continue to believe they have a strong balance sheet with a manageable debt load. Because of today’s nice run-up we probably would not recommend diving head first into PLL right away, but if there is a pull back in the next few days, we think Pall may be worthy of consideration among value investors.