Subsequent to the announcement of Life Technologies (LIFE) fourth quarter and fiscal 2010 results on February 3, 2011, revision of estimates by analysts depict a positive bias for both fiscal 2011 and 2012.
Highlights of the quarter
Life Technologies reported an adjusted EPS of 90 cents in the fourth quarter of 2010, surpassing both the Zacks Consensus Estimate of 86 cents and the year-ago quarter’s 80 cents. For fiscal 2010, adjusted EPS came in at $3.55, beating the Zacks Consensus Estimate of $3.51 and the previous year’s EPS of $3.04.
Growth in all the divisions of Life Technologies helped adjusted revenues for the quarter increase 7% year over year to $934 million, ahead of the Zacks Consensus Estimate of $928 million. Excluding the impact of currency, acquisitions and divestitures, revenues grew 5%. For the full year, the company reported a 9% growth in adjusted revenue to $3.6 billion, in line with the Zacks Consensus Estimate.
On a geographical basis, barring Japan where revenues declined 4% compared to the fourth quarter of fiscal 2010, revenue growth was witnessed across all other regions: Europe – 3%, Asia-Pacific – 12% and the Americas – 7%.
For a full coverage on the earnings, read: Lively Quarter for Life Technologies
Estimate Revision Trends
The recent Zacks Consensus Estimate revision trends remain positive for fiscal 2010 and fiscal 2011. Over the past 30 days, 11 of the 17 analysts covering the stock have raised their estimates for fiscal 2011 while 2 analysts have moved in the opposite direction. The positive trend persists for fiscal 2012 as well with 9 analysts raising their estimates, without any downward movement.
However, the estimate revision trend for the first two quarters is negative. Over the past 30 days, 7 and 6 analysts have lowered their estimates for the first and second quarters, respectively with only 1 analyst doing the reverse in each case. The pessimism for the first half primarily comes due to flat-to-5% decline in projected revenue stemming from difficult year-over-year comparisons and unfavorable currency movement.
Organic growth in the first quarter of 2010 was 10% as a result of stimulus programs in the US and Japan and the receipt of the last installment of the Japanese Police order.
Life Technologies’ existing business segments continue to impress with their strong performance, which prompted the analysts to raise their outlook. Since 2007, EPS has grown at a CAGR of 20% from $2.03 to the current level of $3.55 in 2010. Over the last two years, the company has been trying to create the optimal portfolio of products through innovations and acquisitions, the latest being Ion Torrent.
One of the key growth drivers for Life has been product innovation, as a result of which several launches were made during 2010. The bio-production business recorded a robust growth of more than 20% driven by the successful launch of several new products.
Key product launches in other areas include sample preparation, real-time PCR, bench-time devices and sequencing. The company has increased its market share in the real-time PCR business, which witnessed a 12% growth in 2010 (excluding H1N1 related sales), up from 9% in 2009. The acquisition of Stokes Bio in 2010 has strengthened this business further.
Life Technologies is adopting several strategies, which are expected to improve its operating efficiency going ahead. The company recorded adjusted operating margin of 28.7% in 2010 (up 210 basis points) and is targeting to achieve margins in excess of 31% in 2013. While half of this improvement should come from fixed cost leverage (115 basis points), manufacturing productivity and supply chain efficiencies should account for the rest.
Magnitude of Estimate Revisions
The magnitude of estimate revisions for the forthcoming quarters has been significant. In the past 30 days, estimates for the first and second quarters have declined by 5 cents to 88 cents and 3 cents to 97 cents, respectively. While estimates for the first two quarters have declined, the opposite trend can be witnessed for fiscal 2011 and 2012. Estimates for the two years have increased by 4 cents to $3.89 and 8 cents to $4.32, respectively, in the past 30 days.
Life Technologies enjoys a strong position in the life sciences market and we believe robust performance from its core business along with new product launches will help drive revenues going forward. Meanwhile, lower expenses and cost cutting along with increased revenues should help drive the bottom line.
Additionally, the company is shifting its focus to the emerging markets which bode well for long-term growth. Although the economy is gradually recovering, any hiccups in the process will affect the company. Moreover, Life is exposed to the fluctuations of foreign currency movement and faces competition from players such as Thermo Fisher Scientific (TMO), Illumina (ILMN) among others.
For the long term, we have a “Neutral” rating on Life Tech. The stock retains a Zacks #3 Rank (Hold) for the short term.