Q1 2010 Earnings Call Transcript
April 22, 2010 5:00 pm ET
Kirk Richter – VP and Treasurer
Rakesh Sachdev – SVP, CFO and Chief Administrative Officer
Jai Nagarkatti – Chairman, President and CEO
Dan Leonard – First Analysis
Quintin Lai – Robert W. Baird
Derik de Bruin – UBS
Dmitry Silversteyn [ph] – Longbow Research
Isaac Ro – Leerink Swann
Peter Kazoni [ph] – KeyBanc Capital Markets
Jon Wood – Jefferies
Previous Statements by SIAL
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Good morning, my name is Karina and I will be your conference operator today. Today’s conference is being recorded. At this time I would like to welcome everyone to the Sigma-Aldrich first quarter 2010 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question and answer session. (Operator Instructions) I will now turn the call over to Mr. Kirk Richter, Vice President, Treasurer and Investor Relations contact. Please go ahead sir.
Thank you and let me add my good morning to all of you and welcome you to our first quarter 2010 earnings conference call. With me today are Jai Nagarkatti, our Chairman, President and CEO, and Rakesh Sachdev, our Senior Vice President and CFO.
After my introductory comments Rakesh will review our first quarter 2010 performance and our outlook for all of 2010. Jai will follow that with an update on the activities that drive our 2010 financial expectations and position our company for a sustained longer term growth and report on what we have achieved on those activities in the first quarter. After completing those reviews we will open up the call for your questions and comments. We will be using a slide presentation as part of today’s call. That presentation can be viewed by accessing our Investor Relations website on sigma-aldrich.com.
Before we begin these reviews, I do need to remind you that today’s comments will include forward looking statements about future activities and our expectations for sales, earnings, cash flow and other possible future results. While we believe these expectations are based on reasonable assumptions, actual results may differ materially due to any number of factors including the risk factors listed in our annual report on Form-10 K for the year ended December 31, 2009 and in the cautionary statement that is included in today’s release and in our slides. We have no plans to update these forward looking statements after this conference.
Also SEC regulations require us to provide information on any non-GAAP financial measures covered in today’s conference. That information which consists of currently adjusted sales growth, profit and EPS results on both a pro forma and reported basis and free cash flow reconciled to net cash provided by operating activities is also contained in today's earnings release which is posted on our website.
Now, I will ask Rakesh to begin our review. Rakesh?
Thanks, Kirk, and good morning to everybody. I’m pleased to report that both our first quarter net income and diluted earnings per share set new quarterly records. And our first quarter 2010 sales of 572 million was roughly equivalent to the highest quarterly amount achieved in our 35 years as a public company. Our reported sales growth was 10.2% with 5.8 percent points coming from currency and the other 4.4% from organic growth. A large portion of our 4.4% organic sales growth came from volume and only a small portion came from price. I’ll have more to say about that shortly.
Net income which hit the $100 million mark for the first time in the company’s history and diluted earnings per share both increased 19% on a reported basis and increased 10% on a currency –adjusted basis. And finally our free cash flow in the first quarter of $133 million was the best quarterly result in the last nine quarters.
Our pre-tax income in the first quarter includes $6 million restructuring charge related to the consolidation of some of our SAFC facilities and the cost to eliminate about 100 positions to date through a small workforce reduction. This is part of our previously announced restructuring actions meant to increase the efficiencies of our operations and lower our overall fixed cost structure and the intent to record additional costs approximating $16 million related to these actions in 2010 and 2011.
While these restructuring charges reduced our otherwise reportable earnings per share in the first quarter by $0.03, the benefits of these restructuring actions when fully implemented should add about $0.10 to our annual earnings per share.
Let’s now review our sales performance for the first quarter in more detail. After being challenged by economic conditions late in 2008 and through much of 2009, we saw several of our research businesses show good positive momentum driven by both recovery in the markets and several new product and marketing initiatives that we launched to gain share.
Our organic growth was largely volume-driven as pricing was less than 1% which is lower on an overall basis than our traditional 2% contribution. Growth in sales to the academic customer sector remain modestly strong and consistent with that experienced in 2009 and was supplemented by improved growth in sales to the chemical industry, to the biotechnology customers and to research customers in smaller international countries served by our extensive dealer network in those markets. Sales to pharma customers however declined slightly.
Each of our major product initiatives and research from analytical to biology to material science showed good results with organic growth ranging from 4% to 10%. What is also different this quarter is that we saw positive growth in our traditional chemistry and biochemistry research products, these two highly profitable initiatives make up about a third of our total research sales, so we were pleased with this progress.