Sigma-Aldrich Corporation, (SIAL)

Q2 2010 Earnings Call

July 22, 2010 11:00 am ET


Kirk Richter - Treasurer and Investor Relations contact

Jai Nagarkatti - Chairman, President and Chief Executive Officer

Rakesh Sachdev - Senior Vice President and Chief Financial Officer


Dan Leonard - First Analysis

Dmitry Silversteyn - Longbow Research

Mike Sison - KeyBanc Capital Markets

Derik de Bruin – UBS

Quintin Lai-Robert W Baird

Paul Knight – CLSA

John Sullivan - Leerink Swann

Jon Wood - Jefferies



Good morning everyone, my name is Sarah and I will be your conference operator today.

At this time I would like to welcome everyone to the Sigma-Aldrich Second Quarter 2010 Results Conference.

Just as a reminder, today’s call is being recorded. All lines have been placed on mute to prevent any background noise. However, after the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) I would now like to turn the call over to Mr. Kirk Richter, Treasurer and Investor Relations contact; please go ahead sir.

Kirk Richter, Treasurer

Thank you. Also let me say good morning and welcome each of you to our Second Quarter 2010 earnings conference call.

With me today are Jai Nagarkatti, our Chairman, President and CEO and Rakesh Sachdev, our Senior Vice President, Chief Financial Officer and Chief Administrative Officer.

After my introductory comments, Rakesh will review our second quarter 2010 performance and our outlook for all of 2010.

Jai will follow that with an update on the activities that have and are expected to drive our performance in 2010 and in the future. He will also give comments on what we have achieved on those activities in the second quarter.

After completing those reviews, we’ll 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

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 that 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 10K for the year ended December 31 st, 2009 and in the cautionary statement that is included in today’s release and in our slides. We’ve no plans to update these forward-looking statements after this conference.

Also we do provide information on non-GAAP financial measures covered in today’s conference. That information which consists of currency-adjusted sales growth, profit and EPS results on both a profoma and reported basis and pre-cash flow reconciled and net cash provided by operating activity is also contained in today’s release which is posted on our website.

Now I’ll ask Rakesh to begin our review; Rakesh?

Rakesh Sachdev

Thanks Kirk and good morning everyone.

Our second quarter sales were $554 million, a reported increase of 6% over last year’s second quarter. Excluding a small currency head wind our organic growth was 7%, improving on the 4% organic growth we reported for 2010’s first quarter. This increased growth rate came from improved performance of both our research and fine chemicals businesses.

Our net income, which hit the $100 million mark for the first time in the company’s history just one quarter ago, remains strong at $97 million for the second quarter. This is a 16% increase on a reported basis and an 11% gain on a currency adjustment basis from last year’s second quarter.

Diluted earnings per share for the second quarter was $0.79. This EPS includes a $0.04 benefit from currency that was partially offset by a $0.02 restructuring charge. Excluding those items, our net income and diluted EPS for the second quarter both grew by 13%.

There was a positive impact of currency on our earnings in the second quarter despite a modest negative income on our sales growth. As we have told you previously, this difference is largely a result of where our products are produced and ultimately when and where they are sold.

While the differences in foreign exchange rates have an immediate impact on local currency sales, there is a lag effect on earnings of approximately four months. Since the dollar strengthened in the second quarter, we are likely to see some head wind on our earnings in the third and fourth quarter.

At current exchange rates the head wind on diluted EPS in the second half of the year is likely to largely eliminate the $0.10 benefit we realized in the first half of 2010.

The $0.02 restructuring charge relates to the consolidation of some of our facilities and the cost to eliminate about 130 positions to date through a small workforce reduction. This is part of our previously announced restructuring action meant to increase the efficiencies of our operations and lower our overall fixed cost structure.

We expect to record additional cost approximating $17 million related to these actions in 2010 and 2011.

While these restructuring charges reduced our otherwise reportable EPS in the second quarter by $0.02, the benefit of these restructuring actions when fully implemented should add about $0.10 to our annual EPS.

And finally, our free cash flow in the second quarter of $77 million was a 5% improvement over that achieved in the last year’s second quarter.

Looking at our first half results for 2010, our sales have grown organically by 6% and we’ve achieved double digit growth in earnings and free cash flow compared with last year.

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