Sigma-Aldrich's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Sigma-Aldrich (SIAL)

Q1 2012 Earnings Call

April 24, 2012 11:00 am ET

Executives

Kirk A. Richter - Vice President and Treasurer

Rakesh Sachdev - Chief Executive Officer, President and Director

Jan A. Bertsch - Chief Financial Officer and Executive Vice President

Analysts

Paul R. Knight - Credit Agricole Securities (USA) Inc., Research Division

Jonathan P. Groberg - Macquarie Research

Quintin J. Lai - Robert W. Baird & Co. Incorporated, Research Division

Peter Lawson - Mizuho Securities USA Inc., Research Division

Tracy Marshbanks - First Analysis Securities Corporation, Research Division

Michael J. Sison - KeyBanc Capital Markets Inc., Research Division

Tycho W. Peterson - JP Morgan Chase & Co, Research Division

Daniel L. Leonard - Leerink Swann LLC, Research Division

Isaac Ro - Goldman Sachs Group Inc., Research Division

Daniel Arias - UBS Investment Bank, Research Division

Derik De Bruin - BofA Merrill Lynch, Research Division

Dmitry Silversteyn - Longbow Research LLC

John E. Roberts - The Buckingham Research Group Incorporated

S. Brandon Couillard - Jefferies & Company, Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Sigma-Aldrich Corporation First Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. Now I'll turn the conference over to Vice President and Treasurer, Kirk Richter. Please begin.

Kirk A. Richter

Thank you, and good morning to all of you and welcome to Sigma-Aldrich's First Quarter 2012 Earnings Conference Call. With me today are Rakesh Sachdev, our President and CEO; and Jan Bertsch, our new Executive Vice President and CFO. Rakesh, I think you've got an opening comment.

Rakesh Sachdev

Yes, thanks, Kirk, and good morning to all. Before we continue with today's call, I'd like to say how pleased I am that Jan Bertsch has joined the Sigma-Aldrich management team and is now joining me for the first of, what I believe should be, many conference calls. She has a broad background in both finance and operations, with over 3 decades of progressive leadership assignments with several large global companies. In just a few short weeks, she's already becoming a key contributor, and she plans to participate in a variety of investor conferences and other meetings in the next few months. So I hope you'll the have chance to meet her soon. Kirk, let's continue.

Kirk A. Richter

Thanks, Rakesh. In today's call, Jan will lead off with a review of our first quarter performance. Rakesh will follow that discussion with an update on the activities that contributed to our first quarter results and our outlook for 2012. 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 on our Investor Relations website at www.sigmaaldrich.com.

Before beginning the review, I want to remind you that today's comments 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, 2011, 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 in today's conference call, we are providing information on non-GAAP financial measures. That information which consists of currency and acquisition-adjusted sales growth, operating income and related margins, net income and EPS results on both an adjusted 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 and in the appendix to today's presentation that begins with Slide 12. With that, I'll ask Jan to start with a summary of our first quarter results. Jan?

Jan A. Bertsch

Thank you, Kirk, and good morning. First of all, let me tell you how excited I am to be a part of the Sigma-Aldrich team. And I look forward to meeting you all personally in the near term. As reported in today's release, first quarter sales were $665 million, a reported increase of 5% over last year's first quarter and a new quarterly high for the company.

During the quarter, our recent acquisitions, primarily BioReliance, added roughly $25 million to our sales, and you may recall that we owned BioReliance for only 2 months in the first quarter. Excluding the sales associated with these acquisitions, we still achieved the highest quarterly sales in our history. Our organic sales growth, which excludes the impact of changes in foreign currency exchange rates and the benefit of our recent acquisitions, was 3%, and this was in line with our expectation. Our Research and SAFC businesses contributed to this growth at 4% and 1%, respectively. I'll comment on those increases shortly.

Acquisitions, primarily BioReliance, added another 4% to growth, while changes in foreign currency exchange rates reduced otherwise reportable sales growth by 2%.

Our first quarter operating income was the highest in the company's history at $172 million. Net income was $117 million, and reported diluted EPS was $0.96. Our adjusted diluted EPS which, in the first quarter of 2012, excludes $0.03 of onetime acquisition-related transaction costs, was $0.99, a 5% increase over diluted adjusted EPS of $0.94 in the first quarter of last year. 2011's first quarter diluted adjusted EPS excluded $0.01 of restructuring charges and $0.04 tax benefit from the release of some tax reserves.

Our effective tax rate for the quarter was 31.6% compared to 27.9% in last year's first quarter. The higher effective tax rate for the first quarter of 2012 compared to the same period in 2011 is attributable to nonrecurring benefits realized in 2011 from the reversal of an uncertain tax position reserve. We expect our full-year 2012 effective tax rate to be in the range of 30% to 31% compared to 28.6% in 2011. This increase in the effective tax rate in 2012 compared to 2011 is reflective of the higher level of reserve adjustments that resulted in the net tax benefit in 2011. These are not expected to totally repeat in 2012. Beyond 2012, we believe that our long-term effective tax rate could improve in excess of 200 basis points, given the strong business performance we're seeing in countries having a more favorable tax regime than the U.S.

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