Reports Strong Microelectronics and BioPharmaceuticals Sales Growth
East Hills, NY (June 1, 2006) - - Pall Corporation (NYSE: PLL) today reported sales and earnings results for the third quarter and nine months ended April 30, 2006. The Company also announced a facilities reduction and consolidation program expected to generate annualized savings of $40 million in costs and $10 million in tax by fiscal year end 2008.
Third Quarter Results Reported sales for the quarter were $510 million and earnings were $25.2 million, or $0.20 per share, as compared to sales of $493.5 million and earnings of $43.7 million, or $0.35 per share, in the same quarter last year. Local currency sales increased 7% driven by strong growth in Microelectronics and BioPharmaceuticals. On a pro forma basis, third quarter earnings were $47.2 million, or $0.37 per share, excluding restructuring and other charges primarily related to cost-cutting and the facilities rationalization program of $0.04 per share, net of related tax effect, and a one-time charge related to repatriation of foreign subsidiary earnings of $0.13 per share as compared to pro forma earnings of $46.3 million, or $0.37 per share, in the same quarter last year.
Foreign currency translation reduced sales by 3½% and earnings per share by $0.01 in the quarter, and the impact of stock compensation and SFAS No. 123R, "Share-Based Payment" reduced earnings per share by an additional $0.02. Factoring in these items, third quarter pro forma earnings per share growth is $0.03, or 8%.
Eric Krasnoff, Chairman and CEO, said, "In the quarter, we saw good growth in Microelectronics and BioPharmaceuticals sales at 36½% and 18% (in local currency), respectively, driven by strong demand across product lines and in all geographies. Overall backlog is at an all-time high and we continue to make progress on our Total Fluid Management strategy, increasing system sales in every geography particularly in our BioPharmaceuticals and Food and Beverage markets. Systems represented 9% of total sales in the quarter compared to 8% last year, with 83% in the Industrial business and 17% in Life Sciences. Our margins in aggregate are much weaker than they should be, and we are committed to addressing this through a number of initiatives, including the facilities rationalization program that we are announcing today."
"A heightened focus on improving working capital has resulted in a nine-day reduction in days sales outstanding compared with third quarter of fiscal year 2005. Inventory levels increased in the quarter and stock turns decreased due to fourth quarter volume expectations and as a result of our facilities rationalization program. Net debt was reduced $60.3 million compared with year-end and now stands at 20%" continued Mr. Krasnoff.
Cost Reduction & Facilities Rationalization Program The Company expects the facilities rationalization program to achieve cost savings of $2 million in fiscal year 2006, growing to annualized savings of $40 million plus a further $10 million in tax savings by the end of fiscal year 2008. The Company's facilities rationalization program will reduce its' footprint by over 20% and result in a 10% global manufacturing headcount reduction. The facilities rationalization program is expected to be substantially complete by the end of fiscal year 2008, with approximately 20% of the cost savings realized in fiscal year 2007. Restructuring and other charges of approximately $7.3 million were recorded in the third quarter, primarily related to the Company's cost reduction programs, of which $3.5 million was related to facilities reduction initiatives and $3.8 million was primarily related to other cost reductions, including headcount reductions and streamlining operations in Europe. The established cost reduction programs are expected to deliver the targeted $20 million this fiscal year.
"Our most pressing challenge is to reduce cost of sales and drive gross margin improvement across all businesses," Mr. Krasnoff continued. "While SG&A, at 30.9% of sales, improved 180 basis points in the quarter, gross margin was again down, reflecting increased operating and manufacturing related costs such as commodities, energy and transportation, as well as the continued impact of reduced pricing in our blood business, and the higher level of system sales in the quarter. While we remain fully committed to our strategy of integrated businesses and systems sales, these efforts are contributing to margin compression in the short term, as the systems sales in particular generate lower margins but should yield sustainable higher margin sales over the long term."
"We are taking aggressive steps to address costs across the organization with a number of initiatives, including a significant facilities reduction effort, better procurement and sales discipline for our systems business, and streamlining of operations, particularly in lower-growth regions," said Mr. Krasnoff. "While we have achieved some improvement in SG&A costs for the past several quarters, we must reduce them further to counter rising external, less controllable costs. To ensure that our cost reductions have the momentum to stay ahead of rising costs, we are taking these further steps to more aggressively reduce costs and realize a greater impact on margins. "
Foreign Subsidiary Earnings Repatriation The Company also elected to repatriate, during the fourth quarter of 2006, $400 million in foreign subsidiary earnings under the American Jobs Creation Act of 2004. This dividend, 85% of which will be exempt from U.S. tax, has resulted in a one-time charge of $17 million, or $0.13 cents per share, in the third quarter. The repatriation will enable the Company to preserve existing foreign tax credits for use in connection with future dividends from low tax rate jurisdictions. In order to take advantage of these benefits, the Company is required to complete the repatriation before fiscal year end 2006. The repatriation will be funded with existing overseas cash balances, supplemented by borrowings under a new $500 million European-based multi-currency, multi-borrower revolving credit facility, which is expected to close this month. The new facility will replace the Company's existing facility. Deployment of the repatriated cash will include the repayment of amounts outstanding under the Company's existing revolving credit facility, contributions to its U.S. defined benefit plans, and other investments in the U.S. such as the funding of research and development activities and possible U.S.-based acquisitions.
"Pall's financial position will be further strengthened by the one-time opportunity to repatriate foreign earnings at a favorable tax rate, which supports our continuing efforts to minimize our effective tax rate for the longer term. In addition, the new credit facility increases our liquidity while providing us with greater borrowing flexibility at reduced cost" concluded Mr. Krasnoff.
Nine Month Results Reported sales for the nine month period increased 3% to approximately $1.42 billion and earnings were $82.7 million, or $0.66 per share, as compared to sales of $1.38 billion and earnings of $97.4 million, or $0.78 per share, for the comparable period last year. Local currency sales for the nine months were up 6½%. On a pro forma basis, earnings for the nine month period were $107.6 million, or $0.85 per share, excluding restructuring and other charges primarily related to cost-cutting and the facilities rationalization program of $0.06 per share, net of related tax effect, and a one-time charge related to repatriation of foreign subsidiary earnings of $0.13 per share as compared to pro forma earnings of $108.6 million, or $0.87 per share, in the same nine month period last year. The effect of foreign currency translation reduced sales by 3½% and earnings per share by $0.02 and the impact of stock compensation and SFAS No. 123R, "Share-Based Payment", reduced earnings per share in the nine months by an additional $0.05. Factoring in these items, pro forma earnings per share growth for the nine month period is $0.05, or 6%.
General Industrial sales increased 3% in the quarter. Operating profit margin declined to 9% compared with 12½% last year. Operating profit dollars declined to $17.2 million reflecting the decline in margin partly offset by the impact of higher sales. Within General Industrial:
- Power Generation sales increased 10½% driven by investment in new capacity in the marketplace and the upgrade of existing plants.
Microelectronics sales were up 36½%, continuing to benefit from new fab construction and strength in the storage and display markets. Operating profit margin improved to 27½% and operating profit dollars increased 148½% to $19.1 million.
Aerospace sales decreased 4% in the quarter primarily related to timing of shipments. For the nine months sales increased 6% primarily driven by incremental, but discounted, sales attributable to our expanded agreement/relationship with Satair. The overall Aerospace operating margin was 17½% compared with 21% last year, while operating profit dollars were $7.8 million.
Life Sciences Highlights
BioPharmaceuticals sales increased 18% driven by strong growth in consumables in all geographies combined with an increase in system sales of over 170%. Growth continues to be driven by products for biotechnology, vaccine and plasma fractionation. Orders increased 25½% in the quarter. Operating profit margin improved to 26% and operating profit dollars increased 31½% to $24.5 million.
Medical segment sales were down 2½%. Sales in the BioSciences submarket increased 2% driven by growth in OEM sales in Europe. Blood Filtration sales were down 4½% reflecting a shortfall in the Western Hemisphere related to new long-term contracts with major blood bank customers. Operating profit margin declined to 11½% reflecting reduced pricing in our blood filtration business and the integration of certain Corporate functions into the business. Operating profit dollars were $13 million.
Tomorrow, June 2, 2006, at 8:30 am EST, Pall Corporation will host its quarterly earnings conference call. Individuals can access the webcast from the home page of the Company's website, www.pall.com. Listening to the webcast requires speakers and Microsoft Windows Media Player software. The webcast will be archived for 30 days.
About Pall Corporation:
Pall Corporation is the global leader in the rapidly growing field of filtration, separations and purification. Pall's business is organized around two broad business groups: Life Sciences and Industrial. The Company provides leading-edge products to meet the demanding needs of customers in biotechnology, pharmaceutical, transfusion medicine, semiconductor, water purification, aerospace and broad industrial markets. Total revenues for fiscal year 2005 were $1.9 billion. The Company headquarters is in East Hills, New York with extensive operations throughout the world. Visit Pall at www.pall.com.
This release contains "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on current Company expectations and are subject to risks and uncertainties which could cause actual results to differ materially. Such risks and uncertainties include, but are not limited to: fluctuations in foreign currency exchange rates; regulatory approval and market acceptance of new technologies; changes in product mix and product pricing and in interest rates and cost of raw materials; the Company's success in enforcing its patents and protecting its proprietary products and manufacturing techniques and its ability to achieve the savings anticipated from its cost reduction initiatives; global and regional economic conditions and legislative, regulatory and political developments; and domestic and international competition in the Company's global markets. Additional information regarding these and other factors is available on the Web at www.pall.com and is included in the Company's reports filed with the U.S. Securities and Exchange Commission. Copies of such reports can be obtained, without charge, at www.sec.gov.
Contact Lisa McDermott Pall Corporation Telephone: 516-801-9808