Sigma-Aldrich Corp.'s first-quarter net income rose 3% to $126 million and sales increased 2% to $689 million.
The company’s SAFC Commercial business unit, which includes its flavors and fragrances product group, had $159 million in sales, 23% of overall sales, and grew by 3% from first-quarter 2013.
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- Reported sales increased 2% to $689 million. Sales grew organically by 3% with divestitures reducing sales by 1%.
- By business unit, organic sales growth was 1% in Research, 7% in Applied and 3% in SAFC Commercial.
- Reported diluted EPS was $1.05 compared to $1.01 in Q1 2013. Adjusted diluted EPS (excluding $1 million of pre-tax restructuring charge) was $1.06 compared to $1.01 in Q1 2013.
- For the first three months of 2014, free cash flow was $143 million compared to $129 million in the same period in 2013, an increase of 11%.
CEO's STATEMENT: Commenting on performance in the first quarter of 2014, President and CEO Rakesh Sachdev said, "We generated 3% organic sales growth with continued strong performance by our Applied business unit. We also expanded our adjusted operating income margin, which resulted in a record-high adjusted quarterly EPS of $1.06. Our end markets remain stable. All business units and geographies contributed to growth in the quarter. Our 2014 global supply chain initiatives are off to a good start and contributed to the margin improvement in the first quarter. We look forward to building on these successes throughout the rest of 2014 and beyond. Sales in our Research business unit organically grew 1% in the first quarter and were negatively affected by inclement weather in the U.S. that caused the closure of research labs at several key customers. This impacted the Academic/Government/Hospitals and Pharma segments of our Research business unit, as well as the Diagnostics and Testing segment of our Applied business unit. The EMEA region (Europe, Middle East, Africa) had solid growth as research funding was stable across the region. U.S. academic spending continues to be soft, although we expect the funding environment to improve in the second half of the year. During the quarter, we launched workflow offerings in the translational drug discovery research area of target identification. We also launched many new products including new cell lines and media, green chemistry alternatives such as catalysis reaction kits and a new line of graphene oxide products. Our Applied business unit had another strong quarter of 7% organic sales growth, led by high single-digit organic sales growth in the Diagnostics and Testing segment. We continued to see strong sales growth of stable isotopes for diagnostic tests, and our standards and certified reference materials generated double-digit sales growth. Sales in the Industrial segment also experienced good growth, due principally to our critical raw material offerings, ability to meet the high quality requirements of our customers and ability to deliver products in a timely fashion around the world. SAFC Commercial organic sales growth was 3% in the quarter. Growth in the Life Sciences Products segment moderated after a better-than-expected fourth quarter of 2013. Our growth initiatives for the year remain on track. The Life Sciences Services segment had another strong quarter of double-digit sales growth led by biopharma services. Sales of precursors to semiconductor customers were strong and continued the growth trend from 2013. However, sales in the Hitech segment overall were weak due to continuing price declines of metal organic precursors for the LED market." Mr. Sachdev concluded, "I am pleased with our first quarter performance. Our team continues to focus on meeting customers' needs through enhanced innovative product offerings and our supply chain initiatives. We are reaffirming our sales, EPS and cash flow outlook for the full-year 2014."
Q1 2014 RESULTS: Reported sales for the first quarter of 2014 were $689 million, a 2% increase from the same quarter in 2013. Organic sales growth in the quarter was 3%. Divestitures reduced otherwise reportable sales by 1%. Reported sales of the Research business unit ($359 million in sales, 52% of overall sales) declined by 1% from the first quarter of 2013. Organic sales growth was 1%. Changes in foreign currency exchange rates and impacts from divestitures reduced sales growth by 1% each. Research sales in the Academic/Government/Hospitals were flat, and Pharma sales slightly declined. Sales growth in the EMEA region and Latin America were offset by declines in the U.S. Both segments were negatively impacted by inclement weather in the U.S. Sales to biotech companies continue to be strong as the funding environment and research activity for these companies remain vibrant. Research organic sales growth in the APAC region was in the low-single digits. China continued to have strong sales growth which was offset by weakness in India, where temporary funding uncertainties have significantly slowed spending at academic laboratories. Reported sales of the Applied business unit ($171 million in sales, 25% of overall sales) increased by 8% over the first quarter of 2013. Organic sales growth was 7% and changes in foreign currency exchange rates increased sales growth by 1%. Organic sales growth in the Diagnostics and Testing segment was in the high single-digits, with double-digit growth in the EMEA and APAC regions. Organic sales growth in the Industrial segment was in the mid single-digits with contributions from all regions. Reported and organic sales of the SAFC Commercial business unit ($159 million in sales, 23% of overall sales) grew by 3% over the first quarter of 2013. Changes in foreign currency exchange rates increased sales by 1%, and divestitures reduced sales by 1%. Organic sales growth in the Life Science Products segment was in the low single-digits as compared to double-digit growth in the fourth quarter of 2013, primarily due to stronger-than-anticipated fourth quarter 2013 sales. Growth was led by strong biopharma material sales. Organic sales growth in the Life Science Services segment was in the double-digits for the third consecutive quarter. Organic sales in the Hitech segment declined in the low single-digits as compared to the same period last year. Adjusted operating income (excluding $1 million of restructuring charges) in the first quarter of 2014 grew by $9 million over the same period last year, an increase of 5%. Adjusted operating income margin was 25.4%, an improvement of 80 basis points from the same period last year, despite a 70 basis point headwind from unfavorable changes in foreign currency exchange rates. The margin expansion was primarily the result of operating expense leverage on higher sales and the initial positive impacts from our 2014 global supply chain initiatives. The adjusted effective tax rate for the first quarter of 2014 was 27% compared to 26% in the same period last year. The higher effective tax rate for the first quarter of 2014 was primarily due to the absence of the U.S. R&D tax credit for 2014. The loss of this benefit was partially offset by increased sales in foreign jurisdictions having more favorable tax rates. For the first three months of 2014, cash flow from operations was $172 million as compared to $154 million in the same period last year. Free cash flow (defined as cash flow from operations less capital expenditures) was again strong and increased 11% to $143 million as compared to $129 million in the same period last year.
2014 OUTLOOK: The 2014 outlook remains unchanged from the March annual business review update. Overall organic sales growth is expected to be in the low-to-mid single digit range. Research is expected to be in the low-to-mid single digits. Applied is expected to be in the mid-single digits. SAFC Commercial is expected to be in the mid-single digits. Adjusted operating income margin is expected to improve by approximately 50 basis points. Effective tax rate is expected to be approximately 27%. Adjusted diluted EPS is expected to be in the range of $4.30 to $4.40. Net cash provided by operating activities is expected to exceed $600 million. Capital expenditures are expected to be approximately $130 million. Free cash flow is expected to exceed $475 million.