Life Technologies reported earnings on Thursday November 2nd,
2012 after the markets closed. Revenues came
in at $911 million, coming in above the high range they provided in July of
$900-$910 million, while non-GAAP EPS came in $0.92. Analysts’ estimates were
at $0.89 prior to the earnings release, and the stock reacted favorably after
the release. Their beat on prior estimates were driven mainly by a significant
increase in sales of the Ion Proton platform, continued strong growth in
emerging markets, and lower R&D spending.
Excluding currency headwinds, they managed to stay inline
with estimates with growth in the US and Europe, grew 10% in Asia-Pacific, and
4% in a flat Japanese economy. Gross margins in the third quarter came in at
65.6%, approximately 50 basis points lower than the same period in 2011.
Operating margins were 28% in the third quarter representing a 1.4% decrease
year over year, mainly due to unfavorable currency rates and greater
investments in Asia-Pacific and their medical and diagnostics business.
Life continues to face unfavorable currency exchange rates
and uncertainty in academic funding in US and Europe, especially with the
upcoming election and the fiscal cliff coming up. In spite of this, management
has been proactive in making sure that they are prepared if things go sour for
academic funding. They have outlined a strategic share-repurchasing program and
continue to look for ways to pull back on discretionary spending while still
investing in up and coming markets and businesses, which should continue to
offset these headwinds. In the case that the current favored candidate wins the
election and congress reaches a deal, revenues could come in much higher for
the fourth quarter than they expected.
In light of this, LIFE continues to increase revenues each
quarter by utilizing both a product differentiation strategy and offering its
new machines at a discount compared to their competitor Illumina, Inc. Currently,
Illumina is the favored player in the up and coming genome sequencing market,
because of slightly higher accuracy in their machine. Compared to Illumina,
LIFE’s machine offers much lower test times at a lower cost, but still offering
quality comparable to Illumina’s machine. We feel that these advantages, as
well as a possible downturn in academic spending, will push customers to buy
LIFE’s product over Illumina’s in the short to mid-term, since researchers will
have to find good quality products at cheaper prices. Furthermore, LIFE is
always updating and advancing the technology that will improve the accuracy of
their machine.
The bull case for LIFE increasingly rests on their new
machine, however, management expects that increased sales of their machine can
further drive growth in their consumables business through existing clients.
Through Ion Torrent, they can offer their broad array of services and tests
that they are well known for. Management continues to invest in markets they
believe will show significant growth and have raised the lower end of their
year end EPS by $0.05 to $3.95-$4.00.
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