Sigma-Aldrich Q2 earnings rise 16.5% to US$113M, revenue hits new quarterly high of US$637M, up 15% year-over-year, as Fine Chemicals, Research product sales grew organically by 10% and 4%, respectively

ST. LOUIS , July 26, 2011 (press release) – HIGHLIGHTS:

2011 Results (all percentages are to comparable periods in 2010)

Q2 2011 reported sales increased 15% to $637 million, a new quarterly high. Q2 sales grew organically by 6%, with Fine Chemicals ("SAFC") and Research product sales growing organically by 10% and 4%, respectively. Recently completed acquisitions contributed an additional 1% and changes in foreign currency exchange rates contributed an additional 8% to reported sales growth in the quarter.

Q2 2011 reported diluted EPS was $0.91, up 15%. Excluding restructuring costs of $0.02, diluted EPS was $0.93, a 15% increase over comparable Q2 2010 results.
YTD 2011 net cash provided by operating activities and free cash flow were $254 million and $210 million, respectively.

2011 Outlook (all percentages are compared to full year 2010 results)

Organic sales growth for the full year is expected to meet the Company's previously forecast growth of mid-single digits. At current exchange rates, currency is expected to increase reportable sales for the full year by approximately 5%. Acquisitions are expected to increase sales by another 1-2%, resulting in reportable sales growth in the low double digits.
Diluted adjusted EPS forecast for 2011 (excluding restructuring charges) of $3.60 to $3.75 is unchanged from our previous outlook, representing a 9 to 13% increase compared to 2010's adjusted diluted EPS of $3.31. See 2011 Outlook below.

Net cash provided by operating activities and free cash flow are expected to exceed $520 million and $400 million, respectively, for 2011.

CEO's STATEMENT:

Commenting on second quarter 2011 performance, President and CEO Rakesh Sachdev said: "Our reported sales of $637 million set a new quarterly high. Adjusted diluted EPS of $0.93 for the second quarter of 2011 was consistent with our expectation. We have delivered solid performance with organic sales growth in our expected mid single digit range and a 15% increase in adjusted diluted EPS for the first half of the year. Our SAFC sales remained strong with a sequential increase over Q1 2011 levels that resulted in 10% organic growth in this year's second quarter versus the prior year. Strength in SAFC is being driven by continued strong demand for chemicals and precursors for semi-conductor and L.E.D. applications and for industrial cell culture media used for producing biological drugs. All of our Research business units grew sales organically in 2011's second quarter and in line with our first quarter performance. We continue to benefit from our research initiatives in analytical chemistry, biology, traditional chemistry and materials science. This organic growth in research sales coupled with a 2% acquisition benefit helped achieve currency adjusted sales growth of 6% in our Research business in the second quarter.

We are very pleased with our continued strong growth in the emerging markets, as we posted a 20% organic sales growth in our focus markets of India, China and Brazil in the second quarter of 2011. In addition, we expanded our research product offering with the acquisition of Vetec Quimica Fina Ltda in Brazil. Vetec brings to Sigma-Aldrich more than 3,000 products and 30 years of expertise in the development, purification and packaging of high quality chemicals for laboratory and manufacturing applications, and adds to our ability to leverage the economies of producing and packaging products where our customers reside."

Sachdev continued, "We have re-affirmed our organic sales growth expectation for 2011 in the mid-single digits. This organic growth, along with benefits from currency and acquisitions, are expected to drive overall reported sales growth to low double digits. We have also affirmed our diluted adjusted EPS outlook for 2011 of $3.60 to $3.75. As we integrate our new acquisitions, and continue to invest in new sales and profit growth initiatives, we remain committed to drive growth rates that outpace the underlying markets."

2011 RESULTS:

Reported sales for the second quarter of 2011 of $637 million increased 15% from the second quarter of 2010. Excluding changes in foreign currency exchange rates and acquisitions that contributed 8% and 1%, respectively to sales growth, second quarter organic sales growth was 6%. Second quarter sales for the Company's Research business grew organically by 4%, led by the Asia Pacific-Latin America region. Second quarter sales for the Company's SAFC business achieved a new quarterly high, with an organic increase of 10% compared to 2010, led by double-digit growth in our Bioscience and Hitech products. A reconciliation of reported to adjusted organic sales is on page 8.

The operating income margin in the second quarter of 2011, excluding restructuring charges was 25.4% of sales compared to 26.2% of sales in the second quarter of 2010. Excluding the impact of changes in foreign currency exchange rates and the higher incremental amortization associated with our recent acquisitions, the operating income margin in the second quarter would have been 26.3% of sales, a 10 basis point improvement over 2010. During the quarter we spent an additional $3 million, or 50 basis points as a percentage of sales, in strategic spending on growth initiatives. Restructuring costs of $2 million were recorded in 2011's second quarter related to the previously announced consolidation of certain manufacturing facilities in the U.S. and Europe. These restructuring actions reflect the Company's efforts to improve operating efficiencies and lower our fixed cost structure as part of a longer term goal to improve operating margins.

The effective tax rate for the second quarter of 2011 was 28.5%, as forecast, compared to 30.7% in the second quarter of 2010. The lower tax rate in the second quarter of 2011 resulted from increased international tax benefits compared to the second quarter of 2010. The effective tax rate for all of 2011 is expected to be 29% to 30% of pretax income.

Free cash flow (defined on page 7) for the first half of 2011 was $210 million, comparable to that achieved in the first half of 2010. Higher net income was largely offset by a higher level of working capital and capital expenditures to support growth in the business. A reconciliation of net cash provided by operating activities to free cash flow is on page 9.

Other highlights from global sales growth initiatives include:

Worldwide sales of research products through the Company's award winning web site as a percentage of total research sales were 50% for the second quarter of 2011, consistent with the performance in the first quarter of 2011 and up from 48% achieved for all of 2010.
Sales in International markets (Asia Pacific and Latin America) continued to show strength with reported and organic growth of 24% and 12%, respectively, in the second quarter of 2011. The acquisition of Vetec increased reported international sales by 2% for the quarter. In the Company's focus markets of China, India and Brazil, sales collectively grew 33% and 20% on a reported and organic basis, respectively, for the second quarter of 2011. The acquisition of Vetec increased reported sales in these focus markets by 7%.
SAFC's booked orders for future delivery at June 30, 2011 reached another record level and were 4% above the June 30, 2010 level.

2011 OUTLOOK:

Organic sales growth is expected to be in the mid-single digit range for 2011, unchanged from our previous outlook. Significant factors in our sales outlook include:
Accelerating programs to enhance and highlight the product capabilities of our Research business in analytical chemistry, biology, traditional chemistry and materials science.
Continued emphasis on growth opportunities in fine chemicals, in our international markets and via e-commerce.
At current exchange rates, currency is expected to increase reported sales growth by about 5% over the prior year.
The recent acquisitions of Vetec, Resource Technology Corporation and Cerilliant Corporation are expected to contribute 1-2% to reported sales growth.
Market conditions are not expected to change significantly from 2010.

Our forecast for diluted adjusted earnings per share for 2011 is expected to be $3.60 to $3.75, unchanged from our previous outlook.
Included in this outlook are pretax expenses equivalent to $15 to $20 million, or approximately $0.10 per share, for strategic initiatives that are expected to boost our longer term organic sales growth.

The effective tax rate in 2011 is expected to be 29% to 30%, including a benefit from the U.S. R & D tax credit comparable to that realized in 2010.

Recent acquisitions are expected to be neutral to mildly accretive to our diluted earnings per share in 2011.

This EPS outlook excludes the impact of restructuring and other special charges.


Management expects free cash flow for 2011 to be in excess of $400 million.
Net cash provided by operating activities is expected to exceed $520 million.
Capital expenditures are expected to be approximately $120 million.
Initiatives to manage working capital are expected to continue with inventory levels increased at select locations to support anticipated growth and customer service.


OTHER INFORMATION:

Cash Flow and Debt: Net cash provided by operating activities for the six months ended June 30, 2011 was $254 million compared to $247 million for 2010's first half. Higher net income and non-cash charges in the first six months of 2011 compared to the same period in 2010 were largely offset by increases in accounts receivable and inventory. Capital expenditures in the first half of 2011 were $44 million compared to $37 million in 2010. Inventory levels increased to 6.5 months at June 30, 2011 compared to 6.0 months at June 30, 2010. This planned increase will enable us to enhance service and support the higher sales growth rates in the Asia Pacific-Latin America region. Free cash flow of $210 million for the first six months of 2011 was used primarily to return $65 million to shareholders through share repurchases and dividends, repay $23 million in debt and fund acquisitions of $75 million. The Company's debt to capital ratio was 19% at June 30, 2011 compared to 21% at December 31, 2010. Total net debt (debt less cash and cash equivalents) at June 30, 2011 declined $117 since December 31, 2010.

Share Repurchases: 0.3 million shares were acquired during the first six months of 2011, all of which were repurchased in the first quarter of 2011. There were 122 million shares outstanding at June 30, 2011. The Company expects to continue to offset the dilutive impact of issuing share based incentive compensation with future repurchases. The Company may repurchase additional shares, but the timing and amount will depend upon market conditions and other factors.

Cautionary Statement: This release contains forward-looking statements relating to future performance, goals, strategic actions and initiatives and similar intentions and beliefs, including phrases "is expected", "affirmed", "to drive", "to boost", "to enhance" and other statements regarding the Company's expectations, outlook, goals, beliefs, intentions and the like regarding future sales, earnings, free cash flow, share repurchases, acquisitions and other matters. These statements are based on assumptions regarding Company operations, investments and acquisitions and conditions in the markets the Company serves. The Company believes these assumptions are reasonable and well founded. The forward-looking statements in this release are subject to risks and uncertainties, including, among others, certain economic, political and technological factors. Actual results could differ materially from those stated or implied in this news release, due to, but not limited to, such factors as (1) global economic conditions, (2) changes in pricing and the competitive environment and the global demand for our products, (3) fluctuations in foreign currency exchange rates, (4) changes in research funding and the success of research and development activities, (5) failure of planned sales initiatives in our Research and SAFC businesses, (6) dependence on uninterrupted manufacturing operations, (7) failure to achieve planned cost reductions in global supply chain initiatives and restructuring actions, (8) changes in the regulatory environment in which the Company operates, (9) changes in worldwide tax rates or tax benefits from domestic and international operations, including the matters described in Note 10-Income Taxes-to the Consolidated Financial Statements in the Company's Form 10-K report for the year ended December 31, 2010, (10) exposure to litigation, including product liability claims, (11) the ability to maintain adequate quality standards, (12) reliance on third party package delivery services, (13) an unanticipated increase in interest rates, (14) other changes in the business environment in which the Company operates, and (15) the outcome of the outstanding matters described in Note 11-Contingent Liabilities and Commitments-to the Consolidated Financial Statements in the Company's Form 10-K report for the year ended December 31, 2010, (16) acquisitions or divestitures of businesses. A further discussion of the Company's risk factors can be found in Item 1A of Part 1 of the Company's Form 10-K report for the year ended December 31, 2010. The Company does not undertake any obligation to update these forward-looking statements.

About Sigma-Aldrich: Sigma-Aldrich is a leading Life Science and High Technology company. Our biochemical and organic chemical products and kits are used in scientific research, including genomic and proteomic research, biotechnology, pharmaceutical development, and as key components in pharmaceutical, diagnostic and other high technology manufacturing. We have customers in life science companies, university and government institutions, hospitals and in industry. Over one million scientists and technologists use our products. Sigma-Aldrich operates in 40 countries and has 8,300 employees providing excellent service worldwide. We are committed to accelerating our Customers' success through leadership in Life Science, High Technology and Service. For more information about Sigma-Aldrich, please visit our award winning web site at www.sigma-aldrich.com.

Non-GAAP Financial Measures: The Company supplements its disclosures made in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") with certain non-GAAP financial measures. The Company does not, and does not suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information. These non-GAAP measures may not be consistent with the presentation by similar companies in the Company's industry. Whenever the Company uses such non-GAAP measures, it provides a reconciliation of such measures to the most closely applicable GAAP measure. See the Supplemental Financial Information on pages 8 and 9 for these reconciliations.

With over 60% of sales denominated in currencies other than the U.S. dollar, management uses currency adjusted sales growth when analyzing Company performance, and believes it is useful as well to investors, to judge the Company's performance. Organic sales growth data presented in this release excludes currency and acquisitions impacts. The Company calculates the impact of changes in foreign currency rates by multiplying current period activity by the difference between current period exchange rates and prior period exchange rates, the result is the defined impact of "changes in foreign currency exchange rates". While we are able to report currency impacts after the fact, we are unable to estimate changes that may occur later in 2011 to applicable exchange rates. Any significant changes in currency exchange rates would likely have a significant impact on our reported growth rates due to the volume of our sales denominated in foreign currencies.

Management also uses adjusted net income and EPS and adjusted operating income and operating income margins (reconciled on page 9) and free cash flow (defined on page 7), non-GAAP measures, to judge its performance and ability to pursue opportunities that enhance shareholder value. Due to the uncertain timing of future restructuring and other special charges, we are unable to include these charges in the 2011 diluted adjusted EPS forecast or provide a reconciliation to the corresponding GAAP measures. Management believes this non-GAAP information is useful to investors as well.

SIGMA-ALDRICH CORPORATION

 

Consolidated Statements of Income (Unaudited)

 

(in millions except per share amounts)

 
                             
           

Three Months

 

Six Months

   
           

Ended June 30,

 

Ended June 30,

   
           

2011

 

2010

 

2011

 

2010

   

Net sales

         

$              637

 

$              554

 

$           1,269

 

$           1,126

   

Cost of products sold

         

306

 

260

 

602

 

529

   

Gross profit

         

331

 

294

 

667

 

597

   

Selling, general and administrative expenses

         

151

 

132

 

299

 

266

   

Research and development expenses

         

18

 

17

 

36

 

33

   

Restructuring costs

         

2

 

3

 

5

 

9

   

Operating income

         

160

 

142

 

327

 

289

   

Interest, net

         

2

 

2

 

4

 

4

   

Income before income taxes

         

158

 

140

 

323

 

285

   

Provision for income taxes

         

45

 

43

 

91

 

88

   

Net income

         

$              113

 

$                97

 

$              232

 

$              197

   
                             
                             

Net income per share - Basic

         

$             0.93

 

$             0.80

 

$             1.90

 

$             1.62

   

Net income per share - Diluted

         

$             0.91

 

$             0.79

 

$             1.87

 

$             1.60

   
                             
                             

Weighted average number of shares outstanding - Basic

       

122

 

121

 

122

 

122

   

Weighted average number of shares outstanding - Diluted

       

124

 

123

 

124

 

123

   
                           

 

SIGMA-ALDRICH CORPORATION

 

Consolidated Balance Sheets

 

(in millions)

 
           
 

(Unaudited)

       
 

June 30,

 

December 31,

   
 

2011

 

2010

   

Assets

         

Current assets:

         

Cash and cash equivalents

$              663

 

$              569

   

Accounts receivable, net

356

 

287

   

Inventories

670

 

606

   

Other current assets

144

 

139

   

Total current assets

1,833

 

1,601

   
           

Property, plant and equipment, net

760

 

733

   

Goodwill, net

484

 

438

   

Intangibles, net

165

 

157

   

Other assets

97

 

98

   

Total assets

$           3,339

 

$           3,027

   
           

Liabilities and Stockholders' Equity

         

Current liabilities:

         

Notes payable and current maturities of long-term debt

$              216

 

$              239

   

Accounts payable

148

 

121

   

Other

182

 

171

   

Total current liabilities

546

 

531

   
           

Long-term debt

300

 

300

   

Pension and post-retirement benefits

117

 

110

   

Deferred taxes

39

 

41

   

Other liabilities

66

 

69

   

Total liabilities

1,068

 

1,051

   
           

Stockholders' equity:

         

Common stock

202

 

202

   

Capital in excess of par value

210

 

194

   

Common stock in treasury

(2,059)

 

(2,051)

   

Retained earnings

3,725

 

3,536

   

Accumulated other comprehensive income

193

 

95

   

Total stockholders' equity

2,271

 

1,976

   
           

Total liabilities and stockholders' equity

$           3,339

 

$           3,027

   
         

 

SIGMA-ALDRICH CORPORATION

Consolidated Statements of Cash Flows (Unaudited)

 

(in millions)

 
             
   

Six Months

   
   

Ended June 30,

   
   

2011

 

2010

   

Cash flows from operating activities:

           

Net income

 

$              232

 

$              197

   

Adjustments to reconcile net income to net cash provided by operating activities:

           

Depreciation and amortization

 

52

 

47

   

Deferred income taxes

 

6

 

5

   

Stock-based compensation expense

 

10

 

10

   

Restructuring costs, net of payments

 

3

 

5

   

Other

 

-

 

(3)

   

Changes in operating assets and liabilities:

           

Accounts receivable

 

(52)

 

(29)

   

Inventories

 

(26)

 

4

   

Accounts payable

 

21

 

8

   

Income taxes

 

(2)

 

(3)

   

Other, net

 

10

 

6

   

Net cash provided by operating activities

 

254

 

247

   
             

Cash flows from investing activities:

           

Capital expenditures

 

(44)

 

(37)

   

Purchases of short-term investments

 

(20)

 

(12)

   

Proceeds from sales of short-term investments

 

20

 

14

   

Acquisitions of businesses, net of cash acquired

 

(75)

 

(5)

   

Other, net

 

(3)

 

(1)

   

Net cash used in investing activities

 

(122)

 

(41)

   
             

Cash flows from financing activities:

           

Repayment of short-term debt

 

(23)

 

(34)

   

Payment of dividends

 

(43)

 

(39)

   

Share repurchases

 

(22)

 

(56)

   

Exercise of stock options

 

22

 

16

   

Excess tax benefits from stock-based payments

 

3

 

3

   

Net cash used in financing activities

 

(63)

 

(110)

   
             

Effect of exchange rate changes on cash

 

25

 

(16)

   

Net change in cash and cash equivalents

 

94

 

80

   

Cash and cash equivalents at January 1

 

569

 

373

   

Cash and cash equivalents at June 30

 

$              663

 

$              453

   
             
             

Free cash flow(1)

 

$              210

 

$              210

   
             
             

(1) Net cash provided by operating activities less capital expenditures.

           
           

 

SIGMA-ALDRICH CORPORATION

 

Supplemental Financial Information - (Unaudited)

 
                       

Sales Growth by Business Unit

         
   

Three Months

     
   

Ended June 30, 2011

     
       

Currency

 

Acquisition

 

Adjusted

           
   

Reported

 

Benefit

 

Benefit

 

(Organic)

           
                             

  Research Essentials

 

16%

 

8%

 

2%

 

6%

           

  Research Specialties

 

14%

 

8%

 

3%

 

3%

           

  Research Biotech

 

13%

 

8%

 

-

 

5%

           

  Research Chemicals

 

14%

 

8%

 

2%

 

4%

           

  SAFC

 

17%

 

6%

 

1%

 

10%

           

  Total Customer Sales

 

15%

 

8%

 

1%

 

6%

           
                             
   

Six Months

     
   

Ended June 30, 2011

     
       

Currency

 

Acquisition

 

Adjusted

           
   

Reported

 

Benefit

 

Benefit

 

(Organic)

           
                             

  Research Essentials

 

11%

 

4%

 

1%

 

6%

           

  Research Specialties

 

11%

 

5%

 

3%

 

3%

           

  Research Biotech

 

9%

 

5%

 

-

 

4%

           

  Research Chemicals

 

11%

 

5%

 

2%

 

4%

           

  SAFC

 

18%

 

5%

 

-

 

13%

           

  Total Customer Sales

 

13%

 

5%

 

1%

 

7%

           
                           

 

Business Unit Sales

                         

(in millions)

                         
       

First
Quarter 2010

 

Second
Quarter 2010

 

Third
Quarter 2010

 

Fourth
Quarter 2010

 

Total
2010

 
                           

  Research Essentials

     

$                  112

 

$              107

 

$              105

 

$              110

 

$              434

 

  Research Specialties

     

217

 

207

 

207

 

214

 

845

 

  Research Biotech

     

91

 

83

 

84

 

87

 

345

 

  Research Chemicals

     

420

 

397

 

396

 

411

 

1,624

 

  SAFC

     

152

 

157

 

167

 

171

 

647

 

  Total Customer Sales

     

$                  572

 

$              554

 

$              563

 

$              582

 

$           2,271

 
                           
                       
       

First
Quarter 2011

 

Second
Quarter 2011

 

Third
Quarter 2011

 

Fourth
Quarter 2011

 

Total
2011

 
                           

  Research Essentials

     

$                  120

 

$              124

 

$                  -

 

$                   -

 

$              244

 

  Research Specialties

     

236

 

236

 

-

 

-

 

472

 

  Research Biotech

     

96

 

94

 

-

 

-

 

190

 

  Research Chemicals

     

452

 

454

 

-

 

-

 

906

 

  SAFC

     

180

 

183

 

-

 

-

 

363

 

  Total Customer Sales

     

$                  632

 

$              637

 

$                  -

 

$                   -

 

$           1,269

 
                           
                         

 

SIGMA-ALDRICH CORPORATION

 

Supplemental Financial Information - (Unaudited)

 
                     
                     

Reconciliation of Reported Net Income to Adjusted Net Income

                   
   

Net Income

 

Diluted Earnings

   
   

(in millions)

 

Per Share

   
   

Three Months Ended

 

Three Months Ended

   
   

June 30,

 

June 30,

   
   

2011

 

2010

 

2011

 

2010

   
                     
                     

Reported net income

 

$              113

 

$                97

 

$             0.91

 

$             0.79

   

Restructuring costs

 

2

 

2

 

0.02

 

0.02

   

Adjusted net income

 

$              115

 

$                99

 

$             0.93

 

$             0.81

   
                     
   

Net Income

 

Diluted Earnings

   
   

(in millions)

 

Per Share

   
   

Six Months Ended

 

Six Months Ended

   
   

June 30,

 

June 30,

   
   

2011

 

2010

 

2011

 

2010

   
                     
                     

Reported net income

 

$              232

 

$              197

 

$             1.87

 

$             1.60

   

Restructuring costs

 

4

 

6

 

0.03

 

0.05

   

Adjusted net income

 

$              236

 

$              203

 

$             1.90

 

$             1.65

   
                     
                     
                     

Income Statement Ratios

                   
   

Three Months Ended

 

Six Months Ended

   
   

June 30,

 

June 30,

   
   

2011

 

2010

 

2011

 

2010

   
                     

Gross profit

 

52.0%

 

53.1%

 

52.6%

 

53.0%

   

S,G&A expenses

 

23.7%

 

23.8%

 

23.6%

 

23.6%

   

Operating income

 

25.1%

 

25.6%

 

25.8%

 

25.7%

   

Pretax income

 

24.8%

 

25.3%

 

25.5%

 

25.3%

   

Net income

 

17.7%

 

17.5%

 

18.3%

 

17.5%

   
                     

Effective tax rate

 

28.5%

 

30.7%

 

28.2%

 

30.9%

   
                     
                   

 

Reconciliation of Reported Operating Income Margin to Adjusted Operating Income Margin

 
                   
   

Three Months Ended

 

Six Months Ended

 
   

June 30,

 

June 30,

 
   

2011

 

2010

 

2011

 

2010

 
                   

Reported operating income margin

 

25.1%

 

25.6%

 

25.8%

 

25.7%

 

Restructuring costs

 

0.3%

 

0.6%

 

0.4%

 

0.8%

 

Operating income margin excluding restructuring costs

 

25.4%

 

26.2%

 

26.2%

 

26.5%

 

Currency

 

0.7%

     

0.6%

     

Acquisitions

 

0.2%

     

0.2%

     

Adjusted operating income margin

 

26.3%

 

26.2%

 

27.0%

 

26.5%

 
                   
                   
                   

Reconciliation of Free Cash Flow

                 

(in millions)

                 
   

Six Months Ended

     
   

June 30,

     
   

2011

 

2010

         
                   

Net cash provided by operating activities

 

$              254

 

$              247

         

Less: Capital expenditures

 

(44)

 

(37)

         

Free cash flow

 

$              210

 

$              210

         
                   
                 

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