Life Beats Estimates - Analyst Blog

Life Technologies Corporation (LIFE) reported an EPS of 58 cents in the second quarter of 2010 compared to 22 cents in the year-ago period. However, after adjusting for certain one-time items, the EPS was 91 cents, surpassing the Zacks Consensus Estimate of 87 cents and 15% higher than 79 cents of the year-ago quarter.
 
Strong growth in all the divisions of Life helped adjusted revenues increase 8% year over year to $906 million, marginally ahead of the Zacks Consensus Estimate of $899 million. Excluding the impact of currency, acquisitions and divestitures, revenues grew 6%.
 
Life earns revenues primarily from three divisions – Molecular Biology Systems, Genetic Systems and Cell Systems which recorded revenues of $434 million (annualized growth of 6%), $235 million (5%) and $230 million (13%), respectively.
 
Revenues in the Molecular Biology Systems were driven by robust demand for genomic assays and strong sales of reagents. During the quarter, Life completed the acquisition of Geneart AG, a leading player in the synthetic gene market segment. Synthetic genes are a rapidly growing area, which find applications aimed at improving human health and environment.
 
Double-digit growth in the next generation sequencing along with strong sales of capillary electrophoresis instruments and reagents to research and clinical labs helped boost Genetic Systems revenues. We also note that Life received approval from the US Federal Bureau of Investigation for its Identifiler forensic kits, which are used to generate DNA profiles for inclusion in the national DNA database.
 
Moreover, Life witnessed strong growth in primary stem cell, bio-production and the beads based separation unit which enabled Cell Systems to record the highest growth among the three segments.
 
Life is aiming big in the field of stem cell research. Over the past 5 years, the company has invested in various collaborations and partnership programs to strengthen its stem cell products portfolio. The company has also launched GIBCO Cell Therapy Systems (CTS) to support cell therapy applications, including regenerative medicine.

We are pleased to note that the University of California, San Diego, The Salk Institute for Biological Studies and Life have initiated studies to develop cell transplant therapy for amyotrophic lateral sclerosis (ALS), also known as Lou Gehrig's disease. Successful development of a therapy is significant as current treatment options available for the disease, which affect 30,000 people in the US, are limited.
 
On a geographical basis, barring Japan where revenues declined 7%, revenue growth was witnessed across all other regions: Europe – 4%, Asia-Pacific – 19% and the Americas – 7%.
 
Gross margin during the quarter improved 100 basis points (bps) to 67.7%, mainly due to the favorable impact of price gains across the portfolio, synergies, manufacturing productivity and royalty revenue partially offset by product mix.
 
Life exited the quarter with $706 million in cash and short-term investments, including $19 million held as restricted cash, up from $648 million at the end of December 2009.
 
Increases Guidance
 
Following the release of second-quarter results, Life increased the lower end of its EPS guidance for fiscal 2010 by 5 cents to $3.35–$3.50 on mid-to-high-single digit organic revenue growth.

Life Technologies Corporation enjoys a strong position in the life sciences market and we believe robust performance from its core business along with new product launches will help drive revenues going forward. However, challenges remain in the form of integration risks, increased competition and declining demand due to the economic slowdown.

We are currently Neutral on the stock.