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Feb 5, 2013

Life Tech Results Overshadowed by Buyout Rumors

  • Life Technologies yesterday reported solid fourth-quarter and full-year 2012 earnings results—but shared little about its ongoing strategic review with investors other than it was still ongoing and that the board of directors has made no decisions.

    “All ideas are on the table, including pursuing our current strategy, which has yielded solid results, or something different," Life Tech chairman and CEO Gregory T. Lucier said. “Any decision will be based on what the board believes is in the best interest of shareowners to further create value.”

    Last month, Life Tech acknowledged it hired consultants to conduct the review following a Reuters news report, citing unnamed sources, that Thermo Fisher Scientific and private equity groups were considering a bid for Life Tech. Investor speculation about the review—whose options include a sale of the company—has boosted the value of Life Tech’s shares 30% year-to-year, to $63.02 at the close of trading yesterday on NASDAQ. Lucier noted that the review began last summer when the company’s shares traded in the $40 range.

    Lucier briefly discussed the review yesterday during a conference call with analysts and investors to discuss the quarterly and annual results. Life Tech finished Q4 with net income attributable to controlling interest of $110 million or 63 cents per share, up 18% from $93.1 million or 51 cents per share in the final three months of 2011. Life Tech’s Q4 revenue of $998.90 million was 1.1% down from $1.01 billion a year earlier, but above the $989.5 million consensus estimate of analysts by Thomson Reuters I/B/E/S.

    Non-GAAP Q4 net income inched up 1.4% to $195.9 million or $1.11 per share from $193.1 million or $1.05 per share. Revenue rose 3% (4.5% at constant exchange rates) to $999 million from $970 million.

    Driving growth, according to the company, were record sales of its Ion Torrent sequencers, especially its Ion PGM™ instruments and Ion Proton™ System, which racked up its highest-ever revenue quarter due to growing use in clinical research, as well as the research consumables and bioproduction businesses, partially offset by sales declines the company said it expected to see in its older line of SOLiD® sequencers and qPCR royalty revenue.

    For the full year 2012, Life Tech reported net income attributable to controlling interest of $430.9 million, up nearly 14% from $378.5 million in 2011, on revenues of about $3.8 billion, up 2% from 2011.

    Life Tech issued 2013 guidance to analysts predicting revenue growth of between 3% and 5% over last year, based on rising sales of Ion Torrent sequencers and expansion in applied and emerging markets, and EPS ranging from $4.30 to $4.45 per share excluding special items. That range comes close to a Wall Street consensus that expects on average EPS of $4.35 and revenue of $3.9 billion.

    Addressing analysts, Lucier said company revenues next year would take a hit if Congress imposes across-the-board budget cuts or “sequestration” rather than agree on how to cut at least $1.2 trillion over 10 years. He said the low end of the revenue guidance range “already assumes sequestration could reduce our revenue by approximately 1%, if implemented.” Life Tech, he said, believes sequestration will occur, even if temporary, and even if the across-the-board cut comes only to 5.1% rather than 8.2% because of the fiscal-cliff agreement of a month ago.

    Life Tech’s solid earnings didn’t stop Leerink Swann from downgrading company shares from “outperform” to “market perform,” citing the company’s reliance on nextgen sequencing as a driver of future sales growth and profit margins. While acknowledging that Life Tech’s Ion Torrent instrument placements have exceeded their expectations, and continuing to forecast healthy growth for this business, “we are less comfortable that the business’ trajectory will drive upside to numbers or stock sentiment.”

    “While we believe Life’s next-gen sequencing business comprised only ~5% of its 2012 revenue, it contributes more than half of projected sales growth and is the largest single contributor to margin enhancement efforts; thus its importance outweighs its historical revenue contribution,” analysts Dan Leonard and Justin Bowers, CFA, wrote in a note to investors.

    Mizuho Securities USA analysts Peter Lawson, D.Phil. (Oxon) and Eric Criscuolo said their 12-month price target for Life Tech in 2013 was $60 per share, based on 13.7x their 2013 EPS estimate of $4.37, approximately in line with the five-year average historical price-to-earnings multiple. 


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