Business context and reporting period
PerkinElmer, Inc. filed this unaudited Form 10-Q for the quarter ended October 4, 2015, and the nine months then ended. The business serves diagnostics, research, environmental, industrial and laboratory-services markets through its Human Health and Environmental Health segments. The quarter comprised 14 weeks, versus 13 weeks in the prior-year quarter; reported comparisons therefore include an extra week.
Entity-name note: The request identifies Revvity, Inc., but the supplied filing is for PerkinElmer, Inc. Investors should confirm the intended issuer and historical entity relationship.
Financial results and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $563.4 million | $542.0 million | $1,654.2 million | $1,628.8 million |
| Operating income, continuing operations | $75.9 million | $58.8 million | $201.4 million | $180.2 million |
| Income, continuing operations | $54.9 million | $42.9 million | $144.2 million | $129.9 million |
| Net income | $54.9 million | $42.3 million | $144.2 million | $127.0 million |
| Diluted EPS, continuing operations | $0.48 | $0.38 | $1.27 | $1.14 |
- Q3 gross margin was 45.2%, up 30 basis points year over year; operating margin increased 263 basis points, according to management.
- Q3 revenue rose 4% as reported. Management cited an approximately 6% foreign-exchange headwind and approximately 4% acquisition contribution. For the nine months, revenue rose 2%, with similar approximate FX and acquisition effects.
- Q3 segment revenue: Human Health $343.6 million, up 2%; Environmental Health $219.8 million, up 7%. Nine-month segment operating income increased 20% in Human Health to $179.6 million and decreased 18% in Environmental Health to $53.6 million.
- Cash from operating activities was $161.9 million for the first nine months, down from $185.0 million total operating cash flow in the prior-year period (continuing operations: $161.9 million versus $185.7 million). The company attributed pressure mainly to working capital and other payment timing; inventory increased $50.8 million.
- Cash and equivalents were $195.1 million at October 4, 2015, compared with $174.8 million at December 28, 2014. Total current assets were $1,073.8 million and current liabilities $554.3 million.
- Debt included $492.0 million drawn on a $700 million revolving facility, $497.9 million carrying value of 5% notes due 2021, and $38.5 million of financing-lease obligations. Revolver availability was $196.5 million; the company reported compliance with applicable covenants.
- For the nine months, capital expenditures were $17.8 million, dividends paid were $23.7 million, and share repurchases cost $76.2 million. The quarterly dividend was $0.07 per share.
Material changes versus the prior comparable period
- Reported revenue growth was aided by the additional fiscal week and acquisitions, while foreign-currency movements—particularly the stronger U.S. dollar—were a significant offset.
- Profitability improved in Q3, helped by product mix, supply-chain initiatives, cost containment and lower restructuring charges. Research and development spending rose, reflecting new products and development investment.
- Human Health’s nine-month operating income improved, while Environmental Health’s declined despite higher revenue. Environmental Health results included $7.3 million of acquired-inventory purchase-accounting amortization for the nine months.
- Operating cash generation declined year over year, with higher inventory and lower accounts payable partly offset by stronger receivable collections.
- Accumulated other comprehensive income moved to a $33.4 million loss from $24.8 million income at year-end 2014, primarily reflecting foreign-currency translation.
Outlook, commentary, risks and unusual items
- Management expressed confidence in demand opportunities in screening, research services, environmental testing and industrial markets, but did not provide quantified earnings or revenue guidance in the supplied filing text.
- Management expected internal cash generation to fund operating costs, capital expenditures, smaller acquisitions, interest and dividends; larger acquisitions and certain long-term obligations could require external funding. It expected an additional $0.9 million contribution to non-U.S. pension plans by fiscal year-end.
- Foreign exchange is a key exposure: approximately 60% of the business was conducted outside the United States. The company used currency forwards for hedging and did not enter derivatives for speculative purposes.
- Risk factors include changing customer demand and government funding, competition and product-development execution, acquisition integration, regulatory and product-liability exposure, supply interruptions, foreign-currency movements, pension assumptions, debt service and covenant constraints.
- Environmental remediation accruals were $12.1 million; management said recorded contingencies were not expected to have a material adverse effect, while noting outcomes remain uncertain. Gross tax-effected unrecognized tax benefits were $29.9 million; approximately $4.1 million could be resolved within 12 months.
- Unusual items include a $7.3 million acquired-inventory amortization expense in the first nine months, restructuring reversals and charges, and a $0.8 million pension curtailment gain offset by a $0.8 million actuarial loss. The company early adopted new acquisition measurement-period accounting guidance; the reported current-period net-income impact was immaterial.
Key facts investors should verify
- Confirm that PerkinElmer, Inc.—not Revvity, Inc.—is the intended issuer for this 2015 filing and establish the relevant corporate history.
- Assess how much underlying growth remains after adjusting for the 14th quarter week, acquisitions and currency effects.
- Review the reasons for Environmental Health’s nine-month operating-income decline and the extent to which acquisition-related costs affected results.
- Monitor working-capital trends, especially inventory growth, and the sustainability of operating cash flow relative to earnings.
- Evaluate debt, variable-rate exposure, available revolver capacity, foreign-held cash and future pension and environmental funding needs.
- Check subsequent performance against management’s qualitative demand commentary; the filing provides no quantified forward guidance.