PerkinElmer, Inc. — Q2 2013 Form 10-Q
Issuer and period: The supplied filing is for PerkinElmer, Inc. (not an entity identified in the filing as Revvity). It reports the three and six months ended June 30, 2013; comparative periods ended July 1, 2012. Figures below are in U.S. dollars.
Financial results
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $543.3M | $521.8M | $1,048.7M | $1,032.7M |
| Operating income, continuing operations | $39.7M | $49.8M | $75.6M | $86.2M |
| Net income | $27.9M | $33.6M | $60.1M | $56.2M |
| Diluted EPS | $0.25 | $0.29 | $0.53 | $0.49 |
| Gross margin | 44.6% | 45.8% | 44.5% | 45.6% |
- Q2 revenue grew 4%; product revenue was $374.0M and service revenue $169.3M. Operating margin was approximately 7.3%, versus 9.5% a year earlier.
- For the first half, revenue grew 2%, while operating income declined 12%. Operating margin was approximately 7.2%, versus 8.3%.
- Q2 Human Health revenue rose 4% to $299.9M; operating income was nearly flat at $30.1M. Environmental Health revenue rose 4% to $243.4M, but operating income fell 34% to $19.3M.
- Cash from continuing operating activities was $38.7M for the first half, down from $92.7M. Capital expenditures were $22.9M; cash and equivalents declined to $112.5M from $171.4M at year-end.
- At June 30, total debt was approximately $1.004B ($2.2M short-term and $1,001.9M long-term), compared with $940.6M at December 30. The company had $371.7M available under its $700M revolver and reported compliance with applicable debt covenants.
- Current assets were $906.5M and current liabilities $563.3M. The filing reported total liabilities of $1.951B.
Changes, drivers, and management commentary
- Revenue growth reflected Human Health research offerings, screening solutions and informatics, and Environmental Health’s OneSource laboratory services. First-half Environmental Health growth was limited by declines in environmental, safety and industrial markets.
- Gross margin fell 117 basis points in Q2 and 104 basis points for the first half. Management cited pricing pressure, less favorable product mix, inflation and growth-related costs, partly offset by cost containment and productivity actions.
- Q2 restructuring and contract termination charges were $19.3M, versus $5.2M a year earlier; first-half charges were $22.6M, versus $11.4M. The Q2 2013 plan targets 265 job reductions. Management expects annual savings exceeding $3M from 2013 actions beginning in fiscal 2015, and exceeding $11M from 2012 actions beginning in fiscal 2014.
- First-half net income benefited from $15.4M of discrete tax benefits, primarily reserve reversals and resolution of tax matters. Continuing-operations income taxes were a benefit of $8.6M, versus a $6.3M provision in the prior-year period.
- First-half share repurchases totaled $127.0M, and dividends paid were $15.9M. The quarterly dividend was $0.07 per share; the board also declared a third-quarter dividend at that rate.
Outlook, risks, and unusual items
- The filing provides no formal revenue or earnings guidance. Management expressed confidence in its market positioning and anticipated continued growth in health-related markets, while noting uncertainty in research funding and end-market demand.
- Management cited cost savings from restructuring and anticipated approximately $30M of payments over the next 12 months under an expanded analytics and data-discovery platform agreement. A July 2013 Boston facility sale-and-leaseback was expected to generate $49.5M gross proceeds, subject to closing conditions; the planned lease term is 15 years.
- Key risks include economic and government-funding weakness, customer order timing, foreign exchange exposure (about 60% of business outside the U.S.), competition and pricing, supply disruptions, regulatory compliance, acquisition integration, debt and variable interest rates, and potential impairment of goodwill or intangibles.
- The company accrued $6.2M for environmental remediation. It is defending the longstanding Enzo patent and other claims; management did not expect the disclosed matters to have a material adverse effect, but outcomes remain uncertain. Gross tax-effected unrecognized tax benefits were $50.9M.
- Other notable items: discontinued-operation disposition gains contributed $1.0M to Q2 net income; goodwill impairment testing in January 2013 found no impairment. The company reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer identity: this source is PerkinElmer’s 2013 filing, despite the request metadata naming Revvity.
- Assess whether revenue growth can offset margin pressure and the sharp decline in Environmental Health operating income.
- Review operating cash flow conversion, working-capital movements, pension contributions, and the sustainability of repurchases and dividends given declining cash and rising debt.
- Track restructuring execution, realized savings, remaining severance obligations, and the $30M anticipated platform-related payments.
- Monitor tax-benefit normalization, uncertain tax positions, contingent acquisition consideration, and legal and environmental exposures.