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CEO's STATEMENT:
Commenting on second quarter 2009 performance and full year 2009 expectations, Chairman, President and CEO Jai Nagarkatti said: "We are very pleased with our second quarter sales and operating performance in this challenging economic climate. We're also particularly pleased with our ability to improve profitability through continued implementation of our supply chain initiatives and other cost controls to largely offset the challenges of the current market on our sales and profit performance and the currency impact. We're continuing to add new and innovative products and services that we believe will differentiate our Company in the life science and high technology markets we serve."
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Nagarkatti continued, "We've reaffirmed our sales and profit expectations for all of 2009, believing that we can repeat our first half performance for the remainder of the year, even with a continuation of the challenging market conditions. We continued to invest in new products, in sales and marketing initiatives and in facilities that are expected to enable us to achieve above-market rate organic sales growth. And we plan to continue to drive process improvements through our supply chain initiative and manage costs prudently, seeking to drive our diluted EPS above 2008's level."
2009 RESULTS:
Reported sales for the second quarter of 2009 were $522 million, an overall decline of 10.1% from the second quarter of 2008 reflecting an 8.4% unfavorable currency impact and a 1.7% decline in organic sales. The organic sales performance in the second quarter compared to the first quarter gain is due in part to the impact of the timing of Easter holidays. For the six months ended June 30, 2009, overall organic sales were largely consistent with the prior year level. Organic sales for the Company's Research business grew 0.5% and 2.0% for the second quarter and first six months of 2009, respectively. Organic sales for SAFC, the Company's specialty fine chemicals business, declined by 7.2% and 6.3% for the second quarter and first six months of 2009, respectively. SAFC total sales in Q2 2009 improved on Q1 2009 levels, but are compared to even stronger sales in Q2 2008 over Q1 2008. Quarterly comparisons and a reconciliation of reported to adjusted (organic) sales growth are on page 7.
Operating and pretax income margins in the second quarter 2009 of 23.8% of sales and 23.3% of sales, respectively, reflect an increase of 70 basis points from 2008's second quarter. These margins were in line with those achieved in the first quarter of 2009. For the second successive quarter, this performance reflects the proactive steps taken by management that provided benefits from global supply chain activities, lower S,G&A costs and strategic pricing actions to collectively offset the adverse currency impact on earnings for the first half of 2009.
Free cash flow (defined on page 6) for the second quarter of 2009 was $73 million, resulting in free cash provided in the first half of 2009 of $159 million. A reconciliation of net cash provided by operating activities to free cash flow is on page 8.
Highlights in the second quarter from global sales growth initiatives and profit enhancement activities include:
Additionally, the Company received CIO magazine's 2009 CIO 100 award for its Your Favorite Gene powered by Ingenuity, a dynamic web-based search tool linking gene-based information with our cutting edge products.
2009 OUTLOOK:
OTHER INFORMATION:
Cash Flow and Debt: Cash flow from operations for the first six months of 2009 was $215 million compared to $221 million for 2008. This change reflects a two-day improvement in receivables days outstanding offset by a $23 million tax disbursement due to the timing of international tax payments, a lower level of net income and a small increase in inventory. Capital expenditures increased to $56 million for the six months ended June 30, 2009 from $41 million for the same period of 2008 as the Company expects to spend approximately $110 million for capital in 2009 to expand its biotech capacity in Israel and its manufacturing capacity for viral products and active pharmaceutical ingredients in the U.S. Overall free cash flow of $159 million in the first six months of 2009 was used to repay $100 million in short- term debt and return $60 million to shareholders through share repurchases and a 12% increase in the 2009 quarterly dividend. The Company's debt to capital ratio was reduced to 28.6% at June 30, 2009 from 34.6% at December 31, 2008. The Company has not experienced any problem in placing its short-term debt in the current credit market environment.
Share Repurchase: Another 0.4 million shares were acquired in the second quarter of 2009 at an average share price of $44.77. There were 121.8 million shares outstanding at June 30, 2009. The Company has 7.1 million remaining authorized shares for purchase, but the timing and number of shares purchased, if any, depends upon market conditions and other factors.
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 38 countries and has 7,800 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 uses certain non-GAAP financial measures to supplement its GAAP disclosures. 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 7 and 8 for these reconciliations.
With over 60% of sales denominated in currencies other than the U.S. dollar, management uses currency adjusted growth, and believes it is useful to investors, to judge the Company's controllable, local currency performance. Organic sales growth data presented in this release is proforma data and excludes currency impacts. While we are able to report currency impacts after the fact, we are unable to estimate changes that may occur later in 2009 to applicable exchange rates and are thus unable to reconcile the projected non-GAAP, currency adjusted internal growth rates to reported GAAP growth rates for the year 2009. 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 reports both GAAP and adjusted sales and income and comparisons to reflect what it believes are ongoing and/or comparable operating results excluding currency impacts. Management excludes this item in judging its historical performance and in assessing its expected future performance. Management also uses free cash flow (defined on page 6), a non-GAAP measure, to judge its performance and ability to pursue opportunities that enhance shareholder value. Management believes this non-GAAP information is useful to investors as well.
Cautionary Statement: This release contains forward-looking statements relating to future performance, goals, strategic actions and initiatives and similar intentions and beliefs, including the "2009 Outlook on Sales Growth and EPS", "CEO's Statement" and "Other Information-Share Repurchase" sections contained above and other statements regarding the Company's expectations, goals, beliefs, intentions and the like regarding future sales, earnings, free cash flow, share repurchases, acquisitions and other matters. These statements involve assumptions regarding Company operations, investments and acquisitions and conditions in the markets the Company serves. Although the Company believes its expectations are based on reasonable assumptions, such statements 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) declining 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) dependence on uninterrupted manufacturing operations, (6) changes in the regulatory environment in which the Company operates, (7) changes in worldwide tax rates or tax benefits from domestic and international operations, including the matters described in Note 4-Uncertainty in Income Taxes-to the Consolidated Financial Statements in the Company's Form 10-Q report for the quarter ended March 31, 2009, (8) exposure to litigation, including product liability claims, (9) the ability to maintain adequate quality standards, (10) reliance on third party package delivery services, (11) the impact of acquisitions and success in integrating and obtaining projected results from the acquisitions, (12) other changes in the business environment in which the Company operates, and (13) the outcome of the matters described in Note 13-Contingent Liabilities and Commitments-to the Consolidated Financial Statements in the Company's Form 10-Q report for the quarter ended March 31, 2009. A further discussion of the Company's risk factors can be found in Item 1A of the Company's Form 10-K report for the year ended December 31, 2008. The Company does not undertake any obligation to update these forward-looking statements.
-- Continued increase in sales through the Company's award winning web site to 45% of worldwide Research-based sales in the second quarter of 2009 from 44% in Q1 2009. -- An 8% organic increase in research-based sales in the CAPLA countries, exclusive of an unfavorable currency impact of 10% that reduced reported sales by 2% from the prior year. Sales in the Company's focus markets of China, India and Brazil collectively grew by 9% organically in Q2 2009 over the prior year level, with an unfavorable currency impact of 10% resulting in reported sales declining by 1%. -- A 19% increase in SAFC's booked orders for future delivery at June 30, 2009 from the March 31, 2009 level to a new all time high. -- $7 million of supply chain benefits, boosting the year-to-date result to $13 million.
SOURCE Sigma-Aldrich Corporation
