Q4 2012 Earnings Call Transcript

Transcript Call Date 02/07/2013

Operator: Good day, ladies and gentlemen and welcome to the Sigma-Aldrich Corporation's Fourth Quarter 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Mr. Quintin Lai, Head of Investor Relations and Strategy.

Quintin Lai - VP, IR and Corporate Communications: Thank you, Bethany. Good morning. Thank you to everyone participating on this call and the webcast. Presenting for the Company, we have Rakesh Sachdev, President and Chief Executive Officer and Jan Bertsch, Executive Vice President and Chief Financial Officer.

Jan will lead off with a review of our performance in the fourth quarter and full year 2012. Rakesh will then provide an update on the activities that contributed to these results and our outlook for 2013. Then we'll open up the call for your questions and comments.

We will be using a slide presentation as part of today's call. The presentation can be viewed on our Investor Relations website at

Before beginning the review, I want to remind you that today's comments include forward-looking statements about future activities and our expectations for sales, earnings, cash flow and other possible future results. While we believe these expectations are based on reasonable assumptions, actual results may differ materially due to any number of factors including the risk factors listed in our Annual Report on Form 10-K for the year ended December 31, 2012 and in the cautionary statement included in today's release and in the slide presentation. We have no plans to update these forward-looking statements after this call.

Also, in today's conference call, we are providing information on non-GAAP financial measures. Management uses these measures in its internal analysis of results and believes this information maybe informative to investors as well. For reconciliation of non-GAAP measures, please see today's earnings release and the appendix of the slide presentation.

With that, Jan will start with the summary of our fourth quarter results. Jan?

Jan Bertsch - EVP, CFO and Interim Treasurer: Thank you, Quintin, and good day to everyone. As reported in today's earnings release, fourth quarter sales were $655 million, a reported increase of 7% over fourth quarter 2011. Our organic sales growth which excludes the impact of changes in foreign currency exchange rates and the benefits of recent acquisitions was 3%. Unfavorable changes in FX rates reduced our sales growth by 2% and acquisitions contributed 6% to sales growth.

Fourth quarter operating income was $164 million. Net income was $116 million and reported diluted EPS was $0.96. Excluding $1 million of restructuring costs, our adjusted diluted EPS was also $0.96. Year-over-year changes in FX rates caused a $0.06 EPS headwind. Excluding this impact, adjusted EPS would have grown by 12% to $1.02.

Our fourth quarter effective tax rate was 29%, which was below the 32% rate in the same period of 2011. This year-over-year improvement is due to a favorable mix of profits in lower tax jurisdictions and lower tax contingencies for certain international locations. This improvement more than offset the failed extension of the U.S. R&D tax credit which did not get passed in 2012. We will see the 2012 R&D tax credit of Q1 2013 tax rate and expect the 2013 credit to be spread throughout all four quarters this year. We expect our full year 2013 tax rate to be in the range of 28% to 29%. We were pleased with strong fourth quarter free cash flow generation of $163 million, which was an increase of 79% over the same quarter last year. I'll go into more color on this when I review the full year results. In the fourth quarter, we returned about $49 million to shareholders, in the form of $25 million in share repurchases and $24 million in dividend.

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