Sigma-Aldrich second-quarter sales increase 6% to $554 million

HIGHLIGHTS:  

2010 Results (all percentages are to comparable periods in 2009)

• Q2 2010 reported sales increased 6% to $554 million. Excluding the impact of changes in foreign currency exchange rates, Q2 sales grew organically by 7%.  Reported and organic sales for Specialty Fine Chemicals (SAFC) increased by 10% and 11% respectively.  Research Product sales increased by 5% on both a reported and organic basis.
• Q2 2010 reported diluted EPS increased by 16% to $0.79.  Excluding the impact of restructuring costs of $0.02 in 2010's second quarter, diluted EPS increased 19% to $0.81.  
• YTD 2010 net cash provided by operating activities and free cash flow were $247 million and $210 million, respectively.

2010 Outlook (all percentages are compared to full year 2009 results)

• Organic sales for the full year are expected to meet the Company's previously forecasted increase in a mid-single digit range. At current exchange rates, currency is expected to reduce otherwise reportable sales by 1-2%.
• Diluted adjusted EPS forecast for 2010 (excluding restructuring charges) of $3.05-$3.20 reaffirmed, representing a 9 to 14% increase compared to 2009. See 2010 Outlook below.
• Net cash provided by operating activities and free cash flow are expected to exceed $480 million and $350 million, respectively, for 2010.

CEO's STATEMENT:

Commenting on second quarter 2010 performance, Chairman, President and CEO Jai Nagarkatti said:  "Our earnings for the second quarter of 2010 continued the strong performance achieved in this year's first quarter.  We are very pleased with this performance that drove our increase in diluted EPS for the first half of 2010 to 18%.  Consistent with our first quarter 2010 experience, conditions were favorable in several of our markets.  Our sales growth in SAFC and in our research focus initiative areas of analytical, biology and materials science all made positive contributions to our overall growth.

"Each of our Research business units had organic sales growth in 2010's second quarter that was equivalent to or exceeded results in this year's first quarter driven by improved organic growth in European and other international markets.  And our SAFC business continued its strong sales performance with a double digit percentage organic sales increase in 2010's second quarter from continued strong growth of Hitech materials to the L.E.D. and semiconductor industries and improved growth in its sales of industrial media for biological drugs."

Nagarkatti continued, "We've reaffirmed our organic sales growth expectation for 2010 of mid-single digit percentage growth and continue to believe that our diluted adjusted EPS for 2010 will be in our previously communicated range of $3.05 to $3.20.  We expect stronger growth in SAFC sales and have identified operating improvements that are expected to largely offset a headwind from the recent strengthening of the U.S. dollar.  And we've continued our efforts to improve our long-term growth and returns, seeking to boost our organic sales growth to 7% to 8% and drive operating profit margins to 26% to 27% over the next five years."  

2010 RESULTS:

Reported sales for the second quarter of 2010 were $554 million, an increase of 6% from the second quarter of 2009.  Excluding a 1% impact from unfavorable currency rates, second quarter organic sales growth was 7%, improving on the first quarter organic sales growth of 4%.  This gain over the comparable period of 2009 and the improvement over the first quarter 2010 organic sales growth rate were driven largely by unit volume growth in our Research businesses and continued improvement in market conditions for fine chemicals.  Sales for the Company's Research business grew 5% on both a reported and currency adjusted basis for the second quarter of 2010.  Sales for SAFC continued the momentum that began in the second half of 2009 and continued through the first half of 2010, with second quarter reported growth of 10% and organic growth of 11% as sales of our Supply Solutions, Bioscience and Hitech products reflected stronger demand.  A reconciliation of reported to adjusted organic sales is on page 7.

The operating income margin in the second quarter of 2010 of 25.6% of sales reflects a 170 basis point improvement from 2009's second quarter due to continued benefits from higher volumes, currency benefits, favorable product mix and effective management of S,G&A costs.  These items were partially offset by $3 million of pretax restructuring costs to consolidate certain manufacturing facilities as was previously announced.  These restructuring actions are in line with the Company's efforts to improve operating efficiencies and lower the fixed cost structure as part of its longer term goal to improve operating margins to a 26% to 27% range.  Supply chain process improvements provided $5 million of the Q2 2010 pretax enhancement.

Free cash flow (defined on page 6) for the first half of 2010 was $210 million, an increase of $51 million compared to the same period in 2009.  Higher net income and lower capital expenditures were the primary contributors to this increase.  A reconciliation of net cash provided by operating activities to free cash flow is on page 8.

Other highlights from global sales growth initiatives and profit enhancement activities include:

• Worldwide sales of research products through the Company's award winning web site increased to 48% for the second quarter of 2010 and 47% for the first six months of 2010, up from 45% for the full year 2009.
• Sales in International markets (Asia Pacific and Latin America) continued to show strength with reported and organic growth of 22% and 14% for the second quarter of 2010, respectively. In the Company's focus markets of China, India and Brazil, sales collectively grew 35% and 29% on a reported and organic basis for the second quarter of 2010, respectively.
• SAFC's booked orders for future delivery at June 30, 2010 remained consistent with the level at March 31, 2010, representing an increase of about 5% over the December 31, 2009 level.

2010 OUTLOOK:

• Organic sales growth is expected to be in the mid-single digit range for 2010.  Market conditions are expected to continue the modest improvement experienced in the first half of 2010.  The ongoing implementation of programs to enhance and highlight our product capabilities in analytical, biology and materials science, together with continued emphasis on growth opportunities in fine chemicals, in international markets and in e-commerce are all expected to contribute to the growth.  Currency rates are likely to reduce otherwise reportable sales by 1-2% if exchange rates remain near current levels.
• Our forecast for diluted adjusted earnings per share for 2010 remains at $3.05 to $3.20 compared to diluted earnings per share of $2.80 reported for 2009.  At current exchange rates, we expect a modest currency headwind to our earnings in the second half of 2010 which we expect to largely offset with improved operating performance.  The anticipated increase in profit from 2009 is driven by the previously mentioned sales expectations, continuation of supply chain process improvements, benefits from workforce changes earlier in 2010 and other cost improvement activities.  The effective tax rate in 2010 is expected to be 30-31%.  This EPS outlook excludes the impacts of restructuring charges of $0.05 in 2010's first half, additional restructuring costs to be recorded during the balance of 2010, and the impact of any acquisitions.
• Management has also reaffirmed its prior expectations for free cash flow for 2010 in excess of $350 million, with anticipated net cash provided by operating activities exceeding $480 million and capital expenditures of approximately $120 million.  

OTHER INFORMATION:

Cash Flow and Debt:  Net cash provided by operating activities for the six months ended June 30, 2010 was $247 million compared to $215 million for 2009's first half.  This increase reflects the higher net income and a lower level of capital expenditures for the first six months of $37 million in 2010 compared to $56 million in 2009.  Management continued its activities to reduce cash required for inventory, with inventory levels reduced to 6.0 months at June 30, 2010 from 6.5 months at December 31, 2009.  Overall free cash flow of $210 million for the first half of 2010 was used to repay $34 million in debt and return $95 million to shareholders through share repurchases and a 10% increase in the quarterly dividend rate.  The Company's debt to capital ratio was reduced to 24% at June 30, 2010 from 26% at December 31, 2009.  

Share Repurchase:  Another 0.4 million shares were acquired in the second quarter of 2010 at an average share price of $59.04.  There were 121 million shares outstanding at June 30, 2010.  The Company expects to continue to offset the dilutive impact of issuing share based incentive compensation with future repurchases.  Further, the Company may repurchase additional shares, but the timing and amount will depend upon market conditions and other factors.