Pall (PLL)

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Pall has continued to benefit from the growth of the biotechnology and vaccine markets as the production of biopharmaceuticals and vaccines requires eight to ten times more filtration and separation than traditional pharmaceutical processes.^[2] In addition, Pall's products address many of the growing issues facing countries worldwide such as the need for clean water, managing pollution, and the disposal of hazardous waste. Manufacturing sensitive electronic components also requires ultra-pure fluids, and the growth of the sales of computers, cell phones, portable music players, etc. contribute to Pall's growth.

[edit] Business Financials

Pall's business is divided into Pall Life Sciences, which accounts for 39% of sales, and Pall Industrial, which accounts for 61% of sales.^[3] According to Pall's own estimates, the annual overall market potential of the Life Sciences Market is $8 billion a year, and the annual market potential of the Industrial Market is $27 billion a year.^[4] In fiscal year 2007, Pall's sales increased 11.6% to $2.2 billion from $2 billion a year ago.^[5] This increase was partially due to the weakening of the U.S. dollar against the Euro, the British Pound, and various Asian currencies and also increased pricing in the Life Sciences segment.^[6] In terms of local currencies, sales increased 8% with sales in the Life Sciences segment increasing 7% and sales in the Industrial segment increasing 8.7%.^[7]

Gross margins also improved to 47.1% in 2007 from 46.8% a year ago due to increased pricing and cost cutting measures in Europe, where plants in Germany and France were closed.^[8] These measures helped to offset an increase in selling, general, and administrative expenses by about 5% to $675 million and in increase in research and development costs by 9% to $62.4 million.^[9] Pall expects research and development costs to continue increasing by 15% in fiscal year 2008.^[10] Overall, net earnings improved to $127.5 million from $52.1 million.

[edit] Life Sciences Division (39% of Revenue)

In the Life Sciences Division, sales are divided into the Medical Market and the BioPharmacueticals Market, which are roughly equal to each other in terms of sales. Sales in the Medical Market increased 4.2% driven by increased demand for Pall's blood filtration products.^[11] However, a significant number of Pall's contracts with blood centers in the Western hemisphere are set to expire in the second half of fiscal year 2008. If these contracts are not renewed, sales would be greatly affected. BioPharmaceutical sales also increased 10.5% driven by the vaccine and large-scale biotechnology sectors. In fiscal year 2008, Pall expects Medical sales to be slightly down but double-digit growth in the BioPharmaceutical Division.^[12]

[edit] Industial Division (61% of Revenue)

In the Industrial Division, sales are divided into General Industrial, which includes everything from the food and beverage market to water filtration to the energy sector, Aerospace and Transportation, and Microelectronics. General Industrial market sales, which account for about 60% of the Industrial segment, were up 9.8% driven by increased demand in the energy sector and municipal water treatment needs.^[13] Pall expects continued water shortages and government regulations to increase demand for its water treatment products further, fueling sales in the General Industrial market to increase in the high-single digits range for fiscal year 2008.^[14] Aerospace and Transportation sales increased 1.5% in 2007 while Microelectronics sales were up 12.2%.^[15] Pall expects growth in the Aerospace and Transportation market to be in the high single-digits and growth in the Microelectronics market to be in the low single-digits.^[16]

Pall revised its 2006 net income from $145 million to $52 million after finding that it had understated its U.S. tax liability due to unreported sales from its branch in the Netherlands to a Delaware company.^[17]

Of the $2.25 billion sales, $880.2 million came from the Life Sciences Division (comprised of BioPharmacueticals and Medical) and $1.37 billion came from the Industrial Division (comprised of Aerospace and Transportation, Microelectronics, and General Industrial).^[18]

Of the $2.25 billion sales, $927.6 million came from Europe, $775.7 came from the Western Hemisphere, and $546.6 came from Asia.^[19]

[edit] Trends and Forces

[edit] Focus on Green Technologies Creates a Need for Pall's Products

The growing demand for green products is, in the company's own words, a "perfect match"^[20] for Pall. The company works closely with manufacturers to protect the environment by reducing emissions and minimizing waste. Their water and air filters ensure that harmful and unlawful pollutants do not reach the environment. Stricter U.S. Environmental Legislation and U.S. Energy Regulations will make it necessary for companies to use filtration products that are made by Pall. The company also works with petroleum refiners to maximize production and develop cleaner burning and alternative fuels, another important aspect of the green movement.

[edit] Biotechnology and Vaccine Markets Require Intensive Filtration Products

Pall is relying on the biotechnology and vaccine to fuel the growth of its Life Sciences Division in the coming years. These market require eight to ten times more filtration and separation intensive than classical pharmaceutical processes, and Pall is focused on developing products for this fast-growing market.^[21] Vaccine production is becoming increasingly important due to the dramatic increase in the number of yearly flu inoculations and the development of new cancer vaccines. Filtration products are needed both during the research phase and production phase of the drugs. Thus, if a successful drug is found, the production of such a product would greatly increase the need for Pall's life sciences products.

[edit] Rising Population Around the World Will Lead to Higher Demand For Water Filtration Products

Pall's products are used to help municipal and industrial customers address pressing water quality and scarcity issues. Governments around the world are implementing stringent new regulations governing drinking water standards as the need for clean water is a priority for many developing countries. Heavy pollution in areas have also created a need for intensive filtration of water before it is safe for consumption. Increasing government regulation of toxins and other harmful products that can be released from factories have forced industry to filter water before, during, and after use both to conserve it and to meet discharge requirements. All these needs create opportunities for Pall as the company has the capability to design and engineer fluid management systems to satisfy all their customers' needs. As a worldwide company, Pall also has the capabilities to take advantage of the growing water needs of both developed and developing countries.

[edit] Growth of Microelectronics Market Fuels Pall's Growth

Pall's filtration and purification devices are used in the production of many of today's sophisticated electronics such as in semiconductors, data storage devices, fiber optics, and advanced display devices. Integrated circuits, which are used in almost every electronic device on the market, require exceedingly high levels of filtration technologies. Pall itself predicts that it will be able to capitalize on the growing demand for gaming consoles, MP3 players, flat screen TV and monitors, multimedia cell phones, and ink jet printers and cartridges.^[22] Many of these technologies are still developing with high growth potential for the future. As firms manufacture more electronic products, Pall's filtration products will also be increasingly used.

[edit] Competition

While Pall competes with many companies in the Industrial and Life Sciences markets, few companies operate in both markets as Pall does. Since the two markets are distinct from each other, Pall's diversification makes it less reliant on any one sector.

• Millipore (MIL) - Once known solely for its filtration products, Millipore has expanded into being a life sciences research company providing equipment for laboratory research and the biopharmaceutical manufacturing business. However, although Millipore has been involved in biopharmaceutical manufacturing since the 1980s, the company only began making significant inroads into the laboratory research market in 2005. Since the laboratory research market is five times larger than the biopharmaceutical manufacturing market, Millipore is investing heavily in the market both through research and development and acquisitions.^[23] Millipore still maintains a large catalog of water filtration devices as well as filtration devices for drug manufacturing that competes directly with Pall's Life Sciences Division. However, Millipore's filtration and purification devices are used solely for research and drug manufacturing purposes, and the company does not sell products in the Industrial Market.

• ESCO Technologies (ESE) - ESCO Technolgoies ia producer of engineered products for industrial and commercial applications such as digital surveillance products, utility meters, filtration products, and radio frequency shielding and testing. Their Filtration Division brought in $188.4 million in net sales in 2007 out of a total of $527.5 million for the entire company.^[24]This represented an increase of 8.2% in the Filtration Division compared to the prior year due to increases sales to aerospace customers. Pall competes directly with ECO in this sector and made $254.6 million in sales to the Aerospace and Transportation Industry in 2007.^[25]

• Danaher (DHR) - Danaher designs professional, medical, industrial, and consumer products and sells everything from microscopes to computer network analyzers. Their disinfection technologies help ensure safe drinking water and competes directly with Pall's water treatment products. In 2007, Danaher made $1.1 billion in sales in this market out of $11 billion in total revenue.^[26] Danaher also acquired ChemTreat in July 2007 to complement and grow their existing water offerings. ChemTreat also provides industrial water treatment products, thus increasing Danaher's competition with Pall.

[edit] References

1. ↑ Pall (PLL) Annual Report 2007, Company Profile, Page 2
2. ↑ Pall (PLL) Annual Report 2007, Company Profile, Page 3
3. ↑ Pall (PLL) Annual Report 2007, Company Profile, Page 2
4. ↑ Pall (PLL) Annual Report 2007, Company Profile, Pages 3 and 4
5. ↑ Pall (PLL) Annual Report 2007, Item 7, Page 33
6. ↑ Pall (PLL) Annual Report 2007, Item 7, Page 33
7. ↑ Pall (PLL) Annual Report 2007, Item 7, Page 33
8. ↑ Pall (PLL) Annual Report 2007, Item 7, Page 33
9. ↑ Pall (PLL) Annual Report 2007, Item 7, Page 33
10. ↑ Pall (PLL) Annual Report 2007, Item 7, Page 33
11. ↑ Pall (PLL) Annual Report 2007, Item 7, Page 37
12. ↑ Pall (PLL) Annual Report 2007, Item 7, Page 37
13. ↑ Pall (PLL) Annual Report 2007, Item7, Page 38
14. ↑ Pall (PLL) Annual Report 2007, Item 7, Page 38
15. ↑ Pall (PLL) Annual Report 2007, Item 7, Page 38
16. ↑ Pall (PLL) Annual Report 2007, Item 7, Pages 38 and 39
17. ↑ MSN Money, Pall (PLL) 10 Year Summary
18. ↑ Pall (PLL) Fact Sheet, Page 2
19. ↑ Pall (PLL) Fact Sheet, Page 2
20. ↑ Pall (PLL) Annual Report 2007, Company Profile, Page 4
21. ↑ Pall (PLL) Annual Report 2007, Company Profile, Page 3
22. ↑ Pall (PLL) Annual Report 2007, Item 1, Page 13
23. ↑ Millipore (MIL) Annual Report 2007, Shareholder Letter, Page 5
24. ↑ ESCO (ESE) Annual Report 2007, Management's Discussion and Analysis, Page 15
25. ↑ Pall (PLL) Annual Report 2007, Company Profile, Page 2
26. ↑ Danaher (DHR) Annual Report 2007, Portfolio Evolution, Page 11
27. ↑ Millipore (MIL) Income Statement, Yahoo Fianance
28. ↑ Esco Technologies (ESE) Income Statement, Yahoo Finance
29. ↑ Danaher (DHR) Income Statement, Yahoo Finance
30. ↑ Pall (PLL) Income Statement, Yahoo Finance