Tired of reading about Wall Street alchemy gone bad? Had your fill of CDS that are now DOA? Well then, why don't we dig into Pall Corporation (NYSE:PLL), a company that has this crazy notion of producing actual cash profit by making real things and selling them to real people. I know, I know ... that's so 20th century. (To learn more, read Everything You Need To Know About Earnings.)
Real Business, Real Numbers
For those not familiar with Pall, this company is in the filtration business. It sells a variety of filtration, separation and purification products into diverse markets like healthcare, pharmaceuticals, aerospace, water, electronics and so on. On the life sciences side, Pall competes with the likes of Fresenius (NYSE:FMS), General Electric (NYSE:GE) and Millipore (NYSE:MIL), and with other companies like Parker Hannifin (NYSE:PH), Siemens (NYSE:SI) and Rohm & Haas (NYSE:ROH) on the industrial side.
The reason for today's write up is that the company just reported fiscal fourth earnings, and they were solid. Sales rose about 12% as reported, and were up just under 5% on a currency-adjusted basis. The company posted both volume and price increases - a valuable one-two punch for any company.
The Finer Points
I was reasonably impressed to see that margins were stable for the period; not an easy trick when the cost of practically everything is going up. I don't believe that any company really sees itself avoiding the overall increase in input costs, but Pall's ability to push through some prices increases does help mitigate the damage. (To learn more about margins check out Analyzing Operating Margins.)
On the flip side, I would have liked to have seen a little better performance on cash flow.
Operating cash flow for the year was basically flat once you add back a tax payment, but free cash flow was down either way. Now I know the textbooks say that you want to find companies with steadily rising free cash flow, but sometimes you do need to spend some money to make money. As long as Pall management keeps the return on assets and return on invested capital moving in the right direction, I would not be too concerned about a little noise in the free cash flow. (For more detail about cash flow, check out The Essentials Of Cash Flow.)
Not Goldilocks, But No Bear Either
Pall's valuation does not seem too high right now, particularly relative to the performance of the business and the growth prospects in the Asian markets. But remember, these aren't the most stable times in the market, and it is difficult for me to get excited about any stock that isn't exactly "just right" in terms of quality and valuation.