Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Sigma-Aldrich (NASDAQ:SIAL)

Q4 2012 Earnings Call

February 07, 2013 11:00 am ET

Executives

Quintin J. Lai - Vice President of Investor Relations

Jan A. Bertsch - Chief Financial Officer, Executive Vice President and Interim Treasurer

Rakesh Sachdev - Chief Executive Officer, President and Director

Analysts

Amit Bhalla - Citigroup Inc, Research Division

Daniel L. Leonard - Leerink Swann LLC, Research Division

Paul R. Knight - Credit Agricole Securities (NYSE:USA) Inc., Research Division

Isaac Ro - Goldman Sachs Group Inc., Research Division

S. Brandon Couillard - Jefferies & Company, Inc., Research Division

Daniel Arias - UBS Investment Bank, Research Division

Tracy Marshbanks - First Analysis Securities Corporation, Research Division

Jonathan P. Groberg - Macquarie Research

Tycho W. Peterson - JP Morgan Chase & Co, Research Division

Steve Willoughby - Cleveland Research Company

Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division

Eric Criscuolo - Mizuho Securities USA Inc., Research Division

Derik De Bruin - BofA Merrill Lynch, Research Division

Dmitry Silversteyn - Longbow Research LLC

Timothy C. Evans - Wells Fargo Securities, LLC, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Sigma-Aldrich Corporation's Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] And 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 J. Lai

Thank you, Bethany. Good morning. Thank you to everyone participating on this call on 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 on 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 www.sigmaaldrich.com.

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 earnings 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 believe this information may be informative to investors as well. For a reconciliation of non-GAAP measures, please see today's earnings release and the appendix to the slide presentation.

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

Jan A. Bertsch

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 benefit 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 cost, 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 benefit our Q1 2013 tax rate and expect the 2013 credit to be spread throughout all 4 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. And in the fourth quarter, we returned about $49 million to shareholders in the form of $25 million in share repurchases and $24 million in dividends.

For the full year 2012, we grew sales by 5% and generated in excess of $2.6 billion. Organic sales growth was 3% and in line with our October guidance. Acquisitions added 5 percentage points to overall sales growth and changes in FX lowered growth by 3 percentage points. Operating income for the full year 2012 was $659 million, which represented 3% growth from last year, excluding special items. Net income was $460 million and diluted GAAP EPS was $3.77. Changes in FX rates reduced our operating income by $38 million and reduced our adjusted diluted EPS by $0.22. Excluding this impact, we would have grown our adjusted diluted EPS by 8% in 2012.

And as you know, our company's earnings are impacted by changes in FX rate. As I mentioned on our October conference call, we've initiated a currency hedging program. For 2012, about 2/3 of our sales came from outside of the U.S., while a significant portion of our expenses are denominated in U.S. dollars. We began hedging our key currencies in the third quarter last year, and this should help soften the earnings impact of significant FX changes going forward. At current rates, we don't expect FX to have a material impact on our 2013 earnings. For the year, we generated $453 million of free cash flow as compared to $391 million in 2011. This was ahead of our October guidance of greater than $400 million of free cash flow. Lower uses of cash for working capital, slightly lower capital spending in the fourth quarter and favorable timing of vendor payments contributed a majority of the improvement. Some of this timing impact is likely to reverse itself in the first quarter of 2013.

Now let's look at our sales performance. In Q4, Research had 1% reported sales growth. Organic sales growth was 2%, acquisitions contributed 1% and unfavorable FX reduced growth by 2%. For the full year 2012, Research sales reported a decline of 1%. However, organic sales growth was 2%. Acquisitions contributed 1% and unfavorable FX reduced the growth by 4%. In Q4, SAFC had 21% reported sales growth. Organic sales growth was 5%. Acquisitions, primarily from BioReliance, contributed 17% and unfavorable FX reduced growth by 1%. And for the full year 2012, SAFC had 17% reported sales growth, with 5% organic sales growth, 15% from acquisitions and 3% reduction due to unfavorable FX rates.

For both Research and SAFC, the overall markets that we serve remains relatively stable to slightly improving from the third quarter to the fourth quarter. The 2% organic sales growth posted by Research in the fourth quarter 2012 was an improvement over the 1% achieved in both Q2 and Q3 of 2012. All geographic regions had stronger performance than the third quarter.

Analytical sales grew just under 5% organically in the quarter, despite a tough year-over-year comparison versus a very strong Q4 in 2011. We were pleased with the quarter and the full year performance of our Analytical business, and we're excited about our increased focus on the applied market and with our recent realignment of business units. And Rakesh will go into more detail in a few minutes on this.

Biology sales were flat in the quarter, which was a slight improvement from Q3. Academic demand remained soft during the quarter, and we feel that this trend will likely continue in 2013. There is still uncertainty on the state of NIH budget and the impact of sequestration.

Chemistry sales were also flat in the quarter but did break a 3-quarter trend of declining organic sales. We feel the impact of large pharma consolidations is moderating as evidenced by a sequential improvement since Q2 2012. Meanwhile, we continue to be pleased with our growth in small and mid-pharma accounts. Lab Essentials and Labware grew mid-single digits in the quarter, just under 5%. We continue to broaden our portfolio, such as Lab Essentials in the emerging markets and expanding our Labware offering by leveraging our capabilities in Wuxi and Bangalore. We are also pleased with our efforts to broaden our reach to customers through our dealer and e-commerce channels.

SAFC grew 5% in Q4, which was the same as in Q3. SAFC sales growth was at the low end of our guidance as Supply Solutions sales to our industrial customers were softer than expected. In Hitech, we had mid-single digit sales growth, which was an improvement from Q3. Volumes grew strong double digits but were offset by year-over-year pricing declines. Pricing declines from Q3 to Q4, however, were less than those that we experienced in prior quarters and are showing signs of stabilization. That said, we remind you that Q1 seasonally is the slowest quarter for Hitech, and that Q1 has the toughest pricing comp of 2013. Pricing comp should get sequentially better as the year progresses. Q4 SAFC Bioscience sales, which include sales of our industrial cell culture media, rebounded nicely from Q3 and posted mid-teens sales growth. SAFC Custom Pharma, which includes high potency compounds, declined low-single digits in Q4. This business had a strong Q4 2011, which provided a tough year-over-year comp. For the full year 2012, Custom Pharma was a strong growth contributor, and it looks like 2013 is off to a good start.

Turning to geographies, North American sales were flat, which was in line with the trend we expected -- we experienced for most of the year. EMEA sales improved from Q3 and approached mid-single digit organic sales growth, and the region had its best quarter of 2012. Asia-Pacific and Latin America, including Japan, remained our highest growing region with mid-single digit sales growth. India was softer in the quarter as we saw more weakness in the academic sector due to funding issues. But in the full year, India grew low-double digits. China and Brazil ended on a good note, with strong double-digit organic sales growth in the quarter.

Our adjusted operating income margin for the fourth quarter 2012 was 25.2%, a modest improvement over third quarter 2012. Compared with the same period last year, adjusting operating income margin declined by 100 basis points. Headwinds from changes in FX rates caused 120-basis point margin drop year-over-year. Also incremental amortization from recent acquisitions, which we don't exclude from our adjusted EPS calculation, caused a 40-basis point drop. Excluding these impacts, our operating margin would have been 26.8% or 60 basis points higher than our adjusted margin in the same period last year. This improvement is largely driven by operating leverage from higher sales, cost-reduction initiatives and strategic pricing actions that we took last year.

For the full year 2012, our adjusted operating margin was 25.7%, which was 40 basis points lower than in 2011. Unfavorable changes in FX rates caused a 60-basis point drop in margin and incremental amortization from recent acquisitions caused a 50-basis point drop. Excluding these 2 factors, our operating margin would have been 26.8% or 70 basis points better than in 2011. For 2013, we expect to see a modest improvement in operating margin, again through the benefit of operating leverage from higher sales and continued process improvement actions, while maintaining required investments to support our long-term growth.

Now Rakesh will comment on 2012 highlights, our recent organizational realignment and our 2013 plans. Rakesh?

Rakesh Sachdev

Thanks, Jan, and good morning, everyone. Overall, I'm very pleased that our company delivered record sales, profits and free cash flow in 2012 and delivered its 38th consecutive year of EPS growth. While 2012 had its challenges, our team was able to rise to the occasion and successfully grow sales 3% organically. We made several significant internal and external investments during the year including: expanding our footprint in emerging markets, investments in manufacturing process improvements and additional capacity for SAFC Life Science products, investments to enhance our e-commerce engine, consolidation of our distribution centers in North America and the acquisitions of BioReliance and Research Organics.

We strengthened our leadership team with the addition of Jan Bertsch, our CFO; Jason Apter, who currently heads Asia Pacific; Silji Abraham, our CIO; and Quintin Lai, Head of Strategy and Investor Relations, to name a few of the new and upcoming executives.

We took a major step of realigning the company along market segments and appointed strong leaders to run these businesses. I will have more to say about the 3 organizations shortly.

Our talented and dedicated workforce continues to place a priority in serving our customers, working safely and working efficiently. This passion is also carried through to our sustainability efforts and supporting the communities in which we live and work. In 2012, we received numerous prestigious civic, sustainability and employer of choice awards and accolades, some of which are listed on this slide.

I would like to spend a few minutes to talk about our new market-facing organization. As you know, we have been traditionally a strong product-focused company. Our product-focused strategy, coupled with our industry-leading sales channels helped us expand our reach over the years into a broad spectrum of customer segments ranging from academic and pharma biotech R&D, to clinical testing labs, to industrial applications, to bio production, to electronics. Today, we have over 1 million customers spread across numerous segments and geographies. No one customer makes up more than 2% of our overall sales, and we have built a stable sales franchise that has consistently generated organic sales growth and profits.

Over the past couple of years, we have been enhancing our strategy by using a customer-focused lens. At the beginning of this year, we formalized this approach by realigning our company into 3 business units, each with a laser focus on unique customer segments. We believe that each of these new business units are better able to tailor their product innovation programs, sales and marketing channels and customized solutions in a manner that best suits the specific needs of the customer segments they serve.

Let me share with you some of the initiatives within these business units that should enhance our future growth. In our new Research business unit, the customer focus is on not-for-profit research labs, such as academic and government labs, and on for-profit research labs, such as pharma and biotech. In addition, we have a strong global dealer network that broadens our channel across -- access to customers and geographies that they can serve more efficiently. The customers in the Research business segment are pushing the edge of the scientific envelope and are on the forefront of technology and innovation. They require product breadth, quality, consistency and convenience. They greatly value products that are easy-to-order, in stock and delivered on time to any research laboratory across the globe. For decades, this has been the core strength of Sigma-Aldrich, and we expect to continue to deliver and gain market share in these important customer segments. This business unit is being led by Eric Green. Many of you know Eric, as he has led our strong growth in the Asia Pacific and Latin America region for the past several years and has also been in key positions in Europe, Canada and the U.S. We expect to broaden our Research product portfolio through a combination of internal R&D, licensing and collaborations. And we will continue to leverage our industry-leading channel reach by adding more content. We are looking to replicate our success in China, India and Brazil to further expand in Russia, Middle East and Africa. We are also investing in improving our online scientific catalog experience with increased content and application-focused relevant online product selections.

And we are working more closely with our dealers. Initiatives such as dealers as partners program are helping drive sales growth and market share gains by complementing our direct sales and eBusiness channels. For example, this past year in a stagnant economy like Japan, the execution of the dealers as partners program helped us achieve positive above-market organic sales growth. We are now rolling out this successful program to other markets and are already beginning to see good results.

And finally, we are working with some of our larger customers to expand our offerings with more in-depth sourcing solutions. These customers have long valued and appreciated what we do for them with our own products, and they are now asking us to assume a broader role in their supply chain by leveraging our core capabilities. We see an opportunity to address these customer needs and expand our Research business.

The SAFC Commercial business will continue to be led by Gilles Cottier. This business unit formed the core of our successful SAFC franchise and has generated solid growth over the past 2 decades. During that period, through a combination of internal and external investments, our SAFC business grew from 10% to over 30% of our sales. The new SAFC Commercial business unit will serve the Life Sciences and Hitech Electronic customer segments. Our Life Science customers require critical raw materials and services that have a significant bearing on the performance of their end products, such as high potency compounds for small molecule drugs, industrial cell culture media and biological safety testing for large molecule drugs and other critical pharma-grade material. Our Hitech Electronics customers look to us to supply chemical precursors for both the LED and the semiconductor industry. Compared to Research customers, our SAFC Commercial customers look to us to provide highly specialized solutions in addition to critical raw material, components and packaging. For these customers, we are an integral part of their development and manufacturing processes and have a profound impact on the functionality of their final product. We have successfully driven mid- to high-single digit annual organic sales growth in this business and expect another good growth year in 2013.

This brings us to our business unit that is focused on applied markets. We have long served customers such as diagnostic manufacturers and clinical labs that are developing and conducting tests to diagnose disease and conditions. We also have many longstanding industrial lab customers, who are conducting tests to ensure the safety of food, water and the air we breathe among other types of tests. Given the strong growth prospects of this market segment and the specialized needs of these customers, we conclude that we can better serve them through a dedicated business unit that is able to help develop solutions and protocols. In addition, by working closer with these customers, we will assist them in developing new tests to meet their future needs. For the industrial customers, we are also supplying integral raw materials and supply solutions for various industrial applications. Frank Wicks is leading our Applied business unit. Many of you have known Frank for years, most recently as the Head of our Research business. Frank has also been Head of SAFC and was a crucial leader in the formation and success of that business unit.

On this slide, you see a list of examples of the broad range of products that we currently sell into these markets, from antibodies and oligos to diagnostic test manufacturers, to standards and sample prep to testing labs, to separation columns and lab essentials we sell to both testing and industrial labs.

We are market leaders in certified reference materials that are used to monitor and measure level of drugs in samples for workplace drug testing, medication monitoring, sports doping analysis, clinical and forensic toxicology, as well as forensic investigations. Our reference standards are used in testing of pharmaceuticals and dietary supplements, for quality control and in substantiating label claims.

In this segment, we are transforming to becoming more of a solutions provider. Here are a few examples where we have successfully provided high-value solutions to our Applied customers and which have yielded substantial sales growth for us. We provide stable isotope labeled pyruvic acid for use in diagnostic tests that are in clinical trials for the detection of prostate cancer. We provide sample prep solutions for diagnostic testing labs to isolate low-abundance proteins for cancer biomarker detection. We provide certified reference material from our Cerilliant business that are crucial in monitoring of pain medication use, and we provide sample prep and separation products for vitamin D isoform testing and identification. These are just some example of work we are doing in our applied market today.

About 23% of 2012 overall sales for Sigma-Aldrich are generated by products that are now being managed by the Applied business unit. Sales of these products have been growing in the mid-single digits organically, outpacing our Research business. Now with a more formalized and directed focus, we look forward to continued success and growth in this segment. This chart shows how the new business unit aligns with our prior 2 business units, product sales from our former Research business unit that are sold to applied labs are moved to our new Applied business unit. This includes sales of all Analytical products. Also the former SAFC Supply Solutions sales to industrial customers will go into the Applied business unit. SAFC Supply Solutions sales to Life Science customers, however, will stay in the new SAFC Commercial business unit.

The table on this slide provides a pro forma summary of overall sales and growth rates for each of the 3 business units over the past 2 years. The new Research business unit represented 57% and the 53% of 2011 and 2012 overall sales. In 2011, Research had organic sales growth of 3% and 1% in 2012. This reduction was primarily due to softness in the academic market and declines in large pharma spending as we have outlined earlier. The Applied business unit represented 23% of total sales in both 2011 and 2012. In 2011, Applied had organic sales growth of 6% and 4% in 2012. In 2012, this growth was led by strong sales to clinical and testing customers, offset by softer industrial application sales. The new SAFC Commercial unit represented 20% of total sales in 2011 and increased to 24% in 2012 with the addition of BioReliance. SAFC Commercial had organic sales growth of 11% in 2011 and 5% in 2012. Hitech Electronics experienced slower growth in 2012 due to pricing declines for LED chemical precursors. On the other hand, Life Science products, which included sales of our high potency compounds and industrial cell culture media continued to grow in the high-single digit range. We are excited about our realignment and how it is a natural step in the transformation of our company to a customer-led organization. The increasing complexity of the work done by our various customer segments requires from us specialized products and solutions, which our new organization is better able to deliver.

Now let me share our outlook for 2013. Organic sales growth is expected to be in the low- to mid-single digit range for 2013. We begin the year cautiously optimistic that 2013 will be better than 2012. However, we acknowledge that macroeconomic uncertainty continues to persist in our research and industrial markets. Our realigned Research business unit sales are expected to grow organically in the low-single digits in 2013. We expect sales growth in Asia Pacific, which includes Japan and Latin America, to be in the mid- to high-single digits. Research pharma demand is expected to continue the recent trend of modest sequential quarterly improvements, with comparables becoming more favorable in the second half of 2013.

We expect U.S. academic and government demand to be fairly flat, which assumes a modest decline in NIH funding. If full sequestration were to happen in the U.S., we expect its impact to be no more than 0.5% on our overall sales growth in 2013 and still within our organic sales growth guidance range. The Applied business unit sales are expected to grow organically in the mid-single digits in 2013 as sales to diagnostic and testing labs are expected to grow faster than sales to industrial customers. SAFC Commercial business unit sales are expected to grow organically in the mid- to high-single digits in 2013, with higher growth in the second half of the year. First quarter organic sales growth for SAFC Commercial is expected to be in the low-single digits, with an improvement to above mid-single digit growth in the second quarter. We expect sales of Life Science products and Life Science services, which includes BioReliance, to grow at or above mid-single digits for the year. Hitech Electronics sales is also expected to grow at or above mid-single digits with a tough first quarter comp and with improving comps in the back half of the year.

Turning to the company's adjusted operating income margin, we expect to improve modestly from 2012. This improvement will be largely driven by operating leverage from higher sales and continued process improvement initiatives, offset somewhat by reinvestment into our business to support long-term growth objectives. The effective tax rate for the full year 2013 is expected to be in the range of 28% to 29%. The adjusted diluted EPS forecast for 2013, excluding any restructuring charges or other special charges, is expected to be between $4.10 and $4.20. Net cash provided by operating activities is expected to exceed $560 million and capital expenditures are expected to be approximately $130 million. And free cash flow for 2013 is expected to exceed $430 million.

We expect to continue our policy on share repurchase and dividends. And our top priority continues to be investing for growth, both organically and through M&A. We apply strict investment criteria, acquisitions must fit our strategy and generate returns that create shareholder value. We are excited about our realigned organization. We are cautiously optimistic on the trends we're seeing and expect to see better growth as we go through 2013.

Our management team constantly evaluates changes in markets and macroeconomic factors, and we are prepared to take appropriate actions if and when needed. Again, on behalf of our 9,000 employees, I want to thank you for joining us today, and now let's open up the call for your comments and questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Amit Bhalla with Citigroup.

Amit Bhalla - Citigroup Inc, Research Division

Rakesh, I just wanted to ask you, first question on guidance. I'm just trying to reconcile your organic guidance versus the 6% to 7% we've heard you talk about in the past. I think you said that if you grow the 3% organic that you did in '12, 1% of price no longer a headwind, the applied markets could give you a point and emerging markets could give you another point, that's how you laid out in the past getting up to 6% to 7%. Can you just walk us through that versus what your current guidance is for 2012 -- for 2013?

Rakesh Sachdev

Yes, sure, Amit. As I said, we bridge the 6% to 7%. I think there are a couple of fundamental things that have to change for us to get to that 6% to 7%. Our Research business right now is growing in the very low-single digits. I think we've got our game plan. That's half of our company. And as we lay out our plans, I think that growth is going to move up by 1% or 2%. It's a combination of what we are doing in the emerging markets. I think as we are adding more content into our pipeline to the Research business, that's going to add more sales growth. But that's going to give us an additional growth. We are cautiously optimistic of driving up our applied market growth as our applied markets are right now growing mid-single digits. I think our own internal plans are obviously to grow much faster than that. And I'm pretty confident with the plan that Frank and his team and all of us are putting together, that's going to give us some additional growth. The SAFC business has been subdued. We grew only 5% in 2012. We expect this business to grow in the high-single digits. And I know that we had a setback because of some pricing issues in the Hitech business. But with the orders that we have begun to see in our Custom Pharma business and the SAFC business, the high-single digit growth that we've been consistently seeing in our media business, there is no reason why we won't get return back to the high-single digits in our Commercial business. So when you look at the slightly improved growth in Research that we should get, going back to the high-single digits in our Commercial business and then getting increasingly better in the applied markets, we get back to the growth rates that we have talked about, the 6% to 7%.

Amit Bhalla - Citigroup Inc, Research Division

And Rakesh, just a follow-up on SAFC. Here, I'm just trying to reconcile getting to that high-single digits. Your order book this quarter grew 2% and quarter-to-quarter it looks like it has been slowing. So if your order book is in the low- to mid-single digits, how are you reconciling getting to that high-single digits for 2013?

Rakesh Sachdev

Yes, I wouldn't read too much in the order book, Amit. I mean, it really fluctuates. Even at the end of January, we are up quite substantially. We don't report the end of Jan. But if you look at our -- what I would say is that, if you look at the SAFC business today, the new Commercial business, half of that is Life Science products. And Life Science products is industrial cell culture business and pretty much our high potency Custom Pharma business. That business has been growing in the very high-single digits, and we don't see that changing. The Life Science services business, which is maybe about 25%, that's where BioReliance is. That's where we do the services. That business is also going to kick up growth. The real issue we have had really has been the Hitech business, which grew in the very low-single digits in 2012 because of the pricing issues. We've seen double-digit volume growth. But in terms of -- because of the price, we only saw very low-single digit revenue growth in sales dollars. And that's going to comp out, so once the Hitech business starts showing good growth, we'll get back to the high-single digits in the Commercial business.

Operator

Our next question comes from the line of Dan Leonard with Leerink Swann.

Daniel L. Leonard - Leerink Swann LLC, Research Division

So on your expectations for some leverage in the business in 2013, I'm having a little trouble if I use the high end of your guidance to get to the high end of the EPS range given -- without decremental leverage, given that your tax rate is going to be lower and you have higher sales. So can you walk me through that?

Rakesh Sachdev

Yes, sure. So I mean, if you look at the full year, we can try and -- we have said mid- to -- low- to mid- -- high-single digit -- low- to mid- sales growth, that's somewhere in the -- I'm saying in the range of 3% to 5% growth. And if you look at that and you apply that, we are going to get at least about $0.14, $0.15 from the growth in the business. If you -- our SG&A is probably going to be higher in 2013 because we are plowing some money back. We are going to get some pricing. I would say between pricing and volume and mix, we probably get at least another $0.30 from this year. We are probably going to see some benefit from tax rate as well, that's maybe another $0.05, $0.06, I believe that's the number, Jan, and we're going to have a little bit of SG&A headwinds, but we'll try and offset that with some productivity.

Daniel L. Leonard - Leerink Swann LLC, Research Division

But I guess to clarify, you do expect operating margins to increase in 2013 as part of guidance from 2012 levels?

Rakesh Sachdev

We do. As I've said, we expect operating margins in a normal year to go up about 50 basis points. That's typically what we plan for. And there are some years where we reinvest some of this margin back into some of the things we are doing. This year, we are going to be making more investments in our new SAP systems. We are also investing ahead of the growth in some of our applied markets. So yes, we do expect a modest expansion. Whether we will deliver the entire 50 basis points or something less, that depends on what the investment opportunities that we see over the course of the year.

Daniel L. Leonard - Leerink Swann LLC, Research Division

Okay. And then my follow-up question. The acceleration in organic growth that's baked into the high end of your guidance. What are the primary 1 or 2 drivers behind why organic growth would accelerate from 2012 levels?

Rakesh Sachdev

Yes. So I think there are several things that we are doing in each of the businesses that give us more confidence in growing. I think in the Commercial business, we've been getting increased orders in our pharma-grade business. So we clearly see that in the second half of the year, we have some orders that we have from customers that will give us more oomph. I would say that there are also comp issues. The pricing issue in the Hitech business would be less in the second half of the year. I think the pharma business, as we just said, is also -- the headwinds are becoming less from a comp standpoint. And we have some other things that we are doing with customers that give us a little more confidence that the second half, we will get better orders, and we will grow our sales.

Operator

Our next question comes from the line of Paul Knight with CLSA.

Paul R. Knight - Credit Agricole Securities (USA) Inc., Research Division

On the free cash description in your press release, you mentioned it would be equal -- your share buyback would be equal to offset dilution. Is this a change in that you won't reduce fully diluted share outstanding in the future and refocus it more on M&A flow?

Jan A. Bertsch

No. Our strategy, Paul, has been pretty consistent in the past related to share buyback. And I think we'll continue that strategy for -- going forward. But on occasion, we have adjusted that to take advantage of share price or other reasons. So we'll continue that strategy going forward. Clearly, our largest focus is on growing the business profitably. And that's where we'll be placing the majority of our focus going forward. But I don't think you should plan on anything too different in 2013 for your modeling purposes.

Paul R. Knight - Credit Agricole Securities (USA) Inc., Research Division

And then the next question is on the operating margin or gross margin decline. How much can you attribute to BioReliance? And then lastly, how is BioReliance progressing?

Rakesh Sachdev

Yes. So I think we said that the acquisitions, which include the amortization expense that we recognized this year, probably reduced our operating margins by probably a little more than 100 basis points, probably 150 basis points. One of the things that we do not do, like many of our peers do, is we do not call out the amortization expense. What I will tell you though is that our total amortization expense related to acquisitions is about $28 million this year -- in 2012, and that was about $16 million higher than the prior year. So in fact, we absorbed about $0.15 of amortization expense in our EPS that if you had been following what the other companies do, we would have increased our EPS by about $0.15, but we don't do that. But I'm just saying that, that's kind of what has affected, again, our margins and our EPS. But we have been a fairly GAAP-ish company, and that's what we continue to do.

Paul R. Knight - Credit Agricole Securities (USA) Inc., Research Division

Okay, great on that. And then the last is on this reorganization of the sales force. Is that done? Is the territories been sorted out, all the realignment or is that still getting wrapped up?

Rakesh Sachdev

Now that's a very good question. Actually, we had started our planning of doing this really in the fourth quarter of last year. So we have spent a lot of time working through the organization. So when we announced it, we are ready to go. Of course, as you can imagine this, our leaders continue to do some realignment, but I would say for the most part, the teams are together. I think the work plans have been defined. The goals have been defined, and we are going to hit the ground running. Obviously, it's going to take several months for this to be in full force. But so far, what I would tell you, the people in the company and our customers, mind you, are very, very excited with the approach that we have taken.

Paul R. Knight - Credit Agricole Securities (USA) Inc., Research Division

So you see more momentum on the upside than any disruption?

Rakesh Sachdev

Absolutely. That's why we say we are remaining cautiously optimistic because I think we are going to open up new opportunities that -- with this organization that in the prior organization would have been somewhat a little more difficult to identify.

Operator

Our next question comes from the line of Isaac Ro with Goldman Sachs.

Isaac Ro - Goldman Sachs Group Inc., Research Division

Wondering if you could maybe specify a little bit more what's baked into your guidance assumptions for pricing this year, that's sort of my first question.

Rakesh Sachdev

Yes, Isaac. I think we have still got about for the Research business. We also get some pricing in the Applied business. In those 2 businesses, we would expect somewhere in the 1% to 2% price this year.

Isaac Ro - Goldman Sachs Group Inc., Research Division

Okay. And what did it end up being last year? Just trying to figure out if pricing is similar or...

Rakesh Sachdev

I think it was about the same.

Isaac Ro - Goldman Sachs Group Inc., Research Division

Okay. Okay, and then in terms of the LED business...

Rakesh Sachdev

Just to clarify, even though we got that, last year we had some negative pricing on the SAFC side because of Hitech.

Isaac Ro - Goldman Sachs Group Inc., Research Division

So you're saying it was about 1% to 2% inclusive of a headwind in the SAFC side?

Rakesh Sachdev

I think we were probably at the low end, maybe closer to about 1% because of the negative headwind on the Hitech side.

Isaac Ro - Goldman Sachs Group Inc., Research Division

Okay. Okay. So directionally, you're hoping that pricing's a little bit more of a tailwind this year?

Rakesh Sachdev

Yes, we are hoping that it'll be a little better this year, but we will monitor the situation and see how it goes.

Isaac Ro - Goldman Sachs Group Inc., Research Division

Okay. And then last one for me is on the LED business, can you maybe give us a little bit of an update on how that's trending now that you've got more capacity, and what your expectations are for that business this year?

Rakesh Sachdev

Yes, as Jan said, I think the pricing environment is getting more stable. We didn't see much of a pricing decline from Q3 to Q4. And I think that -- this is for the LED, just so you know that in our Hitech business, about 70% or 75% is the LED business, and the other 25% or 30% are precursors related to semiconductors. What I can tell you, our business on the semiconductor side is solid. We don't have a pricing issue there. And in fact, I think that business is going to -- is going to grow nicely in both terms of volume and prices in 2013. The other 70% that's tied to LED, a big part of it is supplying a certain precursor, it's the trimethylgallium. But we also do other specialty precursors that do not have the same kind of pricing headwind. But on the high volume precursor, which is the trimethylgallium, there has been a lot of pressure in pricing. And I think that's beginning to stabilize. And the volumes continue to grow. As I said, we saw double-digit volume growth for the year and in the quarter, and we expect that going forward too. Now the first quarter is seasonably very weak in the whole Hitech Electronics business. And so I think we would expect the first quarter to continue to show some weakness in terms of just the comp, the growth, because first quarter of last year -- sorry, in 2012, the pricing hadn't come down, so this will be a tough quarter for Hitech from a comp standpoint.

Operator

Our next question comes from the line of Jon Wood with Jefferies.

S. Brandon Couillard - Jefferies & Company, Inc., Research Division

It's actually Brandon Couillard in for Jon. Rakesh, now that the balance sheet's back in a net cash position, just curious if you could speak to how you perceive the current deal pipeline and then perhaps discuss your appetite for potentially a larger transaction in 2013.

Rakesh Sachdev

Yes. So I think as I have consistently said, that we want to look at both organic and inorganic growth. Our pipeline, as I've also said, is largely made of evaluating candidates that are typically what we would call bolt-ons because that's just the nature of the industry. I would say that, now that we have got these 3 business units, we are clearly seeing, perhaps, more opportunities in our Applied business unit. I think there are opportunities for us to get even more capabilities there and grow the business, not at the occlusion of candidates that we are looking at the other 2 businesses, but that's kind of how we are looking at that. In terms of size, we don't -- we are not saying that we are only going to do small transactions or we have a desire to do very large transactions. At the end of the day, it has to make good strategic sense. We have to have the right valuation. We don't want to overpay. We are a very ROIC-minded company as you know. We deliver very high return on invested capital for our shareholders, and so we want to make sure that as we make these acquisitions that we can get to the returns that are above our cost of capital in a relatively short period of time. So that's how we look at it.

S. Brandon Couillard - Jefferies & Company, Inc., Research Division

All right. That's helpful. And then, Jan, just on the tax rate, could you break out the magnitude of the R&D tax credit benefits, both in the first quarter and in 2013 and how should we model the tax rate in the first quarter relative to the balance of the year given it sounds like you have a double R&D benefit?

Jan A. Bertsch

Yes, that's correct. So for the full year, again, we're looking at a 28% to 29% tax rate. For the first quarter, I'm thinking it's somewhere in the range of 26% to 27% because we will get the full benefit of the 2012 R&D tax credit in the first quarter and then the 2013 tax credit will be feathered in throughout all 4 quarters. And then typically too, I think our third quarter is a little bit lower tax rate in general than our second and fourth quarter. So I'd say, 26% to 27% in the first and 28% to 29% for the full year.

Operator

Our next question comes from the line of Dan Arias with UBS.

Daniel Arias - UBS Investment Bank, Research Division

Rakesh, I think you were expecting a large cell culture order that got pushed off in 3 to come through this quarter. Was that the case?

Rakesh Sachdev

Yes, we did. Our cell culture business actually grew in the mid -- yes, in the teens in Q4. So we had a very good fourth quarter for the cell culture business.

Daniel Arias - UBS Investment Bank, Research Division

Okay. How should we expect that demand to pace through the year? Do you think there's some lumpiness there or might things be a little more difficult?

Rakesh Sachdev

Yes, there's always lumpiness in purchases of the cell culture media. Our customers buy those in lots and batches. But I would say that, if you look over the course of the full year, we still expect that to be in the high-single digits. It's a business that has natural growth, and we remain pretty optimistic about that business.

Daniel Arias - UBS Investment Bank, Research Division

Okay. And then on Hitech, can you just remember -- remind us what your competitors are doing there in terms of capacity. I know there aren't too many of them, but I guess how much of what you're doing with regards to expansion represents a leg-up on competition versus more of just a collective industry move to increase supply there?

Rakesh Sachdev

Yes. So as we have noted, there are only a handful of suppliers that supply these precursors. I think when the industry 2 years ago was going through an extreme shortage, all of us made the investments. We have put the capacity in. I think, I would say, that there is probably sufficient capacity at least for the foreseeable future for the industry. But my guess is that going towards the end of this year, going into next year, the industry will be faced with another decision about whether we're going to add more capacity and how much more capacity. So I think that's where we are.

Daniel Arias - UBS Investment Bank, Research Division

Okay. Actually, if I could sneak one more quick one in for Jan. Jan, I heard you give the top -- the FX impact to earnings, but I think I missed the top line impact for the year.

Jan A. Bertsch

The top line impact for 2012 was about $83 million on sales and about $38 million on our EPS line. So it was about $0.22 for the year.

Daniel Arias - UBS Investment Bank, Research Division

Okay. And for '13?

Jan A. Bertsch

For '13, we're just saying, at these tax rates -- I mean, at these FX rates, excuse me, I think we're pretty flat actually. We certainly know that the euro has strengthened, and that's a big currency for us. And the yen has weakened, and that's also a big currency for us. And then when we look at that, and we overlay some of the hedges we've put on, I think we're pretty flat at rates up to date.

Operator

Our next question comes from the line of Tracy Marshbanks with First Analysis.

Tracy Marshbanks - First Analysis Securities Corporation, Research Division

Really just to confirm on the first one, your 2012 tax credit is included in your EPS guidance range?

Jan A. Bertsch

That's correct.

Tracy Marshbanks - First Analysis Securities Corporation, Research Division

Okay. I think you noted that China came through with a solid quarter. What's your -- do you have any improved visibility in outlook on China? Are you comfortable with where that's sort of set for 2013?

Rakesh Sachdev

Yes, I think so. In the fall of 2012, we had seen some weakness, as I had mentioned on one of the earlier calls, in the industrial businesses. Our Research business continued to do quite well and Q4 was quite strong in China and Q4 was one of our better quarters last year, with a strong double-digit growth. In fact, if I look at the full year for 2012, China and India, both were in the double digits. Brazil was near double-digit. And Japan surprisingly was our -- had one of the best years, at least since I've been in the company. A lot of credit to what our dealers have begun to do for us in Japan. So yes, we remain cautiously optimistic in the whole Asia Pacific segment for 2013.

Tracy Marshbanks - First Analysis Securities Corporation, Research Division

And just a follow-up on a couple of the businesses, a little bit on the business dynamic. Custom Pharma obviously, you're looking for a good year. Is that, that you're bidding out projects and work and it looks strong or you sort of have those lined up and work planned out that keeps it strong? And on BioReliance, sort of the same, I guess, you had real fat bookings, but does that translate to -- how does that translate to visibility broadly in 2013?

Rakesh Sachdev

So the Custom Pharma is one of the businesses that I think we have pretty good visibility. And this is where we work with the customers for quite some time before it transcends into an order. And I'll tell you, that's why we are quite optimistic is -- and that's why this business grew double-digits in 2012. We expect a strong year in 2013 because the customers that we've been working with to validate the products that we produce in our high potency plants, that doesn't happen overnight. And so we have spent months and months validating our products. I think the pipeline is pretty good as we look at 2013, and we feel pretty good. BioReliance, the visibility is probably less than the Custom Pharma business. But I would say that BioReliance had their best month in December. And we ended the year with probably the strongest order book that we have had in any of the previous months in BioReliance. I think that the work that our people are now beginning to do jointly with the sales teams of BioReliance and the legacy Sigma-Aldrich team, I think it's going to begin to start paying off. As I've said, the sales cycle is longer in the whole safety testing business, and I still -- we still remain quite optimistic that the synergies that we have talked about when we acquired the company will come to fruition here over the next 12 to 24 months.

Operator

Our next question comes from the line of Jon Groberg with Macquarie.

Jonathan P. Groberg - Macquarie Research

I guess just following up on the question that was asked before, Rakesh, about the realignment. I'm just thinking about, as you said, you are -- have historically been a product-driven company. Everyone's been out there and visited your company to kind of get to feel to how it's run. I guess, I'm just trying to understand, can you maybe talk a little bit about exactly internally the reorganization that is occurring? So kind of people that were focused on specific products that might overlap into 2 different industry -- into 2 different customer-focused segments, just kind of how you're dealing with that, how you're organizing that? And then just also, are you going to provide any more breakdown on those kind of historical -- the new customer-focused segments from like a quarterly basis? Or kind of what you gave today is that kind of as far as you're going from a historical business in terms of what the segments look like?

Rakesh Sachdev

Yes. As far as giving the quarterly numbers historically, we can certainly do that. I would say that those numbers -- I think the annual number should give you a fairly good grasp on what the quarterly numbers would have been. As far as growth, we can -- I'm sure Quintin can get you some information down the road here. But to answer your first question about the realignment, we are still going to keep our product groups. We have very strong product groups. We still have the Analytical product group. We have our Biology product leaders. And so for instance, the whole Analytical product group today now resides in our applied market, but it supports the Research business as well. We have -- we still have our chief scientific officer who is working on different things. Where we have made the separation is clearly the customer-facing side. So when it comes to the marketing and sales, we have dedicated people into these 3 businesses. They're the ones who are now going to drive the product plans and work with our product teams and our R&D teams to deliver the products that they believe are the products that our customers need and will create the most value. So we pretty much, as I said, we've been doing this for several months. We only formally announced this early part of this year. But we've been working through this, I would say now, for the good part of 4 or 5 months.

Operator

Our next question comes from the line of Tycho Peterson with JPMorgan.

Tycho W. Peterson - JP Morgan Chase & Co, Research Division

Maybe just as a follow-up to that last one, can you talk about your profitability for the Applied division? And do you need to make big additional channel investments here? And then a quick follow-on to that, operating cash flow looks like it's not growing year-over-year in terms of the guidance if you could just elaborate on that.

Rakesh Sachdev

Jan, you want to take the operating cash flow question?

Jan A. Bertsch

Sure. So on the cash flow, Tycho, you're right. I mean our actual is about over $450 million and our guidance is $430-plus million. However, there were a couple of things, let me just point out. First of all, there was -- at the end of every quarter, we have some fluctuation in our payables. And you might recall, I think, it was the end of the third quarter, we underachieved on that, and we slightly overachieved at the end of the fourth quarter. So I think there is probably $10 million or so that is going to come to hit us in the first quarter here that was just -- we had the benefit of last year. The other piece is the capital spending. Now we continue to make further investment in our business. CapEx spending is going to go up a little bit year-over-year, a little bit lower last year than our forecast. So I think between those 2 things explains the reduction in the free cash flow. But as always, we'll continue to drive that number and as we continue to get top line growth, we'll see more of that fall through to the bottom line.

Tycho W. Peterson - JP Morgan Chase & Co, Research Division

And then on the profitability of the Applied business and channel investments you need to make there, Rakesh?

Rakesh Sachdev

Yes. So again, we're not reporting out our segment profits. What I can tell you though is that clearly our profitability in the Research and the Applied are both, I would say, are fairly similar. They are both quite high. Both businesses are very profitable, not that the Commercial business isn't. But our Commercial business, as you know, our margins are a little lower than our Research and Applied businesses. But again, on an ROIC basis, the Commercial business is also very, very good. So in terms of the investments, I would say the investments in the Applied, clearly we are adding more people to work closely with a lot of these applied labs. In the scheme of things, I think the total cost around salaries and payrolls isn't going to be very different than what we have seen. It's just that we are going to be reallocating resources into the areas where we see a lot of growth prospects. But that's beginning to happen as we are building some of our teams in the channel. We don't need a separate channel as such. It's just customer-facing folks that we are probably going to add a few, both in the U.S. and in Europe.

Operator

[Operator Instructions] Our next question comes from the line of Steve Willoughby with Cleveland Research.

Steve Willoughby - Cleveland Research Company

In the past 2 quarters, your SG&A spending has come in a little bit below where you guys were expecting. I was just wondering if that was you guys just maybe being a little bit conservative or if you pushed off some expenses or just -- so if you could talk about what's kind of going on there?

Jan A. Bertsch

Sure, that's a good question. You're right, we have really spent a lot of time last year on trying to curtail discretionary spending in light of what the economy was looking like. And so I think going forward here, first of all, with our new organization, there is a cost of launching a new organization. There is an investment into our new organization that we'll make. And so I think that SG&A spending, instead of the roughly $150 million per quarter that we've been running at, probably a more appropriate number is in the $156 million or slightly higher range for the quarter. And we'll continue to rein back on discretionary spending, but I think with the new growth initiative, with the new organization and potentially with the euro swings, probably closer to the $156 million type of number.

Operator

Our next question comes from the line of Jeff Elliott with Robert W. Baird.

Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division

Just curious on the fourth quarter, did you see the impact from Sandy? On the realignment, I didn't hear anything about Michael Harris. Can you say where he ended up?

Rakesh Sachdev

Sure. Well, really, we didn't have any significant impact of Sandy. I mean, we had some, but didn't think it was material enough to call out. So we didn't call it out. As for Michael Harris, as you know, Mike has been in Europe. He is moving to the U.S. to take a leadership position in our new Research business, and he's going to be heading up our global pharma business in Research. And I think we are excited to have him come over to the U.S. and lead this global business under Eric Green. That's what he's going to be doing.

Operator

Our next question comes from the line of Peter Lawson with Mizuho Securities.

Eric Criscuolo - Mizuho Securities USA Inc., Research Division

This is Eric filling in for Peter. Just on the end markets this quarter, was there any particular end market or particular customer segment that you saw a substantial change from last quarter?

Rakesh Sachdev

Not really. I think the only thing where we saw a little ray of hope was academia. I would say there are 2 areas where we felt good about. Academia was stronger in Q4 for us than Q3. And Europe, Europe was -- I know a lot of our peers have called for weakness in Europe. This was our strongest quarter in Europe in Q4. We grew close to mid-single digits. And some of that growth, of course, came from SAFC in the Bioscience business, but even our Research business. There was some countries where we saw some tremendous strength. Southern Europe was strong. Italy was extremely strong for us. France was strong for us. And so Europe was good. We are cautiously optimistic that, that's a good area for us right now. And I think academia, we'll wait and watch, but -- and I would say the other area where we did a little better was pharma research where we saw less of a decline, which gives us a little hope that maybe we are anniversary-ing out some of these consolidations.

Operator

Our next question comes from the line of Derik De Bruin with Bank of America.

Derik De Bruin - BofA Merrill Lynch, Research Division

Jan, can you sort of walk us through how you see the gross margins progressing through the year? Just because obviously there is a lot of FX impact now that you're hedging. I'm just curious, how should we think about the gross margin progression?

Jan A. Bertsch

Right. Well, I know that -- in the fourth quarter, we saw a gross margin that was a little bit under the third quarter and certainly under the fourth quarter of 2011. But that year-over-year change really was a result of, as Rakesh had mentioned previously, new acquisitions, some FX, of course, and then maybe some unfavorable mix. But going forward, when we look at fourth quarter, I would say the first quarter of this year and subsequent quarters should be slightly higher than the fourth quarter of 2012, and probably 2013 a pretty similar full year gross margin to what we saw in 2012.

Derik De Bruin - BofA Merrill Lynch, Research Division

Great. And quick one, M&A impact that you're looking at for the full year?

Jan A. Bertsch

M&A impact, we don't...

Derik De Bruin - BofA Merrill Lynch, Research Division

To the top line, to the top line contribution to M&A for 2013.

Rakesh Sachdev

1 month of Bio.

Jan A. Bertsch

BioReliance, we purchased at the end of January of 2012. So basically, we have 1 month of impact of BioReliance and 3 months' impact from Research Organics, which is much smaller.

Operator

Our next question comes from the line of Dmitry Silversteyn with Longbow Research.

Dmitry Silversteyn - Longbow Research LLC

A lot of my questions have been answered, but I just want to touch base on the working capital that you finished the year with. Overall it looks like it went up about 4 points versus from a couple of years ago. And for the first time in many years, you saw a tick down in inventory turns. So my question is, how much of that has to do with just more of your business going into emerging markets and into regions where there's just longer payment terms and more inventory needed to be carried? And how much of it is sort of a preparation for a stronger 2013 or if there's anything else behind that increase, days sales outstanding and working capital?

Jan A. Bertsch

Okay. Well, on the inventory side, our inventories were higher at year end than they were at year-end 2011. And some of that had to do with some increase in SAFC inventory to meet production demand and some of that had to do with new products, maybe about $15 million or so, $15 million, $20 million for new products as well. And then of course our inventory went up a little from acquisitions. So the absolute inventory level increased year-over-year. Clearly, as part of our working capital focus, we'll be looking at ways that we can improve upon not only the absolute level, but as a percent of sales how we manage our inventory. So that is a focus for 2013, and we'll continue working on that. On the growth outside of the U.S., it does impact a little bit our receivables terms and things. But we also have some strategies in place to try to manage that. We are putting a big focus on that. We do see some variation in various countries, but it's not material. We are keeping an eye on it. We're making sure that we're addressing that with specific customers of ours, and we'll continue to do so. So the increase in receivables year-to-year, a lot of that has to do with acquisitions. And a little bit, we had higher sales in 2012 December than we did in 2011 in December, so from a year-over-year perspective, that was up a little bit due to that.

Dmitry Silversteyn - Longbow Research LLC

So if I think about this longer term, is your goal or do you have a goal of operating working capital down to a certain percentage of revenue? Is it back down to 30% that you saw in 2011 or do you think you can get into the high-20s as you were a few years back?

Jan A. Bertsch

Well, we do have a goal internally on the inventory side to do a little more rationalization on that and to bring down that inventory level. Hopefully, a couple of points over time here. But with the over 200,000 products that we have and with our complexity of that, it's a difficult task. But we do have focus on it this year and hopefully we'll see some improvement on that end.

Operator

Our next question comes from the line of Tim Evans with Wells Fargo.

Timothy C. Evans - Wells Fargo Securities, LLC, Research Division

Just to step back one more time on the big picture long-term guidance. We haven't really seen the level of growth that you're looking for, the 6% to 7% in any year post financial crisis. I'm wondering, to what degree -- you called out several levers that you have to pull to try to get back there. To what degree do you feel like you have control over that growth in the future? Or does it really depend on a macroeconomic improvement relative to the kind of the GDP growth levels we're seeing right now?

Rakesh Sachdev

Well, if you look at the big picture, again, half of our business is -- and when I say half of our business, you look at our Commercial business and look at the end markets where we sell. It's the Life Science products, biological drugs. It's even the electronic segment itself and then you look at the applied market. So if -- and those 2 make up half of our business. Those end markets, we believe, are growing in the high-single digits, mid- to high-single digits. And so we are, I think, in the right markets. If we just grow with the markets, we're going to get there. And in fact, with some of the things that we are doing because we are fairly unique, we think we should outperform the market. The wildcard is the other half of our business, which is Research, right? So that's 50% of our business. And there we have been growing, at least in the emerging markets, there's still a lot of runway for growth in Research, and that's probably about 20%, 25% of our business. And then the question is, when you look at the other 30%, 40% of our business, which is the Research business in U.S. and Europe, how are we going to grow in the low-single digits because if we can grow that in the low-single digits, we get back easily to the 6%, 7% for the whole company, and those are things that we are working on now. We believe that we have the best pipe into all the research labs around the world and the question is, what content can we put in that pipe to give us that growth? And I can tell you, we have been working very diligently with our customers and collaborations with potential partners to say, what can we put in that pipe that will allow us to grow even in these -- even in flat markets? Because we want to growth in the low-single digits in flat markets, and of course, grow much higher when the markets are growing more than that. And that's what we're going to do.

Operator

I am showing no other questions. I'd like to turn it back to management for any closing statement.

Quintin J. Lai

Thank you, Bethany. Thanks again for your participation on today's conference call. I want to highlight that we'll be hosting our annual Investor Day in St. Louis on Thursday, March 21. We expect to release the results for the first quarter of 2012 (sic) [ 2013 ] before the market opens on Thursday, April 25, and we'll follow that with a conference call that same day at 10:00 a.m. Central Time. This concludes today's call.

Operator

Ladies and gentlemen, this does conclude your conference. You all may disconnect and have a good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Sigma-Aldrich Management Discusses Q4 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts