Executives
Kirk Richter - Treasurer
Rakesh Sachdev - Vice President, Chief Financial Officer and Secretary
Jai Nagarkatti - President and Chief Executive Officer
Analysts
Dan Leonard - First Analysis
Amy Zhang - Goldman Sachs
Quintin Lai - Robert W. Baird
Isaac Ro - Leerink Swann
Dmitry Silversteyn - Longbow Research
Douglas Judy - KeyBanc Capital Markets
John Roberts - Buckingham Research
Derick De Bruin - UBS
Sigma-Aldrich Corp. (SIAL) Q1 2009 Earnings Call April 23, 2009 11:00 AM ET
Operator
Good morning. My name is Shaun and I will be your conference operator today. Today's conference is being recorded. At this time I would like to welcome everyone to the Sigma-Aldrich First Quarter 2009 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions).
I will now turn the call over to the Mr. Kirk Richter, Treasurer and Investor Relations contact. Please go ahead, sir.
Kirk Richter
Thank you. And let me also say good morning and welcome you to our conference call. With me today are Jai Nagarkatti, our CEO and President and Rakesh Sachdev, our CFO.
After my introductory comments, Rakesh will review our first quarter performance and full year 2009 outlook. Jai will follow that with comments on our performance and the market conditions. After completing those reviews we will open up the call for your questions and comments.
We will be using a slide presentation as part of today's call. That presentation can be viewed by accessing our Investor Relations website.
Before we do begin these reviews, I do need to remind you that today's comments will 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, 2008, and in the cautionary statement that is included in today's release and in our slides.
We have no plans to update these forward-looking statements after this conference. Also, SEC regulations require us to provide information on any non-GAAP financial measures covered in today's conference. That information, which consists of currency adjusted sales growth, profit and EPS results, on both the pro forma and reported basis and free cash flow is also contained in today's earnings release, which is posted on our website.
Now I'll ask Rakesh to begin our review. Rakesh?
Rakesh Sachdev
Thanks, Kirk. As we reported in today's release, first quarter sales were $519 million, a decline of 9% or $50 million from last year's first quarter. Excluding a 10% impact from currency, sales would have been higher by 6 million or 1%.
As indicated in our last conference call, our plan for 2009 was to achieve low single-digit organic sales growth. We achieved that this quarter. We had also indicated that we plan to maintain our earnings per share at or slightly above 2008 levels.
I am pleased to report that despite the strong negative currency impact, we are on track to achieving that goal. We are maintaining our organic sales growth guidance for the full year of 2009, and now expect diluted earnings per share for 2009 to be slightly above last year's record of $2.65.
Our first quarter 2009 net income of 84 million was right in line with what we reported for the first quarter of 2008. And net income, exclusive of a $16 million currency impact was up 19%, as we delivered on our promise seek process improvement benefits and manage costs to offset the currency impact. I'll provide more details on how that was achieved, shortly.
Finally, our reported diluted earnings per share for Q1 was up 6% to $0.68 from $0.64 a year ago. The increased growth and EPS over net income is attributable to our share repurchases since the first quarter of last year. Excluding the negative impact of currency, diluted earnings per share would have been $0.81, representing a 27% increase.
In this environment, where cash is king, we were very pleased to generate free cash flow of $86 million in the first quarter of 2009, an increase of 22% when compared to the same quarter last year.
If you go to slide four, our organic sales growth in Q1 reflects the challenging market conditions in certain of our end markets. The currency benefit that we enjoyed for all of 2008 changed to a headwind of 10% in the first quarter. As the euro and other major European and Asian currencies weakened relative to the US dollar during the quarter.
Our three research based units that provide 74% of our total sales had a combined currency adjusted sales gain of 3.4% in the first quarter compared with 2008 first quarter, and were solidly up 6.8% from the fourth quarter of last year.
As indicated in our release, Research Biotech and Research Specialties achieved organic growth of roughly 2%. And Research Essentials grew at a more robust rate of 7%.
Several of our research based product groups provided organic growth in the mid-to-high single-digits versus the previous year. Each of our research based business units experienced moderate to strong growth in sales to the biotechnology and pharmaceuticals companies and universities, reflecting the somewhat recession resistant nature of those businesses. However, we remain cautious about the continued growth and demand for research products and services.
Currency adjusted sales for our Specialty Fine Chemicals business were roughly 5% lower this year, compared to the first quarter of 2008, and were also down roughly 5%, compared to last year's fourth quarter. Our sales declines and our high-tech non-Life Science products and our custom pharma business were only partially offset by improved sales in our BioScience industrial media business.
In this slide, as you can see, we are particularly pleased with our ability to maintain operating income near last year's levels, despite a currency headwind of $24 million. Excluding the impact of currency, gross profit would have been up by $10 million and SG&A expense improvement would have shown a $12 million improvement versus a year ago.
As you can also see, compared to the fourth quarter of last year, we have also made additional progress in profitability. This was primarily due to higher sales and our ability to reduce cost and improve operating efficiencies. So, let's look at what's driving our margin improvement from a year ago.
As you can see from this analysis, our overall pretax margin improved by 180 basis points to 23.6% when compared to last year. As previously mentioned currency was a significant headwind for us during this quarter and reduced our margins by 2.2% of sales. More than offsetting this were contributions from our supply chain initiatives, reductions in SG&A expenses and the impact of our strategic pricing actions last fall.
This next slide can see, our cash flow continued to be a strength. Free cash flow improved by $16 million or 22% due largely to lower levels of investments in working capital. We expect to again realize more than $300 million in free cash flow for the full year of 2009 after capital investments that are expected to be about $110 million.
Consistent to what we reported a few months ago, we have not encountered any change in our ability to place short-term debt in the U.S. or international markets. We have a strong balance sheet and have sufficient cash and borrowing capacity to adequately fund our operations and make selective acquisitions.
Our performance expectations for all of 2009 remains consistent with our earlier forecast. Organic sales growth is expected to be in the low single-digits. At current rates, currency will likely reduce that by about 8%.
On profitability, we believe that we can deliver diluted earnings per share for 2009, slightly above the record $2.65 we reported for 2008. Given our performance in the first quarter, we expect to deliver our full year guidance. That guidance is based on our belief that our markets will not change much from our first quarter experience.
We expect currency will remain a strong headwind. But our supply chain activities and cost management activities are expected to offset a roughly $0.50 currency impact that is based on current rates.
Now, I'll ask Jai to complete our review with comments on the drivers of our first quarter results and current market conditions. Jai?
Jai Nagarkatti
Thank you, Rakesh. And good morning everyone. Let me start by affirming what Rakesh said about our first quarter performance. I am very pleased with our results. There is no doubt that market conditions were challenging. But, what we achieved in the first quarter by delivering modest organic sales growth and improved margins is right in line with what we expected.
Scientists around the globe depend on Sigma-Aldrich for high quality products and unsurpassed service. Our broad capabilities in product offering, a strong commitment to service, coupled with our customer and geographic diversity is helping us through the current economic environment.
As Rakesh indicated, our research business has been somewhat recession resistant. Customers like the quality of our products and our ability to deliver on a timely basis. And they need products like ours to do their work.
Our SAFC business, while a little more affected by market conditions does have a loyal following from customers. But we are not taking anything for granted, but rather constantly looking for ways to take share in our markets.
Further, we are not holding back on making the necessary yet prudent investments to position the company for continued long term growth. And you can't minimize the benefit of our financial strength. Customers want to be with suppliers that they know will be able to supply their needs for the foreseeable future and they have that confidence that we can do just that.
Now, let me review just a few of our accomplishments in the first quarter that we believe provide support for our full year expectations.
E-commerce sales rose to a new height of 44% of research sales, up from 42% just one quarter ago. Here we launched a new version of Your Favorite Gene, to provide researchers with a comprehensive knowledge base of gene pathways and biological information, all linked to our products.
We are particularly excited about this enhancement, as it represents the first time a reagent company has provided researchers free access to a proprietary knowledge base. And it contains about twice as much scientific information on products and technologies as any public database. This new capability has resulted in increased visits to our website and continues to help our efforts to accelerate sales growth.
We've also added a new portal for Stem Cell research that is expected to support every step of Stem Cell research workflow from isolation to in vivo and in vitro tracking to help scientists result complex biological questions. The portal contains over 1,100 unique Sigma-Aldrich products for research in the growing field of regenerative medicine. Our growing line of Stem Cell products should help customers understand and develop therapies for such things as cardiac, hematopoietic, endocrine and neurological diseases.
Next, excluding the impact of currency, organic sales growth in the CAPLA countries exceeded other geographic regions with a 7% gain in research sales. In our focus markets of India, China and Brazil organic growth ranged from 10% to 28% with an overall average of 17%.
And we established presence in Chile, in March with the acquisition of our primary dealer in that country as part of our plan to accelerate growth in the Latin American markets and achieve 25% of our sales from the CAPLA region by 2010.
Our booked orders or future delivery in SAFC increased by 16% at March 31 from the December 31, 2008 level. While these orders don't provide the majority of sales for any quarter or year, it does indicate several things that bode well for our future.
First, that the demand is there and the level of these booked orders reached a new high, even slightly exceeding what we had for the first two quarters in 2008 and our organic sales growth for SAFC ranged from the mid-to-high single-digits.
Second, we'll always believe that users like to work with reliable suppliers that not only provide quality products but will be there over the longer term to continue to supply their commercial needs.
We continued to add new products and services to our offering in the first quarter, with an average of one announcement each week of a new product group or service that we added to our already strong portfolio, that includes 130,000 different products. These new offerings include additional capability to produce animal-free media and expansion of our Ascentis Express line of HPLC Columns with a new technology which involves Fused-Core silica particles which enable sharper separation, while reducing solvent use, which is part of our green initiative.
Finally, we expanded our capabilities in the functional genomic area with new shRNA libraries. On the service front we are now offering service to assist customers with Europe's REACH regulations and vender orders for pharmaceutical supply chain quality requirements.
Next, our zinc finger nuclease product line is rapidly becoming one of our star performers, with continued rapid adoption by pharmaceutical companies and university researchers. The zinc fingers are the gene editing tool of choice, enabling researchers to delete a gene, insert a nucleotide in a gene and perform other gene manipulations. This is likely to be a multi-million dollar market. And we intend to take full advantage of these opportunities. So stay tuned.
We also continued major facility expansions in three locations, largely to support the vast opportunities in the 55 billion fine chemical market. In Israel, our project to expand capacity to perform cGMP fermentation is scheduled for completion early in 2010.
In Madison, Wisconsin new capacity to support market demand for large scale high potency active pharmaceutical ingredients will also become available in early 2010. And in Carlsberg, California a new facility to provide commercial scale quantities of viral (ph) products used in normal vaccines and gene therapies is expected to come on line shortly.
All of these plants are in areas where there is growing demand and not many suppliers. That said, and we have indicated, and as indicated previously, we don't have any large concentration with any single product or customer. That's been a strength of us for over the years and it certainly helps in this market. Yes, there are challenges with some of our larger customer accounts, but without any one customer who makes up for more than 2% of our sales, it's a challenge we can overcome by seeking new accounts and adding to our offering. And the examples I provided are just a few of the many I could have reviewed.
Next, we entered 2009 with a new group of activities that were expected to enable us to continue to take share and exceed the growth in the markets we serve. These activities are focused on accelerating our sales efforts in the life science and high technology markets by creating even more differentiation.
This should place Sigma-Aldrich as a leader among the several players in both the research and fine chemical markets. And we will make sure that we continue to protect the core of our business that produced 2.2 billion in sales in 2008.
The key activities that provided the results we achieved in the first quarter and that are expected to drive our growth through 2011 fall into three broad categories; accelerate, elevate and innovate. We have five key activities underlying these focus areas.
Under accelerate, we'll continue activities that have performed well for us in the past and there are opportunities for continued growth, including continuing our activities in emerging markets and e-commerce.
We'll elevate our efforts in those areas to improve on what we achieved in the past, with large emphasis here on our supply chain initiatives. And finally, we have added innovation to expand the leverage and leverage our core competencies.
Here new technologies will be vital to our goal of seeking to create differentiation through innovation. Science and technology continue to advance at an amazing speed, driving the pace to fill unmet needs of our customers at an unprecedented rate. This likely means new business, that can lead to more new products and services.
Here, we are looking at both the short and long term. As I indicated earlier, we are looking at short term opportunities to address current market conditions. Looking somewhat longer term, we have increased staffing at our new ventures group and are now actively collecting ideas from customers, employees and suppliers to develop solutions to the challenges that they are presenting to us.
In addition to that, the group is looking for promising businesses that can be incubated and developed into the product lines that aren't even a gleam in our eye today. These are the exciting times. Yes, there are challenges. But we have always emerged stronger when facing similar challenges in the past. And you shouldn't expect anything different this time around. We are committed to delivering the sales growth and earnings per share expectations that you heard from Rakesh earlier.
I want to thank you for your ongoing interest in our company. It remains financially strong with the broadest product offering, unrivalled scientific knowledge and superior service, that make Sigma-Aldrich a leader in its market. We are fully committed to deliver superior returns for our employees and our investors.
On behalf of Rakesh, Kirk and all of our colleagues around the world I want to thank you for joining us. And now let's open up the call for your comments and questions.
Question-and-Answer Session
Operator
Thank you. (Operator Instructions). We'll go first to Dan Leonard of First Analysis.
Dan Leonard - First Analysis
Hi, good morning.
Kirk Richter
Good morning, Dan.
Dan Leonard - First Analysis
I guess my -- I have two questions. My first one, the foreign currency headwind is in additional $0.20 versus what you were looking for previously. So, where is the additional $0.20 coming from on your end, that's going to enable you to offset that?
Rakesh Sachdev
Hi Dan, this is Rakesh. Yeah, so the foreign currency impact did get a little worse. The euro was a little weaker. We had some other roll through effects on our inventory. I think where we are seeing the offsets clearly are a couple of areas. Our supply chain initiative and we saw that in Q1 is giving us better results than we had expected. So I think we told you all last time that we would expect about $15 million in supply chain savings.
And we have already got little more than half of that in the first quarter. So, we think we will get somewhere in the 30, $35 million range this year in supply chain savings.
I think the other area where which I think most of it is going to be sustainable is, we have done a very good job. The company has allotted all areas of our SG&A spending and we have clamped down, and we are getting more on the SG&A spend as well.
And some other mix is also helping us in our sales. I think the fact that our research sales are a little higher than our SAFC sales, that makes us actually producing some improvements in margins. So, I think it's a combination of all this. We still feel pretty good, based on what we achieved in Q1, that we'll get there.
Dan Leonard - First Analysis
But Rakesh, if you think you could do 30 to 35 million in supply chain improvements this year, does that cause you to revise -- because your 2012 target was 35 to 45.
Rakesh Sachdev
Yeah, Dan. We don't look at that. I think some of that frankly is an acceleration of what we were going to get. And some of that may actually increase as we haven't come out, we are looking at that and when we do come out, we'll give you a revised figure. But I would say, as of now, we've accelerated some of that savings and put it upfront.
Dan Leonard - First Analysis
Okay. And then my second question on the gross margin in the first quarter. You add or minus out the 170 BIPs from the price volume mix and the supply chain improvement. But it doesn't look like itself would have been enough to offset the currency headwind you had in the first quarters. So, but you obviously did offset it, because your gross margin went up. So I am wondering where the plug came from.
Rakesh Sachdev
Well. I think as we said, we got some SG&A improvements. I think our SG&A improvement was almost about 10 or $11 million.
Dan Leonard - First Analysis
But I am more looking at the gross margin line.
Rakesh Sachdev
Oh, I see, on the gross margin?
Dan Leonard - First Analysis
Yes.
Rakesh Sachdev
Well the gross margin improved by -- I think clearly, we had a price and volume and mix impact, and then the supply chain. So it was really price offsetting some of the volume weakness that we still had a little bit in Q1. And then the supply chain savings which all were in the gross margin.
Dan Leonard - First Analysis
Okay. Thank you.
Rakesh Sachdev
And then the mix also helped, Dan. As I said, because we had a greater proportion of research sales then SAFC sales.
Dan Leonard - First Analysis
Fair, okay. Thank you very much.
Rakesh Sachdev
Sure.
Operator
Our next question comes from Amy Zhang with Goldman Sachs.
Amy Zhang - Goldman Sachs
Good morning. Thanks for taking my questions. My first question is, you guys did a great job on the cost control for the quarter, SG&A as a percentage of total sales in the quarter was at historical low. I am just wondering would you expect that this trend, I mean, this kind of ratio to continue into next few quarters, why or why not?
Rakesh Sachdev
Yes, hi Amy. This is Rakesh. Clearly, I think our teams have been doing a great job. And we knew we were going into a very difficult year, we all know that. And so we were very thoughtful about our SG&A spending. I would say that -- I would expect at least 70 to 80% of the savings that have seen so far in SG&A spend to sustain itself.
We may relax in a few areas. But I would say that a large part of that you would see that as being sustainable for the rest of the year.
Amy Zhang - Goldman Sachs
Got you. And my second question is, if I look at your organic sales growth by segment versus the 2009 growth target you guys laid out at your Analyst Day in March. Clearly, for this quarter Essential -- Research Essentials exceeded your expectation, but Research Biotech and SAFC was sort of expectations.
So my question is, would you expect the Essentials -- the Research Essentials to continue outperforming and then how about Biotech and SAFC, how confident you are that those two business can achieve your growth target for the year?
Jai Nagarkatti
Okay, Amy. This is Jai. Thanks, good question. In fact Research Essentials, we obviously are pleased with what the performance was in the first quarter. And when we tell you that, I think we are still holding to our guidance that we gave of low single-digits that takes into account, that some of these product areas within the business segments like the Analytical Chemistry within Research Specialties, like the VFM (ph) within Research Biotech.
The adoption rate and the growth in these segments is even in the first quarter when the overall sales were weak, continued to be robust. We monitor these. We take a look at the new products and how they are doing.
So based on that, we continue to reaffirm what we told you that we think offsetting the areas where we have not seen growth are products lines that are growing faster, adoptions that are becoming even faster, that gives us the confidence that we can continue to deliver the low single-digit Research sales.
Amy Zhang - Goldman Sachs
And then how about SAFC, obviously that's the problematic area for the quarter. And you guys target low to single-digit organic sales growth. But obviously but the first quarter is a drag for the year and do you expect a pretty meaningful rebound for that business going forward. I mean for the rest of three quarters and then why?
Jai Nagarkatti
Amy, there are two aspects to that. First of all, I think as we said told you, I think the future window that we get is to the booked order backlog. That continues to be high, number one. Second, the last two quarters of 2008, we are going up against relatively weak quarters, which means that even if the pace of our growth in the first quarter continues over the third and fourth quarter, we should start seeing some growth in the SAFC business.
Amy Zhang - Goldman Sachs
Okay. Thank you very much.
Operator
And our next question comes from Quintin Lai, Robert W. Baird.
Quintin Lai - Robert W. Baird
Hi, good morning.
Jai Nagarkatti
Good morning, Quintin.
Rakesh Sachdev
Good morning.
Quintin Lai - Robert W. Baird
Earlier this morning a competitor had a conference call and talked about, they were seeing some of their customers seeing an inventory de-stocking of consumables. Do you just see any of that impact in the first quarter?
Jai Nagarkatti
Quintin, this is Jai. I think as you know, our products are not generally where people buy and keep inventory. These are mostly products that they need for their research tomorrow or the next day. So a lot of these products and orders come in as they need it. So really would not have much of an impact on us.
Quintin Lai - Robert W. Baird
Thank you for that. Then, with respect to the demand splitting up between let's say, academic, government, industrial and big pharma, could you kind of give us some color on what you're seeing in those customer segments?
Jai Nagarkatti
Yeah, Quintin, I think as we've told you last quarter. I think the trend, academic accounts globally continue to do as we expect. They're probably right now the strongest segment within the customer base that we service. What we are also finding is CAPLA is also strong in all of the research businesses, the Specialties, Essentials and Biotech.
Pharma to the extent that they are continuing to do R&D in some of these companies where unique products are required, we can see even though all of sales in pharma are not as robust as some of the other sectors I talked about. There we have differentiating products that certainly is getting more interest and attention, like the Ascentis Express chromatography columns that we added and our zinc finger nuclease, which is a very excellent gene editing tool.
Quintin Lai - Robert W. Baird
And then finally, as there is a lot of talk about the impact of the NIH stimulus package. And now that we're a few weeks after your Analyst Day, any better visibility on what that impact could be or maybe when you might start seeing the first signs of the fund growth?
Jai Nagarkatti
Yes. Quintin, Just to confirm, the guidance that we gave you, we have not taken any positive impact that should result as the NIH, the stimulus packages flows to NIH. And what we are seeing is, certainly when we go visit customers, definitely people are actually doing a lot of work in terms of writing proposals for the challenge plan.
So, there is a lot of excitement in our customer base that this funding will come through in the second half. So, if it does come through, from Ulip to God Zeus (ph) I think we should probably get more benefit from that.
Quintin Lai - Robert W. Baird
One real quick follow-up. There was some talk that maybe some of those researchers that were actually writing grants may have slowed down consumption in Q1. Did you see any instances of that?
Jai Nagarkatti
I think that is -- I mean it's a mixed bag Quintin, I think, smaller organizations, they won't have funds (ph) to do the work, probably the research is slowing down. But I think there are various -- certainly unprecedented amount of effort has been going in writing these grants.
Quintin Lai - Robert W. Baird
Thank you.
Operator
And our next question comes from Isaac Ro of Leerink Swann.
Isaac Ro - Leerink Swann
Hi guys. Thanks for taking the question.
Kirk Richter
Hi Isaac.
Isaac Ro - Leerink Swann
Hi. You mentioned the shorter nature of, in terms of the demand cycle for your products versus some of your peers. So I understand your comments on the inventory de-stocking question. But, I am just wondering, can you give us a sense of what you think normalized channel inventory looks like and where is it today versus or what was it in the quarter versus historical levels?
Rakesh Sachdev
I think, what you're talking, our all inventory internally is reasonably flat. But again, from our customer standpoint, our customers don't keep inventory of our product, to the extent that they keep inventory of some large consumable products that we play in somewhat, but not to the extent some of our competitors play in.
Isaac Ro - Leerink Swann
Okay. And then just on, sort of business development, you mentioned looking at both long-term and short-term opportunities. Seems to me that genomics as a space is one where there is a lot of growth like we, not only in the near term but also in the long-term.
And I am wondering, I saw your partnership with Roche NimbleGen, it made sense to me. I am wondering, why haven't you made -- invested more actively in this space versus seeking out partnerships. And is that an area where you will consider making an investment going forward.
Jai Nagarkatti
Isaac, as we said earlier all along, we constantly look at all of these opportunities and that has to fit in with what we are trying to prove. And if we can bring something along with that technology that we are licensing, that could be of greater interest to us than those that look attractive, but we can't do any thing to that. So, we are generally more cautious to see what are the technologies out there, what does the world need, and why can't we bring add them (ph). So we are looking in, stay tuned you'll probably see some more of those.
Isaac Ro - Leerink Swann
Okay, and then. Thanks. And then lastly on your guidance for year. Do you have a share count that you expect for the full year that you can share with us?
Kirk Richter
I think what we'll do Isaac is, our goal with our share repurchases is just to offset our options dilution which is probably run in the 1 to 1.5 million share basis. So, we did that in the first quarter with a couple of 100,000 shares and we would expect to keep that pace going.
Isaac Ro - Leerink Swann
Okay. And any chance that you would see acceleration there if you thought the stock price or market conditions warranted for it.
Kirk Richter
All I can say on that is stay tuned.
Isaac Ro - Leerink Swann
Okay. Thank you.
Operator
Our next question comes from Dmitry Silversteyn of Longbow Research.
Dmitry Silversteyn - Longbow Research
Good morning gentleman. Congratulations on getting the year off to a solid start. A couple of questions. A lot of companies that are reporting their first quarter results or March quarter results are kind of talking or giving us some granularity as far as demand is concerned into months, or into a quarter month-to-month. And it seems that there was a little bit of a recovery in March to the extent that people are commenting on April as well.
Have you seen any kind of change in the order patterns as the quarter progressed and what's your outlook for the second quarter versus the first, in other words are market condition still as probably they were in the first quarter or are you seeing change in one way or the other that will make you more or less bullish on your end markets?
Rakesh Sachdev
Hi Dmitry, this is Rakesh. You're right. We saw the year began fairly slowly in January. And then there was this -- the demand picked up towards the tail end of the quarter and so March was a relatively strong month for us. But on the other hand April because, Easter this year is in April also had some slowness.
So, I think the way to look at our business is to really judge us by how we do for the first half of the year. But within the quarter, clearly, we did see some strength towards the second half of the first quarter.
Dmitry Silversteyn - Longbow Research
Okay. That's helpful. Secondly, you talked about one of the areas that you're adding capacity and putting capital to work is in high potency market for SAFC. From what I'm hearing, that's an area focused for a lot of contract manufacturers and everybody seems to be kind of going after it at the same time. Is there a concern that at some point the attractiveness and margins, and limited number of players that you're seeing in that market may go away if capacity comes on stream from variety of players, more or less at the same time over the next couple of years, just as you are heading yours?
Jai Nagarkatti
I think, let me comment on that. I think the capacity that we are adding is in areas that we are actually seeing demand and enquiry. There is no question in last we have not traditionally over built in anticipation of capacity in this area. That are enquiries that we are in a way getting some formal commitments from our customers as well before we go and start building capacity. That's number one.
The second thing is, within high potency phytotoxic is such a broad field also that we are not building capacity to do anything and everything. Within that, we'd like to actually stay in some very focus areas which will take and leverage our capabilities to make antibodies and do conjugation of antibodies to small molecules.
Now, from what I know and what we know the people were building the capacity to build traditional high potency phytotoxic small molecules. Not necessarily to do some of the type of things that we are seeing and expect and anticipate to see going forward.
Dmitry Silversteyn - Longbow Research
Okay. So, you basically, you're building to meet the demand that you're already seeing out there and you think that the niche within the niche that you've chosen is likely somewhat more defensible than the area overall?
Jai Nagarkatti
Correct.
Dmitry Silversteyn - Longbow Research
Okay. And then just getting back to Kirk's, just comment on last question about share repurchases, it looks like you've done more than offset dilution, it looks like your share count has gone down by about 1.5 million shares. So, I guess -- so when you say things will continue at this stage, do you mean to say that we should see continuing share count reductions with your buyback program?
Kirk Richter
Yes, I think in the first quarter what we saw was the share count was largely consistent with where it was at the end of the year. So, if our goal is to just offset option dilution, you should expect that to continue. The 1.5 million is relative to where we were a year ago.
Dmitry Silversteyn - Longbow Research
I am also looking at something, your average shares were 124.8 million in December quarter and now it's 123.3 million this quarter so that's up the...
Kirk Richter
Yes, because it's the average. But usually we expect something around about 122 range going forward in 2009.
Dmitry Silversteyn - Longbow Research
Okay, okay. That's helpful. Thank you. And then final question on... I think you also mentioned that in passing, but I just want to see if you can provide a little bit more color. Historically, transgenic has not been a big area of biotech production versus mammalian and microbial cell cultures. But it has been an area you've concentrated and built some differentiation, I believe.
Jai Nagarkatti
Correct.
Dmitry Silversteyn - Longbow Research
Are you seeing more of a move towards transgenic manufacture of drugs rather than cell culture manufacture or is it still a small niche that you just happen to dominate, because of your particular expertise?
Jai Nagarkatti
I think as I said, it's rightly pointed out, it is really a small and emerging area. And I think we have -- that is one of the areas that we are focusing, but we're not putting double down in developed on bets (ph) that we are placing in that area now.
Dmitry Silversteyn - Longbow Research
Okay. All right, thank you.
Operator
And we'll go next to Douglas Judy, KeyBanc Capital Markets.
Douglas Judy - KeyBanc Capital Markets
Good morning. I was hoping you could a little more color on the SAFC business, by business units. It sounds like the high-tech was the weakest, can you maybe quantify how that performed and the supply solutions in the other units there?
Jai Nagarkatti
Okay, let me tell you, I think as we have said, the bigger piece of SAFC is each of our supply solutions. Again, that part of the business was reasonably flat. Actually we did not see a huge decline there at all. Whereas BioScience, which is the other one where we saw some very good results in the media, as we are making more specialized media, which is helping us again, differentiate our media, we saw actually growth there.
Where we saw really a decline was in the custom pharma and the high-tech business, as companies started postponing the products that they were ordering, especially in the high tech area.
Again, in relative terms, both custom pharma and high-tech as a percentage of total Sigma business, Sigma-Aldrich business is still very small, it's about 6%.
Douglas Judy - KeyBanc Capital Markets
Okay. Do you think that those units may have hit, reached the bottom in this quarter and rebound from there, some of it, as others are de-stocking, but just kind of a delay or do you think its... those are going to be pretty weak now for the next couple of quarters?
Jai Nagarkatti
Yes, again, that's kind of difficult to say, because I think you'll see mixed results. One of them is I think, as you see the booked order backlog for future delivery as that keeps going up. We expect that if customers, because there is another angle in this particular business. Even though booked orders for future delivery keep going up, sometimes customers call and say, push the order back.
So, a lot of it depends on when the customers want it. They don't go away, they just keep getting pushed forward.
Douglas Judy - KeyBanc Capital Markets
Thanks, that's helpful. And just finally, you can kind of generate pretty good cash-flow, I refer to comments on the share repurchases. I mean do you can thing paying down debt is that going to be the primarily consideration here in the near term?
Kirk Richter
I think, we will certainly look at doing that as that's better than leaving your money in the bank. Obviously, as we said before sometimes we get trapped with the international cash issue was the majority of our debt. But to the extent we can do that, we will certainly do that.
Douglas Judy - KeyBanc Capital Markets
All right. Thank you very much.
Operator
Our next question comes from John Roberts of Buckingham Research.
John Roberts - Buckingham Research
Good morning, guys.
Kirk Richter
Good morning.
Jai Nagarkatti
Good morning, John.
John Roberts - Buckingham Research
The increase in currency from the prior estimates, didn't seem like rates moved enough to justify that kind of increase. Was that better understanding of your inventories and valuation?
Kirk Richter
Yes, I think as we've said before, not only do we have what you might call the normal translation affect. But we did get a small extra push, because as we said, our top-line went up by a little bit on a currency impact. But the flow through our inventory for the stuff we make in the U.S. and sell overseas also has an impact and we saw a slightly larger increase in that because of the timing.
John Roberts - Buckingham Research
All right, and then to try to give us some help then with timing. For the remaining three quarters of the year, you were $0.13 in the first quarter, are you going to be at a similar level, sort of 10 to 13 each quarter or does it have some unusual quarterly affects here?
Kirk Richter
The first quarter could be a little bit lower than it ought. But other than that a straight line affect is pretty good for the next two quarters.
John Roberts - Buckingham Research
Okay. And then, could you reconcile the 7% organic increase in the CAPLA countries with the 17% increase in the three focused countries, so that the non-focus countries like Canada and so forth were obviously either down a lot more than seven, up more, lot less than 7% or even down, that's fair, kind of those other CAPLA is doing.
Rakesh Sachdev
Well, I can take that. And I think the other big components in the CAPLA space is Japan and Latin America. So I think it's fair to observe that our sales in Japan were -- had some headwind and our Latin America business did grow, but not maybe as fast enough as China and India.
John Roberts - Buckingham Research
But Brazil is in that 17%, so China and India that were up a lot more.
Rakesh Sachdev
Brazil is in that 17, that's correct. But we have other regions and Latin America was up, so.
John Roberts - Buckingham Research
Thank you.
Operator
Our next question comes from Derick De Bruin of UBS.
Derick Bruin - UBS
Hi, good morning.
Kirk Richter
Hi, Derick.
Derick Bruin - UBS
Given the fact that there has been -- the markets are obviously tough out there and there has been some consolidation, that's happened in the space. Have you seen any irrational pricing or irrational behavior in the markets from any of your competitors?
Jai Nagarkatti
Not that we can see.
Derick Bruin - UBS
So overall price, everybody seems to raising pricing, nobody is seem to be going after and dramatically flashing to gain share?
Jai Nagarkatti
Well nothing significant that stands out, Derick.
Derick Bruin - UBS
Got it. Given that some of the larger Biotech companies are reporting, I would say weaker than expected biologic drug sales, are you worried that the cell culture business could show a slowdown, and I know you folks have seen some growth and you've got a high backlog. But, I mean do you have some of that flexibility to cancel some of those booked orders?
Jai Nagarkatti
Obviously, see, as more and more of these project approach commercial quantities, that will have more or larger impact. Fortunately for us at this point in time, many of the cell culture media that we have in the pipeline are still in the early stage discovery and development. So I think those projects, if we continue to grow and I think that was one of the bright spot in this first quarter within SAFC BioScience.
Derick Bruin - UBS
Okay. Great. Thank you.
Operator
(Operator Instructions). We will go next to Jon Wood of Bank of America.
Unidentified Analyst
Thanks guys this is Brian Inker (ph) actually in for Jon this afternoon. Can you give us a sense of in the core research sales business, how the demand from the chemicals industry trended in the period, have you seen some stabilization there or are fundamentals still deteriorating from that customer base?
Jai Nagarkatti
I think as we said the best performing business segment was academic research, I think both the chemical industry as well as the pharmaceuticals, the fundamentals there we continue to see pressure there.
Unidentified Analyst
Okay. And one more question on the M&A pipeline. Can you offer some commentary around the mix of assets that you may be seeing. You have been pretty quiet on the M&A front, are there larger opportunities out there relative to recent history or is the mix more weighted to smaller assets.
Jai Nagarkatti
I think we are not seeing anything very significantly different in the first quarter that we didn't see in the previous quarter. And having said that, I think we are almost looking at smaller more technology intensive acquisition potential that fit with what we can bring to the table.
Unidentified Analyst
Okay, great. Thanks.
Operator
And with no further questions in the queue at this time. I would like to turn the conference back over to Mr. Richter, for any additional or closing remarks.
Kirk Richter
Sure, thank you. And we certainly thank everybody who joined us this morning for your participation. Looking forward, we expect to release results for the second quarter of 2009 before the market opens on July the 23, and we'll follow that with a conference call that same day at 10 O'clock Central Time.
This concludes today's conference.
Operator
And that does conclude today's conference. We thank you for your participation. You may disconnect at this time.
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