Reason for Report: Flash Update: 3Q15 Earnings Update

Nov 3, 2015

Sigma-Aldrich Corp. (SIAL – NASDAQ) $139.88

Note to Readers: More details to come; changes are highlighted. Except where noted, and highlighted, no other section of this report has been updated.

Reason for Report: Flash Update: 3Q15 Earnings Update.

Previous Edition: Oct 9, 2015; Changes in Estimates and News Update.

Flash Update

On Nov 3, 2015, Sigma-Aldrich released its 3Q15 results. The company’s reported earnings per share for 3Q15 came in at $0.94 compared with $0.90 earned in the year-ago quarter.

Barring costs related to merger and restructuring, earnings were $1.00 per share in 3Q15, missing the Zacks Consensus Estimate of $1.06.

Sales for the reported quarter rose roughly 1.9% y/y to $703 million, beating the Zacks Consensus Estimate of $690 million. Organic sales gain in the quarter was 9%. Foreign exchange translation had an unfavorable impact of 8%. However, recent acquisitions had a favorable impact of 1% on sales.

Operating income rose 5.2% y/y to $162 million in the quarter. Adjusted operating income (excluding merger related and restructuring costs) for the third quarter declined 4.5% y/y to $171 million.

The Research division’s sales were $346 million, almost flat y/y. Organically, sales rose 10%. All three business segments (Academic/Government/Hospitals, Pharma and Dealers) and all major geographies supported organic sales growth during the quarter. Another strong factor to organic sales growth in all three Research segments was an exclusive distribution deal with a manufacturer of leading research tools.

Applied unit’s sales rose 4% to $177 million. Changes in foreign currency exchange rates reduced sales by 8%. Acquisition of Cell Marque increased sales by 5%. Diagnostics, Testing and Industrial along with all major geographies led to organic sales growth during the quarter.

Sales from the SAFC Commercial segment were $180 million, up 4% y/y. Organic sales growth was 10% but changes in foreign currency exchange rates had an unfavorable impact of 6%. Organic sales growth was driven by double-digit gains in both the Life Science Products segment and Life Science Services segment.

Moving ahead, Sigma-Aldrich looks forward to join Germany-based Merck KGaA. The acquisition of Sigma-Aldrich by Merck KGaA, is expected to complete by Nov 2015.

Portfolio Manager Executive Summary

Sigma-Aldrich Corporation (SIAL) is a leading global supplier of biological and organic chemicals to research laboratories. The company has one of the world's largest selections of specialty chemicals and life science solutions, and an impressive distribution channel.

All the 5 brokerage firms in the Digest group covering the stock provided neutral ratings, whereas none of them rendered a positive or negative rating.

Neutral or equivalent outlook (5/5 firms or 100%) – The firms expect Sigma-Aldrich to sustain its consistent earnings and dividend growth momentum as well as strong returns on capital. These firms believe that the company's diversified, recurring revenue business model has created a track record of steady revenue growth, and its strong management team has ensured generation of good earnings growth even during weak economic periods and significant foreign currency headwinds. Moreover, the company’s specific investments in complementary assets and technologies in Specialty Fine Chemicals (SAFC) Commercial and Applied are expected to expand customer and geographic reach. These firms also observe that Merck KGaA will successfully complete its proposed acquisition of Sigma-Aldrich in FY15, thereby adding value to the latter. However, Sigma-Aldrich is exposed to the risk of product obsolescence as new and advanced products enter the research chemicals market. Moreover, the company generates majority of its sales from outside the U.S. which exposes it to significant currency fluctuations.

Oct 9, 2015

Zacks Investment Research Page 2 www.zackspro.com Overview

Key investment considerations as identified by the analysts are as follows:

Key Positive Arguments Key Negative Arguments  Significant research & development (R&D),  Weakness in volumes sales, and marketing efforts  Extensive product offering and distribution  Product obsolescence network  Strong cash flow and balance sheet  High currency exposure  Internal productivity and cost-cutting initiatives  Lackluster organic growth trends  Low acquisition expenses  The company’s focus on international  Low-margin SAFC products expansion and eCommerce continue to deliver positive results

St. Louis, MO-based Sigma-Aldrich Corporation (SIAL or the company) develops, manufactures, and distributes various biochemicals and organic chemicals. Its chemical products and kits are used in scientific and genomic research, biotechnology, pharmaceutical development, diagnosis of diseases and chemical manufacturing.

Effective Jan 1, 2013, the company's business unit structure was realigned into three market- focused business units defined by the customers and markets they serve: Research, Applied and SAFC Commercial. The business units are closely interrelated in their activities and share services such as order entry, billing, technical support, eCommerce infrastructure, purchasing and inventory control. The business units also share production and distribution facilities. Additionally, these business units are supported by centralized functional areas such as finance, human resources, quality, safety and compliance and information technology. During 2012, the company operated with the business units of Research and SAFC. Sigma-Aldrich was incorporated in 1975.

Additional information on Sigma-Aldrich is available at the company’s website: http://www.sigma- aldrich.com/ .

NOTE: The company’s fiscal references coincide with the calendar year.

Aug 24, 2015

Long-Term Growth

Sigma-Aldrich continues to focus on several growth and operational initiatives laid out in recent years, as well as new strategies based on recent mergers and acquisitions (M&A). The major overall growth drivers for Sigma-Aldrich are: emerging market penetration, continued product innovation and improvement in customer buying process. Research is expected to benefit from growing contributions from proprietary products and eCommerce.

Zacks Investment Research Page 3 www.zackspro.com Entering 2014, management realigned Sigma-Aldrich’s segments to better serve its three main customer groups. The reorganization mainly impacts customer-facing teams, which will have improved flexibility to meet customers’ distinct needs. Management targets 6–7% long-term organic growth. For the new segments, management expects Research to grow in the low-to-mid single-digits range, Applied segment to improve in the mid single-digits and SAFC Commercial to grow in the mid-to-high single-digits range.

The firms believe that the increased share buyback authorization, margin improvement through eCommerce development, adoption of FX hedging and acquisitions are long-term growth drivers for Sigma-Aldrich.

Aug 24, 2015

Target Price/Valuation

The Zacks Digest average price target is $140.00 (↓$11.75 from previous report, up 0.3% from the current price).

Provided below is a summary of target price/valuation as compiled by Zacks Research Digest:

Rating Distribution Positive 0.00% Neutral 100.00% Negative 0.00% Digest High $140.00 Digest Low $140.00 ↑ Avg. Target Price $140.00 ↑ No. of Analysts with Target Price/Total 2/5

Key risks associated with the target price include reduced R&D spending by pharmaceutical customers owing to the economic slowdown, stringent government regulation in the life sciences industry, or a reduction of government funding, which could weigh on sales growth. Other risks include customer consolidation, foreign currency fluctuations, and a sustained global economic slowdown. Deterioration in global macroeconomic variables, especially in Europe, pressure on biopharmaceutical R&D and capex budgets, and risks associated with M&A are some of the other risks.

Recent Events

On Sep 28, 2015, Sigma-Aldrich announced that it is making progress towards completion of its proposed acquisition by Germany’s Merck KGaA. The transaction is now expected to consummate within 4Q15.

On Sep 17, 2015, Sigma-Aldrich inked an exclusive global distribution deal with IROA Technologies, LLC to distribute the latter’s Mass Spectrometry Metabolite Library of Standards (MSMLS).

On Sep 15, 2015, Sigma-Aldrich declared that the Cerilliant brand under its Applied Diagnostics and Testing business segment will provide the first-ever reference solutions for qualitative assessment of drug interferences while testing by analytical methods in a laboratory.

Zacks Investment Research Page 4 www.zackspro.com On Jul 30, 2015, Sigma-Aldrich reported its 2Q15 results. The company’s earnings per share for 2Q15 came in at $0.98 compared with $1.11 in the year-ago quarter. Barring costs related to merger, earnings were $1.01 per share.

Sales for the reported quarter fell roughly 0.6% y/y to $697 million.

Moving ahead, Sigma-Aldrich looks forward to joining forces with Germany-based Merck KGaA. The acquisition of Sigma-Aldrich by Merck KGaA, which is subject to regulatory approvals and other closing conditions, is expected to be completed by mid-FY15.

Revenues

According to the company, sales in 2Q15 fell roughly 0.6% y/y to $697 million. Organic sales gain in the quarter was 8%. Foreign exchange translation had an unfavorable impact of 9%. However, recent acquisitions had a favorable impact of 1% on sales.

Segment Revenue Analysis

Research: The Research division’s sales were $340 million in 2Q15, down 5% y/y due to an 11% reduction in reported sales resulting from currency swings. Organically, sales rose 6%. All three business segments (Academic/Government/Hospitals, Pharma and Dealers) and all major geographies supported organic sales growth during the quarter.

Applied: Applied unit’s sales rose 3% to $178 million in 2Q15. Organic sales gain was 8% which was offset by a 10% reduction due to foreign currency exchange rates. Acquisition of Cell Marque increased sales by 5%. Diagnostics, Testing and Industrial and all major geographies led to organic sales growth during the quarter.

SAFC Commercial: Sales from the SAFC Commercial segment were $179 million, up 4% y/y in 2Q15. Organic sales growth was 11% but changes in foreign currency exchange rates had an unfavorable impact of 7%. Organic sales growth was driven by double-digit growth in the Life Sciences Services segment and high-single digit growth in the Life Sciences Products segment.

Margins

Operating income fell 8.2% y/y to $169 million in 2Q15. Adjusted operating income (excluding merger related costs) for the second quarter declined 6.5% y/y to $173 million.

Adjusted effective tax rate in 2Q15 was 29% compared to 28% in 2Q14. The rise in effective tax rate for 2Q15 was mainly due to an increased mix of profits in higher tax rate jurisdictions.

Earnings per Share

Sigma-Aldrich’s reported earnings per share for 2Q15 came in at $0.98 compared with $1.11 in the year-ago quarter.

Barring costs related to merger, earnings were $1.01 per share in 2Q15.

Zacks Investment Research Page 5 www.zackspro.com Oct 9, 2015

Analyst Madhu Goyal Copy Editor Sayani Roy Content Editor Anindya Barman Lead Analyst Anindya Barman QCA Anindya Barman No. of brokers reported/total brokers Reason for Update Flash Update

Zacks Investment Research Page 6 www.zackspro.com