Overall, it was a solid calendar-year second quarter for major, US, publicly held analytical instrument companies. However, the continued slowdown in US academic spending raised concerns. Life Technologies and Waters each reported softer-than-expected results, citing delayed US academic and government spending.

The eight businesses whose results are profiled on pages 9–11 reported combined sales growth in the calendar-year second quarter of 16.5%. Four of these businesses reported sales growth of more than 20%: Illumina, Bruker Scientific Instruments (BSI), Thermo Fisher Scientific Analytical Technologies (AT), and the combined Agilent Technologies Life Science (LS) and Chemical Analysis (CA) units. On an organic basis, Agilent LS, Agilent CA and Illumina each recorded double-digit sales growth.

Combined operating profits for the eight businesses increased 14.3%, led by Illumina and Thermo Fisher Scientific AT. Several companies reported increased profitability due to acquisitions, sourcing initiatives and pricing. However, two firms, Bruker and Life Technologies, announced expense reduction actions.

Among end-markets, companies reported the strongest results for applied and industrial markets. In addition, Agilent CA, PerkinElmer and Waters highlighted growth in environmental markets, particularly in China. The US academic and government markets remained constrained. Agilent LS, Life Technologies and Illumina each noted slower US academic sales growth related to budget uncertainty. Also, Life Technologies and Bio-Rad Laboratories Life Science each experienced another quarter of slow academic spending in Europe, although Bruker and Illumina reported positive trends for the market.

In contrast, academic and government spending in developed nations was robust for several firms, including Agilent and Waters. Likewise, industrial spending in developing countries remained strong. Illumina and Waters each noted good growth in Japanese sales, while Agilent, Bruker and Waters noted sales opportunities for replacement instrument in the country as a result of this spring’s earthquake.

Instruments for industrial applications had another strong quarter. Thermo AT noted growth for process instruments, while Bruker highlighted demand for systems for metals analysis. Service was a high point for Agilent CA and Waters.

Bruker and Thermo raised their full-year sales forecasts. However, Life Technologies lowered its 2011 revenue forecast due to slower academic spending. In general, forecasts for the academic market were restrained. Life Technologies expects flat growth for the academic market this year, and Waters projects flat growth in the second half. Thermo expects flat to slightly lower growth for US academic and government markets in the second half. Discussing their exposure to the US academic and government markets, Agilent stated that a little more than 3% of its sales come from US academic and government markets, and Bruker commented that the US government will represent 2% or less of Bruker’s sales this year. The reviews below are based on financial reports, SEC filings and conference calls.

Agilent Life Science (LS) fiscal third-quarter sales were driven by double-digit growth across all key product and service categories. Sales to the pharmaceutical and biotech industries climbed 17% due to sustained instrument replacements by large drug companies. Despite some deceleration in orders in the US and Europe toward the end of the quarter, academic and government revenues improved 8%. Organic sales to the Americas and Asia Pacific each grew by double digits to account for 39% and 31% of LS sales, respectively. Sales to China climbed 40%, and Japanese sales grew in the upper single digits. European sales expanded in the high single digits organically to make up 30% of LS sales. LS adjusted operating income climbed 7.1% to $60 million, but gross margin slipped 300 basis points to 51% of sales. Fiscal fourth-quarter LS sales are expected to climb 14% on average to $490 million, including 3% growth from currency.

Agilent Chemical Analysis (CA) experienced double-digit revenue growth for services, GC and GC/MS. Chemical and energy sales jumped 25% due to increased demand from the oil, commodity and alternative energy industries. Food safety and environmental revenues grew 10% and 7%, respectively, led by strong demand in emerging territories. Sales to Asia Pacific grew in the strong double digits to represent 40% of CA revenue, with more than 50% revenue growth in China. Sales to the Americas and Europe accounted for 31% and 29% of CA sales, respectively. Despite weak demand, European service revenue experienced high double-digit growth, as well as strong aftermarket and consumables sales. CA adjusted operating profit grew 4.5% to $79 million. Gross margin declined 200 basis points to 51% of sales due to Varian’s lower margins. CA fourth-quarter sales are projected to grow by an average of 5% to $410 million, including a 3% contribution from currency.

Second-quarter revenue for Bio-Rad Laboratories’ Life Science business (LS) increased 12.8%, 6.7% excluding currency, to $169.9 million to make up 33% of total sales. Electrophoresis and imaging products, including the new Trans-Blot and Gel Doc EZ imaging systems, experienced strong demand. Process chromatography sales were also resilient. LS sales to North America and Asia were strong, but demand in Latin America declined, and Europe was mixed. European sales were pressured by lower research sales. LS operating income climbed 29.9% to $10.0 million. LS gross margin declined 110 basis points due to increased legal expenses relating to a patent infringement dispute.

In the second quarter, Bruker Scientific Instruments (BSI) revenue grew 32.6%, 6.2% organically, to $377.9 million to account for 94% of sales. Acquisitions and currency contributed 14.3% and 12.1% to revenue growth, respectively. Total company orders grew by more than 50% or over 20% organically. BSI organic revenue was driven by increased sales of MS and magnetic resonance products to academic and government customers, product introductions and US stimulus funding. Demand was also strong for X-ray and metals analysis instrumentation, as well as electronic microscope accessories. Including acquisitions, System revenue grew 33.4% to make up 82% of BSI sales, and Aftermarket revenue increased 29.2%. BSI adjusted operating income climbed 15.5% to $49.8 million, and adjusted gross profit margin improved 50 basis points to 47.2% of sales. However, adjusted operating profit margin slipped 190 basis points to 13.2% of sales due to a 51.3% jump in BSI operating expenses as a result of higher R&D and sales expenditures for the Chemical & Applied Markets (CAM) division. CAM sales were weaker than expected, and margins were negatively affected by delayed factory moves. As such, CAM operation loss is now expected to exceed $5 million for the year. Conversely, sales of NanoSurface product lines were better than expected. Given the overall strong organic bookings orders, Bruker raised its full-year revenue growth outlook by 3% to $1.60–$1.62 billion for growth of 23%. Total third-quarter organic sales are projected to grow by more than 10%.

Second-quarter sales for Illumina climbed 35.7% to $287.5 million. Product sales increased 35.9% to account for 94% of sales, including 26.5% and 52.6% growth for Consumable and Instrument revenues to $159.0 million and $106.7 million, respectively. Instrument and Consumable sales benefited from higher placements of the HiSeq 2000, Hi­Scan and HiScanSQ systems. Shipments of the Eco real-time PCR system more than doubled, and orders for the MiSeq system reached 135 units. Overall, microarray sales grew 10%. Both Instrument and Consumable sales slowed from the first quarter as the company reduced its backlog for the HiSeq 2000 and transitioned customers to the new TruSeq v3 reagent kits. The company anticipated a more normalized placement rate for the HiSeq 2000 going forward. Service and Other revenue rose 30.6% to make up 6% of sales. Sales to Asia and Europe outperformed sales to the US. Demand in Asia was heightened by stimulus funding. Adjusted operating profit soared 53.2% to $79.4 million. Gross profit margin slipped 160 basis points to 67.3% of sales due to a shift in product mix and increased Genome Analyzer trade-ins. The company increased its full-year revenue growth forecast from 20% to 24%–26% for sales of $1,128 million.

Adjusted second-quarter sales for Life Technologies improved 4.3%, 1.6% organically, to $944.8 million. Acquisitions and currency contributed 1.4% and 1.3% to revenue growth, respectively. GAAP revenues grew 4.1% to $941.1 million. Sales were below company expectations due to constricted academic and government funding in the US and Europe, shipment delays for the 5500 sequencer and slower growth in China. These three factors reduced revenue growth by a combined 4.0%. The research-related budget pressures in the US and Europe, primarily the UK, lowered revenue growth 1.5%. Delays in instrumentation deliveries due to the Japanese earthquake resulted in lower consumables sales, which negatively impacted revenue growth by 0.5%. The transition from distributors to a direct sales force in China temporarily disrupted orders, lowering sales growth by 2.0%. Excluding currency, sales to the Americas and Asia Pacific grew 3% each, European sales improved 2% and Japanese sales increased 8%. Adjusted operating profit contracted 3.5% to $262.9 million. Adjusted gross profit margin fell 350 basis points to 64.2% of sales due to currency and product mix. The company lowered its full-year revenue outlook from 5%–7% growth to 2%–4% growth, excluding currency. For the second half of the year, sales are projected to grow 3%–5% on a currency-neutral basis, including low- to mid-teen sales growth in China. The company accelerated its cost-saving strategies, which will curb expenses by $10–$20 million in the second half of the year and by $40–$50 million on an annual basis. For 2012, the company expects mid-single revenue growth on a currency-neutral basis.

The decline in research-related sales within Life Technologies Molecular Biology Systems was partially offset by currency and strong demand from industrial markets, including double-digit growth for PCR consumables and strong sales of molecular-testing kits. Revenue for the Cell Systems division included 1.3% growth from currency and a 13% increase in organic Bioproduction sales. Revenue for Genetic Systems included growth of 5.4% and 1.6% from acquisitions and currency, respectively. Segment sales were driven by strong demand for the Ion Torrent and 5500 sequencers, but were partially offset by lower sales of capillary electrophoresis instruments and next-generation sequencing consumables. Ion Torrent sales grew 50% from the first quarter to roughly $13 million.

PerkinElmer’s second-quarter sales from continuing operations rose 13.7% to $479.5 million, including contributions of 6% and 4% from currency and acquisitions, respectively. Organic sales grew 6%, including 1.5% from accounting adjustments to deferred revenue. Emerging market sales grew by double digits. Sales to the Americas and Europe each grew in the low single digits. Sales in Asia grew in the high teens. Adjusted operating income jumped 22.3% to $68.4 million due to improved productivity. Adjusted gross profit margin slipped 30 basis points to 47.1% of sales due to product mix. Both third-quarter and full-year sales are projected to grow in the mid-single digit range organically, with currency adding 4% and 3%, respectively.

PerkinElmer Human Health sales increased 11.0%, 2% organically, to $219.2 million. Acquisitions and currency added 4% and 6% to revenue growth, respectively. Diagnostic sales grew in the low single digits organically, including high single-digit medical-imaging sales and a modest decline in the screening business. Screening sales continue to be negatively impacted by declining birth rates in the US and tighter inventory control. Research sales grew in the mid-single digits, including higher sales of cellular-imaging systems, automation and multimode plate readers to academic customers. Research sales to pharmaceutical customers were mixed, as strong growth in Asia and increased demand for in vivo–imaging technology was offset by a high single-digit decline in radioactive chemical sales. Adjusted operating profit for the segment rose 7.3% to $43.5 million. Research sales are expected to grow in the mid-single digits range for both the second half of the year and third quarter.

PerkinElmer Environmental Health revenue climbed 16.1% to $260.2 million, including growth of 4% and 6% from acquisitions and currency, respectively. Organic sales improved 9%, including 2.6% from purchased accounting adjustments. Environmental and Safety revenue grew in the mid-teens organically due to strong demand for the NexION MS and inorganic analysis solutions. Organic Lab Service revenue grew in the low single digits. The Industrial business grew in the low double digits organically, driven by higher sales of molecular spectroscopy and chromatography products for chemical processing and energy applications. Adjusted operating profit for Environmental Health climbed 44.7% to $35.6 million due to productivity improvements.

Second-quarter revenue for Thermo Fisher Scientific Analytical Technologies (AT) climbed 19.3%, 6% organically, to $1,282.3 million to account for 44% of total sales. Currency contributed 6% to revenue growth, and acquisitions added 7% growth, including 5% growth from the Dionex acquisition (see IBO 12/15/10). Calculating the Dionex acquisition on a pro forma basis, AT sales grew 13%, including growth of 6% and 2% from currency and other acquisitions, respectively. Organic revenue was driven by instrument sales to industrial and applied markets and demand in emerging markets. Process instruments performed well, including strong demand for the longer lead-time systems. Clinical diagnostics sales were strong, particularly for assay and biomarker test kits. AT adjusted operating income grew 26.8% to $271.2 million. Operating income margin improved 120 basis points to 21.1% of sales due to improved productivity, higher pull-through orders, increased global sourcing and acquisitions. Full-year revenue guidance was raised 0.6% or $80 million due to additional currency gains and acquisitions. Pro forma revenues for 2011 are expected to grow 10%–11% to $11.60–$11.70 million, with 2.5% and 1% growth from currency and acquisitions other than Dionex, respectively.

Waters’s second-quarter sales grew 14.5%, 8.5% on a currency-neutral basis, to $447.6 million. Product and Service revenues grew 14.8% and 13.7% to account for 71% and 29% of sales, respectively. Instrument sales rose 13.8% to represent 54% of sales. Despite strong growth in Asia, product launches and robust demand from applied markets, organic sales were slightly below company expectations. Sales were negatively impacted by soft demand from academic and government markets and slower orders from large US research-based pharmaceutical customers at the end of the quarter. SYNAPT MS sales also declined in anticipation of a new system. Overall, government and academic revenue grew 3%. Pharmaceutical sales increased 13% but slowed from the first quarter. Industrial and environmental sales climbed 23%. Demand from government, industrial and chemical analysis customers was particularly strong in both China and India. Sales to Asia (excluding Japan) climbed 14% on a currency-neutral basis. Excluding currency, sales to the US, Europe and Japan grew 2%, 6% and 11%, respectively. Rest of the world sales jumped 21%. Adjusted operating profit grew 13.5% to $124.8 million, and gross profit margin improved 40 basis points to 60.7% of sales due to improved manufacturing efficiencies. Third-quarter sales are projected to grow 13% to $453 million, including 4% growth from currency.

 Column Graph: Q2 CY11 Revenue Growth for Eight Companies 

 Reported              16.5%

 Exc. Acq.             12.8%

 Organic                8.3%

 Bar Graph: Q2 CY11 Revenue Growth ($US)

 Life Technologies        4%

 Bio-Rad (LS)            13%

 PerkinElmer             14%

 Waters                  14%

 Agilent Tech. (LS & CA) 19%

 Thermo Fisher Sci. (AT) 19%

 Bruker (BSI)            33%

 Illumina                36%

 Bar Graph: Q2 CY11 Adj. Operating Profit Growth ($US)

 Life Technologies       -3%

 Agilent Tech. (LS & CA) 11%

 Waters                  13%

 Bruker (BSI)            16%

 PerkinElmer             22%

 Thermo Fisher Sci. (AT) 27%

 Bio-Rad (LS)            30%

 Illumina                53%

 Agilent FY11 Q3

           Rev.($M)  %Total Rev. %Rev.Growth     %Org.Growth

 LS    

 Sales    $453          27%         21%              18%

 Orders   $445                      14%              11%

 CA    

 Sales    $383          23%         16%              11%

 Orders   $400                      14%               9%

 Life Technologies FY11 Q2

                           Rev. ($M)     % Rev. Grow.     % Org. Grow.

 Molecular Biology Sys.    $431.7            -1%               -2%

 Cell Systems              $242.9             5%                4%

 Genetic Systems           $264.5            12%               11%

 PerkinElmer FY11 Q2

                        %  Total Rev.

 Human Health                 46%

 Diagnostics                  28%

 Research                     18%

 Environmental Health         54%

 Lab Services                 25%

 Environmental  & Safety      20%

 Industrial                    9%

 Waters FY11 Q2

                   % Rev. Growth        % Org. Growth      %  Seg. Rev.

 Waters Div.           14.4%                  6%                 89%

 Instrument Sys.       13.1%                                     52%

 Chem. Consum.         18.2%                                     19%

 Service               14.3%                                     30%

 TA                    15.4%                 10%                 11%

 Instrument Sys.       18.0%                                     75%

 Service                8.0%                                     25%