Illumina Fueled by Clinical Adoption

Illumina’s fourth quarter 2015 sales grew 15.5%, 19% excluding currency, to $591.5 million. Excluding currency, Product revenue grew roughly 15%, and Service and Other revenue jumped 55% to account for 84% and 16% of revenues, respectively.

Sequencing sales grew 19%, 23% excluding currency, driven by continued adoption in clinical oncology and translational research. Shipments to clinical oncology customers grew 40%. The reproductive and genetic health business also contributed significant growth, as NIPT revenue grew more than 50% and sales of preimplantation genetic screening products grew nearly 25%. Total sequencing consumables sales rose roughly 30%.

Sequencing system sales fell slightly due to the strong comparison of HiSeq X and HiSeq 2500 placements. Nevertheless, HiSeq 2500 orders were ahead of expectations due to demand from commercial customers and a large order from an NIPT customer in China. Revenues also benefited from the higher-priced HiSeq 4000. NextSeq orders reach a record level, with more than 40% of orders from clinical and translations customers. MiSeq orders were also strong, led by a new-to-sequencing promotional bundle.

Microarray sales declined 2% for the quarter. Nevertheless, array volume grew 1% to a record 1.6 million samples, driven by demand from agriculture, biobanking and direct-to-consumer genomics customers, as well as new products.

Quarterly sales in Europe were particularly strong due to timing of orders from the previous quarter. China and the US maintained strong sales growth, while Japan, which improved, remained challenged. Adjusted gross margin slipped 70 basis points to 71.2% of sales due to product mix. In spite of increased investments, adjusted operating profit expanded 4.7% to $161.8 million.

Full-year 2015 Illumina sales grew 19.3%, 23% excluding currency, to $2.22 billion, led by expansion of clinical genomics applications in oncology and reproductive health markets. Adjusted gross margin slipped 70 basis points to 71.9%, while adjusted operating income jumped 26.6% to $675.9 million.

For 2016, sales are projected to grow 16%, 17% excluding currency, driven by sequencing consumables. Sequencing system sales are estimated to be flat, including strong uptake for the MiniSeq but lower HiSeq X shipments due to a strong comparison. The company also addressed cannibalization concerns over the MiniSeq system, suggesting only a 20%–25% overlap rate. Array sales are projected to grow for the year.

PerkinElmer Misses Guidance

Fourth quarter 2015 PerkinElmer sales were flat at $608.3 million (see page 12) but grew 3% organically. Sales fell just below company expectations due to currency, weakness in Japan and challenges in industrial markets. Nevertheless, the company reported strength in food safety, diagnostics and lab services. Despite lower spending in Japan, academic and government sales remained stable. Geographically, China was particularly strong, as sales in the BRIC (Brazil, Russia, India and China) region grew double digits in spite of weakness in Brazil and Russia. Overall, organic sales in Asia grew in the high single digits and low single digits in the Americas. European sales were flat organically due to a strong comparison in the research and analytical equipment businesses. Adjusted gross profit margin slipped 106 basis points to 48.4%. Adjusted operating income declined 3.5% to $126.0 million.

Human Health (HH) adjusted sales declined 2.5% to $365.6 million but grew 2% organically. Organic sales for the Diagnostics business grew in the mid-single digits, including double-digit growth in China. Demand was strong for newborn and infectious disease screening, as well as for the Haoyuan blood screening business. Medical Imaging sales grew in the low single digits organically, Life Science Solutions sales grew roughly 1% organically, driven by demand in the US and for OneSource services. Outside of Japan, pharmaceutical sales from the largest customers grew in double digits. HH adjusted operating margin declined 207 basis points to 25.0%.

Environmental Health (EH) sales grew 3.8%, 5% organically, to $242.6 million, led by food testing and higher licensing revenue. Sales for the lab services business grew roughly 9% organically. EH adjusted operating margin climbed 324 basis points to 19.3%.

Full-year 2015 PerkinElmer sales grew 1.1%, 4% organically, to $2.26 billion driven by pharmaceutical and diagnostics markets, which grew in the high single digits and mid-single digits, respectively. Combined sales to the environmental and industrial markets grew in the mid-single digits, led by food testing applications. Academic and government sales improved in the low single digits. Sales grew roughly 4% organically across all major geographic regions. However, sales in emerging markets grew 6%–7% organically to account for roughly 28% of revenues.

Adjusted gross margin was roughly flat for the year at 47.6%, but improved 20 basis points excluding currency due to product mix and increased volume. Adjusted operating profit improved 1.5% to $400.4 million.

Adjusted HH sales slipped 0.7% to $1.38 billion but grew 4% organically. Segment adjusted operating margin expanded 50 basis points to 23.2%. EH sales improved 3.8%, 4% organically, to $885.7 million. EH adjusted operating margin advanced 26 basis points to 13.9%.

For 2016, sales are expected to grow 2%–3%, or 3%–4% organically, with roughly similar end-market growth as in 2015. Adjusted operating margin is projected to expand 50 basis points excluding currency. First quarter sales are expected to grow 3% organically to $530–$535 million.

Thermo Finishes Strong

Thermo Fisher Scientific fourth quarter 2015 sales advanced 3.6%, 7% organically, to $4.65 billion. The company benefited from robust biopharmaceutical demand, growing market share in Asia and above historical growth in Laboratory Products and Services. All sales figures below exclude currency. Biopharmaceutical sales grew in the mid-teens. Driven by increased spending in the US and Europe, academic and government sales grew in the mid-single digits. Diagnostics and healthcare sales also grew in the mid-single digits. Despite soft industrial demand, combined sales to industrial and applied customers grew in the low single digits, led by strength in environmental and food safety markets.

Chinese sales maintained significant growth, expanding in the high teens. Overall, Asia-Pacific sales grew in the low double digits, European sales increased in the high single digits and North American sales grew in the mid-single digits. However, sales in the Rest of the World declined in the high single digits, led by weakness in Latin America and Brazil. Thermo’s adjusted gross margin declined 130 basis points to 47.7% due to product mix and currency. Adjusted operating profit advanced 5.4% to $10.8 billion.

Life Science Solutions (LSS) sales climbed 5% organically, driven by strength in the bioproduction and biosciences businesses. LSS adjusted operating margin expanded 80 basis points to 31.6% due to strong cost synergies and improved productivity.

Analytical Technologies (AT) sales climbed 7% organically, led by strong demand for chromatography and MS. Chromatography demand was solid across a broad range of products, including HPLC, UHPLC, GC, IC, software and consumables. However, segment growth was partially offset by lower demand from core industrial markets. AT adjusted operating margin expanded 190 basis points to 22.1%, as productivity improvements offset unfavorable product mix, currency and incremental investments.

Full-year 2015 Thermo sales grew 0.4%, 5% organically, to $16.97 billion. Acquisitions added 1% to revenue growth, while currency offset sales by 6%. Biopharmaceutical sales climbed roughly 14%–15%. Academic and government, as well as industrial and applied markets each grew in the low single digits. Diagnostics and healthcare sales expanded approximately 3%. Overall, Asia-Pacific revenue grew in the high single digits, including roughly 15% growth in China. North American and European sales each grew in the mid-single digits. Rest of the World sales fell in the low single digits. For the year, Thermo adjusted gross margins slipped 50 basis points to 48.3% primarily due to currency. Adjusted operating income grew 3.4% to $3.82 billion. Adjusted operating margin expanded 60 basis points to 22.5%.

LSS 2015 sales grew 5% organically to $16.97 billion due to strong demand for bioproduction and biosciences products. LSS adjusted operating margin improved 110 basis points to 30.1%. AT sales grew 4% to $3.21 billion. Segment adjusted operating margin improved 120 basis points to 19.1%.

For 2016, Thermo sales are projected to grow 2.5%–3.5% to $17.36–$17.56 billion. Excluding acquisitions growth of roughly 0.6% and currency headwinds just below 2%, organic sales are expected to advance 4% at the midpoint. Given the strong comparison, biopharmaceutical growth is expected to taper to the mid- to high single digits. Diagnostic and healthcare sales are projected to improve, with above company-average growth. Academic and government sales are expected to perform in line with the company average, and industrial and applied markets are projected to be flat. First quarter sales are anticipated to grow 7% organically due to an extra selling week.

Waters’s Momentum Slows

Waters maintained positive momentum in the fourth quarter 2015 as sales grew 5% organically to $586.6 million. However, compared to the previous three quarters, organic growth decelerated as a result of fewer selling days, and a strong comparison in government and academic markets.

Organic sales for the Waters Division grew 4%. All sales figures below exclude currency. Pharmaceutical sales climbed 6%, driven by demand for LC systems from generic customers in India. Combined sales to the food, environmental and industrial chemical markets grew 3%, as strong demand in China was partially offset by slower growth in Europe. Government and academic sales declined in the mid-single digits because of the strong comparison and slower demand for high-end MS systems. By product, instrument and recurring revenues grew 3% and 4%, respectively. Chemistry consumables sales expanded 5%, driven by increased pharmaceutical research and QC applications.

Waters Division sales in the US were flat and grew 3% in Europe. Both regions experienced higher biopharmaceutical demand but lower sales to government and academic customers. Industrial sales were modestly higher in the US and flat in Europe. Despite a strong comparison, sales in China grew 9%. India delivered strong double-digit sales growth. Sales in Japan were roughly flat. TA Division sales grew 16%, led by double-digit growth in the US and China, as well as contributions from acquisitions.

Total company margins slipped 63 basis points to 59.4% of sales. Adjusted operating profit improved 0.4% to $194.1 million, as increased investments were offset by favorable currency impacts.

Full-year 2015 Waters sales rose roughly 9% organically to $2.04 billion. Waters Division sales grew nearly 10%, with sales to pharmaceutical markets up 11%. This growth was driven by demand for new products and increased adoption for QC applications. The company also highlighted demand from generic, clinical and specialty customers in certain emerging markets. Combined sales to the food, environmental and industrial chemical markets grew 7%, with balanced growth across all major geographies. Government and academic sales were roughly flat. Instrument sales grew 10%, led by double-digit growth for ACQUITY and Alliance LC sales. Recurring sales grew 9% due to strong UPLC utilization and increased service agreements.

Geographically, Waters Division sales in the US and Europe grew 10% and 7%, respectively. Sales in India and China soared 25% and 16%, respectively. Japan, while flat, experienced increased demand for food safety applications. TA Division sales grew 9% but included acquisitions.

Total gross margin improved 20 basis points to 58.7% for the year. Adjusted operating income climbed 55% to $592.8 million. For 2016, currency-neutral sales are expected to grow in the mid-single digits, including a small contribution from acquisitions. The company expects continued strength in the biopharmaceutical markets. Sales in Japan are not expected to grow. First quarter 2016 sales are estimated to grow 3%–5%.