Emerging Markets Boost Danaher’s Q2 Sales

Revenue for Danaher’s Environmental segment advanced 6.0% organically to make up 17% of revenues. Organic sales for the segment’s water quality platforms grew in the low single digits, as higher sales in Western Europe, China and India were partially offset by weakness in Japan and Eastern Europe. Hach sales grew in the mid-single digits organically, led by demand in Western Europe and from US municipal customers, as well as improved growth in China due to additional water quality regulations. However, Hach sales to commodity-related markets remained weak. Demand for analytical instrument products, including related consumables and services, was strong in China, Latin America and Western Europe, but was partially offset by weakness in Eastern Europe due to a tough comparison and delayed orders. Sales in North America also contributed to growth for analytical instruments.

Second quarter sales for Danaher’s Life Sciences & Diagnostics segment climbed 2.5% organically to account for 45% of company revenues. Organic sales in the life sciences business grew in the mid-single digits, including strong demand in emerging markets and Western Europe. Sales at Beckman Coulter Life Sciences advanced in the high single digits organically, driven by strong flow cytometry sales in North America and China. Demand for the new CytoFLEX system, which was acquired through the acquisition of Xitogen in 2014 (see IBO 4/30/2014), was particularly robust.

SCIEX sales grew in the mid single digits due to strength from pharmaceutical, food and environmental customers, especially in China, India and Western Europe. MS sales for drug testing and food safety applications were particularly strong in China because of new regulations. However, MS sales declined in North America.

Leica Microsystems sales grew in the low single digits organically, led by new products, including a new digital and neurosurgery microscope.

Sales for the acquired Pall Life Sciences business (see IBO 5/15/15) grew double digits organically, driven by demand for single-use technologies, especially for large molecule drug applications, from biopharmaceutical markets.

Fluidigm Misses Single-Cell Target

Fluidigm missed second quarter top line expectations, as sales fell 1.6% to $28.2 million. Sales were negatively impacted by lower demand and pricing of its C1 single-cell sample preparation systems. Emergent competition for single-cell genomics platforms further impacted demand. However, the company noted that C1 consumables sales declined only marginally, suggesting continued use by existing customers. While the largest decline in C1 demand was in academic markets, sales to applied markets were lower than expected. Conversely, sales of proteomics products remained strong, growing more than 40% for the first half of the year due to demand from biopharmaceutical customers.

Given the underperformance in instrument sales, Product revenue contracted 3.6% to account for 88% of sales. Sales to research customers slumped 13.5%, while sales to applied customers advanced 19.0% to account for 63% and 37% of Product sales, respectively. Instrument sales to applied customers were led by higher placements of proteomics and genomics analytical systems, partially offset by lower sales of Access Array consumables as customers transition to the Juno system. Service revenue climbed 16.7%, while License and Grant sales were negligible.

Sales in Europe and the US contracted 6.1% and 3.1% to account for 30% and 49% of revenues, respectively. Sales in Asia-Pacific and Other grew 7.2% and 17.2% to account for 14% and 7%, respectively.

Adjusted Product gross margin declined 155 basis points to 65.9% due to lower instrument pricing. Adjusted operating loss widened 31.1% to $13.8 million due to increased headcount.

Despite the quarterly revenue shortfall, the company maintained its 2016 sales outlook of $124–$128 million due to the anticipated launch of a new mass cytometry system and continued strength for proteomics products. Third quarter sales are expected to be flat.

HORIBA Feels Currency Volatility

For the second quarter, HORIBA’s Process and Environmental Instruments & Systems (P&E) sales declined 7.3% to ¥3.64 billion ($33.7 million = ¥107.93 = $1) to account for 9% of revenues. Excluding currency, P&E sales were roughly flat, as strong Japanese sales and improved demand from petrochemical markets in the US were offset by lower sales of analytical instruments in China and South Korea. Sales in Japan climbed 13.7% to account for 56% of segment sales. Sales in Asia, the Americas and Europe declined 24.9%, 23.5% and 26.2% to make up 15%, 16% and 12%, respectively. Excluding currency, sales in the Americas and Europe remained down in double digits and sales in Asia contracted in the upper single digits. P&E operating margin fell 200 basis points to 5.5%. Given the shift in currency, the company lowered its 2016 P&E revenue outlook by 8% to ¥16.5 billion ($152.8 million = ¥108.00 = $1), but cut its operating income forecast by 13% to ¥1.3 billion ($12.0 million).

HORIBA’s Scientific Instruments & Systems (SI) sales declined 4.7% to ¥5.84 billion ($54.1 million) to account for 15% of company revenues. This decline was primarily attributed to currency as well as soft academic spending in Europe. Excluding currency, segment sales grew in the mid-single digits, with particular strength in Asia, where sales grew 4.7%, or double digits excluding currency, to account for 31% of SI sales. Japanese sales slipped 0.8% to represent 22%. Sales in Europe and the Americas contracted 18.5% and 3.6% to make up 23% and 24% of SI sales, respectively. However, excluding currency, sales in the Americas were strong. Segment operating margin slipped 20 basis points to 1.0% as a result of currency headwinds. SI’s full-year revenue and operating income outlook was reduced 4% and 33% to ¥27.0 billion ($250.0 million) and ¥1.0 billion ($9.3 million), respectively.

Pac. Bio. Orders Slow Sequentially

Second quarter sales for Pacific Biosciences grew 8.4% to $20.7 million. As expected, Contractual revenue declined 73.6% to $3.6 million following a $10 million development milestone payment in the previous year. Excluding Contractual revenue, sales climbed 51.2% to $17.2 million. Instrument sales doubled to $8.6 million as the company shipped 26 units, a majority of which were Sequel systems. Instrument bookings amounted to 25 units, with roughly 60% of the orders coming from new customers. While Sequel bookings were below the first quarter, the company postulated that order delays were linked to chip-supply issues.

Excluding the $10 million development payment in the previous year, gross margin expanded more than 21 percentage points to 51.3% due to the uptake of the higher margin Sequel system. The company maintained its revenue target of at least $93 million, which represents growth of 70% excluding Contractual revenue.

New Platforms Elevate Tecan

For the first half of 2016, Tecan sales advanced 17.7%, 9.2% organically, to CHF 235.3 million ($242.6 million = CHF 0.97 = $1). Currency and the acquisition of Sias (see IBO 10/31/15) added 2.6% and 5.9% to sales growth, respectively. Recurring revenue, including services, consumables and reagents, grew 7.7% excluding currency to account for 38% of total sales.

Life Sciences (LS) sales grew 5.8% organically, driven by demand for the recently launched Fluent liquid handling and Spark reader platforms. Strong service revenue, as well as higher sales of consumables and reagents, also contributed to segment growth. LS operating margin was roughly unchanged at 9.9%.

Also driven by recent product introductions, sales for the Partnering Business climbed 13.3% organically. Segment operating margin slipped 100 basis points to 17.7% due to acquisition-related costs.

All sales figures below are expressed in local currency. Benefiting from the acquisition and strong organic growth in the Partnering business, European sales grew 24.2% to account for 47% of revenues. Sales in Asia, which climbed 30.6% to make up 15% of revenues, similarly benefited from the acquisition as well as double-digit organic growth in both segments. In addition, sales in China nearly doubled. North American sales were flat, as strength in the LS segment was offset by lower component sales in the Partnering business. Furthermore, certain US sales were accounted for as Europe due to the location of the corporate customers.

Tecan orders expanded 7.0% organically to CHF 250.6 ($258.4 million). Operating margin was unchanged at 13.7%. Including the acquisition, 2016 currency-neutral sales are expected to grow double digits.

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