Major publicly held instrument and laboratory product businesses continued to weather a slow growth environment in the calendar-year third quarter. Revenues for the eight businesses whose quarterly results are detailed on pages 9–11 grew 2.0%, including approximately 4.2% organic growth (see table, page 9). This compares with reported sales growth of 3.1% last quarter, with 3.6% organic growth (see IBO 8/31/12).

Quarterly reported sales growth slowed sequentially for five of the eight businesses (including Agilent Life Science [LS] and Chemical Analysis [CA] combined). Year over year, sales declined for four businesses: Agilent LS and CA, Bio-Rad Laboratories Life Science (LS), Life Technologies and Waters. However, Illumina and PerkinElmer recorded double-digit sales growth, with Illumina showing a double-digit increase on an organic basis.

In total, operating profits for the eight businesses rose 4.2%, compared with a 4.0% increase in the calendar-year second quarter. Most companies continued to maintain cost controls and to benefit from efficiency measures previously initiated. Agilent LS, Bruker Scientific Instruments, Illumina and PerkinElmer recorded double-digit increases in operating profits. However, operating profits declined for Bio-Rad LS, Life Technologies, Thermo Fisher Scientific Analytical Technologies and Waters.

Quarterly sales growth suffered from lower year-over-year growth in the industrial, academic and government markets. A number of companies commented on the adverse effect on spending of the possible US “fiscal cliff.” In fact, industrial sales weakened from the previous quarter, according to PerkinElmer and Thermo. Academic and government sales were also slow. However, Agilent LS, Thermo and Waters commented that although soft, academic sales did not worsen sequentially. As a whole, pharmaceutical sales remained stable, according to Agilent LS, Life Technologies, Thermo and Waters. Select applied markets also showed strength, led by sales in Asia. Agilent CA and Life Technologies highlighted growth in forensics, while Thermo and Waters noted good growth for food safety sales in China.

In fact, Chinese growth remained strong overall, as indicated by Illumina, PerkinElmer and Thermo. Agilent and Bruker noted slowing growth. US sales continued to be slow in a cautious environment, according to most companies, with Bruker indicating a weak research market and Waters reporting a decline in US sales. European results were mixed. Bio-Rad LS and Bruker both commented on the market’s weakness. However, Illumina and Waters indicated good growth in the region.

MS sales remained good, according to Agilent LS, Thermo and Waters. Agilent reported slow HPLC sales due to weaker industrial demand, but Thermo noted good growth for HPLC sales. Other areas of strength for companies were Bruker’s BioSpin division, which offers NMR and MRI products; digital PCR for Bio-Rad LS; and desktop sequencing systems for both Illumina and Life Technologies.

Pricing pressure remained an issue, as noted by Agilent, Bio-Rad LS, Bruker and PE, affecting less differentiated product lines. In line with a slow growth market and pricing issues, several companies commented on cost containment measures. Thermo and Life Technologies stated that they continue to evaluate additional cost saving measures.

Most companies expected slower growth to continue in the fourth quarter and the first half of next year. PerkinElmer and Thermo suggested that industrial spending trends could worsen. However, companies expect growth in China and emerging markets to be strong.

The information provided below is based on company reports, SEC filings and quarterly conference calls.

Agilent Life Sciences and Chemical Analysis

Agilent Life Science’s (LS) fiscal fourth-quarter sales improved 3% organically due to strong demand from pharmaceutical customers (see page 12). Academic and research sales fell but were stable compared with the fiscal third quarter. MS sales grew, while LC sales declined in the low single digits. Sales growth in China slowed, but orders remained strong. Sales to the Americas, Asia Pacific and Europe accounted for 39%, 33% and 28% of LS sales, respectively. Adjusted LS operating income soared 24.6% to $71 million due to Varian synergies and other cost saving measures. Gross profit margin climbed 400 basis points to 53% of sales.

Chemical Analysis (CA) sales were flat organically but grew 3.4% sequentially due to increased forensics sales for drug testing. Food testing revenue declined, while environmental sales declined both year over year and sequentially. LC sales were negatively impacted by a slow replacement cycle and restructuring activities by chemical customers. Sales to the Americas, Asia Pacific and Europe accounted for 31%, 40% and 29% of CA sales, respectively. Adjusted CA operating profit was flat at $97 million, and gross profit margin advanced 100 basis points to 53% of sales.

On a pro forma basis, fiscal full-year Agilent LS sales grew 4.4%, roughly 6% excluding currency, to $1,582 million to account for 23% of company sales. Adjusted LS operating profit increased 13.9% to $230 million. Gross margin improved 40 basis points to 50.8% of LS sales. Fiscal full-year CA sales climbed 2.7%, roughly 5% excluding currency, to $1,559 million to make up 23% of company sales. Adjusted CA operating profit rose 8.0% to $338 million. Gross margin advanced 30 basis points to 51.4% of CA sales. Fiscal 2013 sales for LS and CA are expected to be flat to 3% growth.

Bio-Rad Laboratories Life Science

Third-quarter revenue for Bio-Rad Laboratories’ Life Science (LS) segment contracted 0.9% organically due to pricing pressure and lower European and Japanese demand. However, sales of process chromatography, imaging and food science products increased. Sales for the acquired QuantaLife products (see IBO 10/15/11) jumped 126% sequentially to $5.2 million. LS adjusted operating profit slipped 0.8% to $12.4 million. The company lowered its total full-year revenue growth forecast from 3.5%–4.5% to 2.5%–3.0%, excluding currency. Full-year QuantaLife sales will fall short of the company’s original $20 million estimates.

Bruker Scientific Instruments

Bruker’s third-quarter Scientific Instruments (BSI) revenue rose 9.5% organically. However, orders softened due to slower industrial growth in Asia and weaker European and US research markets. Bruker BioSpin sales of NMR products benefited from a strong backlog conversion. MS sales were also strong, driven by increased demand from biopharmaceutical and clinical customers. Sales for the MALDI Biotyper grew in the double digits, with particularly strong growth in Asia. The Chemical & Applied Markets (CAM) and Bruker Detection businesses grew at above BSI average rates due to higher MS sales. Revenue growth for the Bruker Nano Surfaces business slowed as a result of lower demand from the semiconductor and data storage metrology markets.

System revenue climbed 8.8% to make up 82% of BSI sales. Aftermarket sales fell 14.5% to account for 18%. BSI adjusted operating income improved 12.7% to $56.8 million. Adjusted gross profit margin increased 20 basis points to 48.3% of sales due to higher-margin new products. This was partially offset by pricing pressure and lower margins for the chemical analysis business as a result of increased production costs. Following a reduced outlook in July (see IBO 8/31/12), the company raised its total revenue guidance by 1% to $1.73–$1.76 billion for reported growth of 5%–7%. Currency is expected to lower sales growth by 1%–1.5%, and acquisitions are projected to add 1%–1.5%.

Illumina

Illumina’s third-quarter sales climbed 21.0% organically due to strong demand for whole-genome sequencing services and sequencing consumables, which grew 44%. Consumables revenue benefited from a broader base of sequencing systems and greater average annualized HiSeq pull-through rates, which climbed 17% to $315,000. Following a sharp decline in the first half, Instrument revenue climbed 14.8% due to higher sequencer shipments and the introduction of the HiSeq 2500. Sales growth also benefited from a partial quarter of MiSeq shipments last year. Illumina stated that it has a 50% unit share for desktop sequencers. Twenty percent of MiSeq orders in the quarter were for multiple units.

Compared with the second quarter, Illumina’s sales increased 1.9%. Microarray sales declined 4% sequentially. Strong demand for iScan instruments was offset by lower Infinium sample shipments. Total sequencing sales improved 4% sequentially due to an expanded base of HiSeq and MiSeq systems and strong genotyping service revenues.

Sales to the US and Europe each grew 19%, while shipments to Canada and Asia rose 11% and 21%, respectively. Sales to China grew 79%. Adjusted operating income soared 74.1% to $77.3 million due to increased margin and lower operating costs as a percentage of sales. Adjusted gross profit margin advanced 160 basis points to 70.5% of sales due to a shift in product mix and improved manufacturing efficiencies. The company narrowed its 2012 revenue guidance from $1.10–$1.18 billion to $1.13–$1.14 billion, including roughly $5 million from BlueGnome (see IBO 9/30/12).

Life Technologies

Third-quarter sales for Life Technologies grew 1.5% organically due to demand for the Ion PGM sequencer and Ion Proton system. The company shipped 100 Ion Proton systems during the quarter. Increased demand for forensics products and research consumables also contributed to overall revenue growth. From a market perspective, academic sales were weak, pharmaceutical demand was stable and biotechnology sales were good. Excluding currency, sales to Asia Pacific, Japan and Europe grew 10%, 4% and 2%, respectively. Sales to the Americas declined 1%.

The Research Consumables segment experienced sales growth for benchtop systems and cell culture and sample preparation products. Genetic Analysis sales were driven by better-than-expected sales of the Ion Proton, but were partially offset by lower SOLiD and capillary electrophoresis (CE) instrument sales. In addition, the expected decline in qPCR royalty payments was reduced to $3 million as a result of new licensing programs. Despite lower BioProduction and CE instrument sales, Applied Sciences revenue benefited from strong sales of forensic kits and qPCR instruments.

Adjusted operating profit fell 6.5% as a consequence of increased investments in China and the medical science business. Gross profit margin slipped 50 basis points to 65.6% of sales due to currency and product mix. Fourth-quarter sales are expected to grow 4% driven by Ion Torrent, new consumables products, timing of forensic orders and growth for the BioProduction business. The decline for qPCR royalty revenue is expected to be $10 million. The company maintained its full-year organic sales forecast of roughly 2% growth.

PerkinElmer

With 7.5% organic revenue growth for the third quarter, PerkinElmer exceeded company expectations. Sales were driven by strong demand from emerging markets, which grew more than 20% to account for 28% of sales. All figures below are organic. Instrument and component revenues grew in the low double digits. Recurring revenue grew in the mid-single digits. Sales to the Americas and Europe each grew in low single digits. Asian sales grew more than 20%. Adjusted operating income rose 15.8% to $78.3 million due to lower operating expenses. Despite increased manufacturing investments in China, adjusted gross profit margin improved 10 basis points to 48.3% of sales due to product mix and productivity improvements. The company maintained its full-year organic revenue growth outlook for mid-single digit growth. Adjusted fourth-quarter sales are projected to grow 2%–4% organically to $570–$580 million.

Human Health (HH) revenue for PerkinElmer benefited from the acquisition of Caliper (see IBO 9/15/11), low double-digit instrument sales growth and strong demand from emerging markets. The Diagnostics business grew in the low double digits to account for 28% of HH sales, including double-digit growth for newborn screening, medical imaging and infectious disease testing. Organic Research sales grew in high single digits to account for 22% of HH sales. Sales grew for automated liquid handling, high-content screening and multi-mode plate readers, but were partially offset by lower sales of radiometric detection equipment. Research sales growth also benefited from a weak year-over-year comparison and timing of high-end instrument shipments.

PerkinElmer Environmental Health (EH) sales were driven by increased demand for informatics and inorganic analysis solutions for environmental applications. The Laboratory Services business grew in the high single digits to represent 25% of EH sales. Environment and Safety revenue grew in the low single digits to account for 18% of segment sales, including more than 20% growth in China. Industrial sales declined in the low single digits to make up 7%.

Thermo Fisher Scientific Analytical Technologies

Third-quarter Thermo Fisher Scientific Analytical Technologies (AT) revenue grew 3.3% organically due to higher sales of analytical instruments and Bioprocess production products. The company highlighted sales of HPLC and GC systems for food safety and environmental testing. Strong sales of air quality systems in China also contributed to growth. Sales of MS systems for life science applications were strong, especially for the Q Exactive. Overall, demand from applied markets was good, but was partially offset by lower demand from industrial markets. AT adjusted operating income fell 2.1% to $191.7 million. Despite productivity improvements, operating income margin declined 60 basis points to 18.9% of sales due to increased investments and currency. The company raised its full-year revenue growth expectations from 5%–6% to 7%, including acquisitions.

Waters

Organic revenue grew 2% in the third quarter for Waters due to demand from food safety applications in China, stable pharmaceutical sales and increased service revenue. Pharmaceutical sales improved 1% but were mixed. Sales to large pharmaceutical customers grew in the mid-single digits excluding currency, led by demand in small molecule quality control applications. Despite continued challenges in India, demand from generic companies improved. However, sales to biotech-related companies and CROs were weak. Government and academic sales declined 3%. Sales to industrial chemical, food safety and environmental customers decreased 3%. Excluding currency, sales to Asia (excluding Japan) grew 9%, including double-digit growth in China, and sales to the US and Japan fell 4% and 1%, respectively. On a currency-neutral basis, sales to Europe grew 4%, benefiting from the acquisition of Baehr (see IBO 2/29/12).

Including currency headwinds, instrument sales fell 4.6% to make up 53% of sales. Recurring revenue grew 3.4% to account for 47%. Waters Division sales fell 1.0% but grew 2% excluding currency to account for 89% of sales. Excluding currency, recurring revenues grew 7% and Instrument System sales fell 2%. MS sales were lower, especially for high-end research instruments, partially offset by increased sales of quadrupole systems. TA Division sales fell 1.3%, 3% organically, to make up 11% of sales. Acquisitions contributed 4% to TA sales growth, and currency offset sales by 2%.

Adjusted gross margin declined 90 basis points to 59.4% of sales due to product mix and development of new products. Waters projected currency-neutral sales to grow 2% for both the fourth quarter and year.

 CY3Q 2012 Results

                                                Revenues                     Rev. Growth Summary Adj.        Operating Profit

                                   ($M)      %of Co.Rev. %Growth   %Org.Growth  %Acq.Effect  %Curr.Effect     ($M)   %Growth

 Agilent Tech. (LS + CA)         $795.0          45%      -1.5%         2%            0%          -3%        $168.0    9.1%

 Bio-Rad Laboratories (LS)       $167.0          33%      -2.6%        -1%            3%          -5%         $12.4   -0.8%

 Bruker (BSI)                    $408.9          91%       3.6%        10%            1%          -7%         $56.8   12.7%

 Illumina                        $285.9         100%      21.4%        21%            0%           0%         $77.3   74.1%

 Life Technologies               $911.2         100%      -1.8%         1%            0%          -3%        $255.3   -6.5%

 PerkinElmer                     $509.6         100%      12.5%         8%            8%          -3%         $78.3   15.8%

 Thermo Fisher Scientific (AT) $1,012.2          33%       0.6%         3%            0%          -3%        $191.7   -2.1%

 Waters                          $450.0         100%      -1.0%         2%            0%          -3%        $130.1   -1.9%

                               $4,539.7                    2.0%         4%            1%          -3%        $969.9    4.2%

 Agilent 4Q FY12 

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

 LS    

 Sales      $401          23%             0%               3%

 Orders     $417                         -4%              -1%

 CA    

 Sales      $394          22%            -3%               0%

 Orders     $421                          0%               2%

 Illumina 3Q FY12

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

 Consumables     $176.7       21.9%        62%

 Instruments      $82.4       14.8%        29%

 Other Products    $3.3       -7.7%         1%

 Service & Other  $23.5       54.3%         8%

 Life Technologies 3Q FY12

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

 Research Consumables      $384.4           0.7%          42%

 Genetic Analysis          $353.4           2.1%          39%

 Applied Sciences          $173.5           2.9%          19%

 PerkinElmer 3Q FY12

                     Rev. ($M)    % Grow.      % Acq. Effect     % Curr. Effect     % Org. Grow.

 Human Health    

 Sales                 $257.2       25%             18%                -3%               10%

 Adj. Op. Profit        $56.3       36%   

 Envir. Health     

 Sales                 $252.4        2%              0%                -3%                3%

 Adj. Op. Profit        $31.6       -2%

 Waters 3Q FY12 

                         % Rev. Growth         %  Segment Rev.

 Waters Div.  

 Instrument Systems         -4.8%                     50%

 Chemistry Consum.           1.4%                     18%

 Service                     4.3%                     31%

 TA   

 Instrument Systems         -3.8%                     73%

 Service                     6.3%                     27%