Slower academic and government spending continued into the calendar-year third quarter, with mixed effects on the eight businesses whose quarterly results are profiled on pages 9–11. Industrial and applied markets stayed strong, as did Asia, helping sustain momentum for all companies, with the exception of Illumina.

Combined sales growth for the eight businesses (including a combined figure for Agilent Life Science [LS] and Chemical Analysis [CA]) increased 12.5% in the calendar-year third quarter. But, according to IBO’s calculations, on an organic basis (excluding acquisitions and currency effects), sales increased 4.3%, led by Agilent LS, Agilent CA and Bruker Scientific Instruments (BSI). Acquisitions boosted sales growth for Thermo Fisher Scientific Analytical Technologies (AT) and BSI. Both divisions are among the four businesses that recorded double-digit growth for the quarter. Showing a notable slowdown in sequential growth were Illumina, due to slower government and academic purchases, and Agilent CA, as food and environmental sales slowed.

Quarterly combined operating profits for the eight businesses rose 13.0%, down only slightly from last quarter, despite a double-digit decline for Illumina. Five businesses recorded double-digit increases in operating profits, led by Thermo Fisher Scientific AT and Waters.

Nearly all companies reported slower sales in the US academic and government sector due in part to uncertainty regarding the fiscal 2012 budget (see page 1), particularly Agilent LS, Illumina and Thermo Fisher Scientific. Agilent LS, Illumina and Thermo warned of the likelihood of continued uncertainty and weakness in this sector. Life Technologies stated that it expected stability in the segment, while Bruker was more optimistic.

In connection with the slowdown, Illumina initiated cost-cutting measures (see IBO 10/31/11). In the quarter, Life Technologies continued to implement its cost reduction efforts (see IBO 8/31/11), as did Thermo, which announced additional actions in the fourth quarter. In total, Thermo’s cost reduction efforts are expected to result in cost savings of $70 million on an annualized basis.

In contrast, the industrial sector remained strong, according to comments by Bruker, PerkinElmer and Thermo. Many companies highlighted strength in applied markets, including Life Technologies and Waters. Food testing continued on its roll, driven by China and emerging markets. Pharmaceutical sales were strong for Waters but down sequentially for Agilent LS and PerkinElmer. Both PerkinElmer and Waters commented on growth related to CROs.

Geographically, Asia remained a highlight for all eight businesses. Europe was also surprisingly strong for most of the businesses. Most notably, Agilent LS, Bruker and Waters reported strong growth for the region. Bio-Rad Laboratories LS reported improving sales, while Illumina reported weak results for the continent.

Agilent LS and CA ended their fiscal year in the quarter, with each segment reporting strong annual growth. On a combined basis, the segments’ sales increased 23.6%. Organic growth was 11.4%, according to IBO’s calculations.

The quarterly financial summaries for each company are based on financial reports, as well as conference calls and presentations.

Agilent Life Science’s (LS) fiscal fourth-quarter sales were driven by strong demand in applied markets, which grew 9%. Pharmaceutical and biotech sales improved 5% due to sustained technology upgrades from pharmaceutical companies. Academic and government revenues improved 4%, despite a double-digit decline in US sales. Sales to the US, Asia Pacific and Europe accounted for 37%, 31% and 32% of segment sales, respectively. LS adjusted operating income climbed 9.7% to $68 million, and gross margin was unchanged at 51% of sales. Sequentially, operating margin improved 120 basis points to 14% of LS sales.

Although Agilent Chemical Analysis (CA) sales growth slowed from the previous quarters, petrochemical sales grew 8%, driven by demand for GC products from industrial customers. Food safety revenues grew 5%, led by demand in emerging markets, especially China, India and Brazil. Forensics and environmental sales improved 1%. Sales to Asia Pacific, the US and Europe accounted for 39%, 31% and 30% of CA revenue, respectively. CA adjusted operating profit grew 12.8% to $97 million. Gross margin declined 100 basis points to 52% of sales due to Varian’s lower margins. On a sequential basis, operating margin jumped 350 basis points to 24% of sales. Fiscal full-year Agilent LS sales grew 21.2%, 13.5% organically, to $1,748.3 million. Acquisitions and currency contributed 4.7% and 3.0%, respectively. Adjusted LS operating profit increased 7.2% to $237 million. Fiscal full-year CA sales climbed 26.5%, 8.7% organically, to $1,482.1 million. Acquisitions and currency contributed 14.8% and 3.0%, respectively. Adjusted CA operating profit rose 12.2% to $313 million. Combined LS and CA services and consumables sales grew 22%, 11% organically. Overall, instrument, consumables and services sales accounted for 60%, 20% and 20% of the combined LS and CA segments, respectively. Combined LS and CA sales are expected to grow 7.1% in fiscal 2012.

Third-quarter revenue for Bio-Rad Laboratories’ Life Science (LS) segment increased 11.9%, 5.1% excluding currency, to $171.5 million to make up 33% of total sales (see page 12). The company reported strong demand for electrophoresis and imaging products, as well as higher sales of amplification and multiplexing consumables. Excluding currency, LS sales to Europe and Asia Pacific improved, while US sales declined. Sales to emerging markets were particularly strong. LS operating income improved 9.6% to $12.5 million. LS gross margin increased 130 basis points as a result of product mix.

In the third quarter, Bruker’s Scientific Instruments (BSI) revenue grew 35.8%, 10.9% organically, to $394.6 million to account for 94% of total sales. Acquisitions and currency contributed 15.7% and 9.2% to revenue growth, respectively. BSI organic sales were propelled by increased sales of X-ray spectroscopy, MS, molecular spectroscopy and magnetic resonance products. Sales for the NanoSurface business exceeded $40 million. Including acquisitions, System revenue grew 30.9% to make up 78% of BSI sales, and Aftermarket revenue jumped 56.6%. The company reported strong academic orders in Japan and the US and remains optimistic about European research funding, with strong growth opportunities in Eastern Europe, Turkey and Russia. BSI adjusted operating income grew 5.0% to $50.4 million as growth was restricted by increased investments in the Chemical & Applied Markets division. As a result, operating profit margin slipped 310 basis points to 48.2% of sales. The company raised its full-year revenue growth outlook by 1% to $1.62–$1.64 billion for growth of 25%.

Following a jump in purchasing delays, third-quarter sales for Illumina slipped 0.8% from a year ago and 18.1% sequentially to $235.5 million. Product sales declined 1.9% to account for 94% of sales, including an 18.2% decline in Instrument sales to $71.8 million. Heightened concerns over academic funding combined with excess sequencing capacity resulted in lower HiSeq 2000 shipments and slower adoption of Genome Analyzers. The transition to the new TruSeq v3 reagent kits was also slower than expected. The company had strong orders for the MiSeq and shipped over 45 systems. Placements of the Eco real-time PCR system expanded and are approaching one thousand units. Microarray instrument sales also increased. Overall, microarray sales fell 9% primarily due to a strong year-over-year comparison. Consumable sales increased 8.9% to $144.9 million but declined 9% sequentially. Despite higher consumable sales, the average consumable revenue per instrument declined. Service and Other revenue grew 20.3% to make up 6% of sales. Geographically, sales to Europe were particularly weak. Adjusted operating profit contracted 26.7% to $44.4 million. Gross profit margin slipped 50 basis points to 66.7% of sales. Without giving any specific guidance, the company projected higher fourth-quarter sales than this quarter.

Third-quarter sales for Life Technologies grew 7.0%, 1.5% organically, to $928.2 million. Acquisitions and currency contributed 2.1% and 3.3% to revenue growth, respectively. In addition, pricing added 1%–2% growth and a large forensics order from the Russian government provided 1% growth. Non-GAAP revenues grew 6.9% to $928.7 million. Government research–related spending increased in emerging territories and applied markets, primarily for food, animal safety and molecular diagnostics. Excluding currency, sales to academic/government and hospital/clinic customers were flat, while pharmaceutical and commercial sales increased. On a currency-neutral basis, sales to the US, Europe and Asia grew 2%, 5% and 14%, respectively. Excluding the large forensic order, European sales grew 2%. Japanese sales declined 2% in local currency. Adjusted operating profit increased 8.3% to $273.2 million due to currency and acquisitions. Adjusted gross profit margin declined 70 basis points to 66.1% of sales. The company maintained its full-year revenue growth forecast of 2%–4% on a currency-neutral basis. As part of its restructuring plan, the company realized $5 million in cost savings during the quarter.

Despite increased demand for real-time PCR instruments and consumables, organic Molecular Biology Systems sales for Life Technologies declined as a result of constrained academic and government funding in the US and Europe. Revenue for Cell Systems included 3.2% growth from currency and low double-digit growth for Bioproduction sales. Genetic Systems sales included growth of 8.1% and 3.4% from acquisitions and currency, respectively. Ion Torrent sales jumped 50% sequentially to $20 million, and sales of the OneTouch sample prep systems exceeded 400. Excluding the Russian forensics order, organic Genetic Systems sales declined 3.2% due to slower demand for 5500 sequencers.

PerkinElmer’s third-quarter sales from continuing operations rose 8.3%, 3.6% organically, to $453.7 million. Currency added 3% to revenue growth. Acquisitions, including accounting adjustments, contributed 2% growth. Organic sales were driven by strong demand for food and consumer testing and genetic screening in emerging territories. Sales to emerging markets grew in the high double digits to represent 25% of revenues. Sales to the Americas grew in the mid-single digits. Asian sales grew in the high single digits, including 20% growth in China. European sales grew in the low single digits to make up 30% of sales. The company specified that only 5% of its sales are exposed to the European austerity initiatives. Adjusted operating income expanded 14.2% to $65.7 million. Adjusted gross profit margin climbed 120 basis points to 48.2% of sales due to improved productivity and acquisitions. The company maintained its 2011 mid-single digit organic revenue growth forecast and projected fourth-quarter organic sales to grow 4%–5%.

PerkinElmer Human Health sales increased 6.6%, 2% organically, to $207.4 million. Acquisitions and currency added 2% and 3% to revenue growth, respectively. Diagnostic sales grew in the mid-single digits organically, including equivalent growth for both the screening and medical imaging businesses. Screening sales were driven by continued strength in Brazil, China and the Middle East, a new order in Eastern Europe, and improving birth rates in the US. Medical-imaging sales increased due to acquisitions and strong sales of radiometric detection equipment following a new R&D collaboration with several large Japanese universities. Despite higher sales of cellular imaging systems and fluorescent reagents, Research sales declined in the low single digits organically due to slower demand from pharmaceutical customers, with the exception of China and India. Overall, pharmaceutical sales were negatively impacted by lower radiochemical sales, which account for more than 20% of company revenues. Adjusted operating profit for the segment rose 8.0 % to $40.6 million.

PerkinElmer Environmental Health revenue climbed 9.7%, 5.7% organically, to $246.3 million. Growth contributions from acquisitions, net of adjustments, and currency amounted to 1% and 3%, respectively. Environmental and Safety revenue grew in the low teens organically due to strong sales of the NexION MS for inorganic analysis, increased demand for food and consumer safety applications, and higher molecular spectroscopy sales. Lab Service revenue grew in the low single digits organically, benefiting from acquisitions. The Industrial business grew in the mid-single digits organically, led by higher sales of molecular spectroscopy and chromatography products. Environmental Health adjusted operating profit improved 5.4% to $31.2 million.

Following the separation of the Specialty Diagnostics business from the unit, third-quarter revenue for Thermo Fisher Scientific Analytical Technologies (AT) climbed 21.6%, 5% organically, to $1,006.5 million to account for 34% of total sales. Acquisitions and currency contributed 13.0% and 3.6% to revenue growth, respectively. Including Dionex (see IBO 12/15/10), pro forma AT sales grew 9%, including 4% growth from currency. Instrument sales to industrial and applied markets grew, and bioprocess production product sales were strong. Segment sales were again faced with academic and government funding pressure in the US and Europe. AT adjusted operating income jumped 36.5% to $195.9 million. Operating income margin improved 210 basis points to 19.5% of sales due to acquisitions, improved productivity and global sourcing. For the whole company, organic sales to Asia-Pacific grew in the high teens, including more than 20% growth for China and India each. Organically, sales to North America and Europe each grew in the low single digits, and sales to the Rest of the World grew in the mid-single digits. The company lowered full-year organic revenue expectations due to funding pressures and a shift in currency. Including Dionex and Phadia, pro forma 2011 sales are projected to grow 6% to $11.62–$11.70 billion, with 2% growth from currency and 1% growth from other acquisitions.

Waters’s third-quarter sales grew 13.3%, 9.2% organically, to $454.5 million. Currency and the acquisition of Anter (see IBO 7/31/11) contributed 4.0% and 0.2% to revenue growth, respectively. Product and Service revenues grew 13.6% and 12.8% to account for 71% and 29% of sales, respectively. Sales were driven by strong demand for LC, MS and TA products from pharmaceutical, industrial and chemical analysis customers. Overall, instrument sales increased 14.7% to make up 55% of revenues. Sales to pharmaceutical customers grew 15%, including robust demand from clinical research organizations.

Government and academic sales grew sequentially and were up 10% from a year ago. Combined industrial and environmental sales grew 10%, highlighted by strong demand for food and environmental demand. Industrial chemical revenues, which account for less than 10% of sales, had higher sales in Asia but weaker demand in Europe and the US. Total US sales rose 8%, led by higher shipments of the H-Class, but partially offset by lower sales to university labs.

Excluding currency, Waters’s Japanese sales rose 6%, and sales to Asia (excluding Japan) rose 8%. Sales to Europe and the Rest of the World each grew 12% at constant currency. European sales were stronger than company expectations due to strong MS sales to government and academic customers, as well as higher food analysis revenues. Adjusted operating profit jumped 20.3% to $132.6 million, and adjusted gross profit margin improved 90 basis points to 60.3% of sales due to improved manufacturing efficiencies and currency. The fourth-quarter organic sales growth forecast was slightly lowered to 7%. Full-year sales are expected to grow 13%, including 3% growth from currency.

 Bar Graph: Q3 CY11 Revenue Growth for Eight Companies
             Q2 2011 Growth 
 Reported	   12.5%
 Exc. Acq.    8.0%
 Organic      4.3%
 Bar Graph: Q3 CY11 Revenue Growth ($US)
 Illumina                  -1%
 Agilent Tech. (LS & CA)    7%
 Life Technologies          7%
 PerkinElmer                8%
 Bio-Rad (LS)              12%
 Waters                    13%
 Thermo Fisher Sci. (AT)   22%
 Bruker (BSI)              36%
 Bar Graph: Q3 CY11 Adj. Operating Profit Growth ($US)
 Illumina                 -27%
 Bruker (BSI)               5%
 Life Technologies          8%
 Bio-Rad (LS)              10%
 Agilent Tech. (LS & CA)   11%
 PerkinElmer               14%
 Waters                    20%
 Thermo Fisher Sci. (AT)   37%
 Agilent FY11 Q4
                           Rev.($M)       %Total Rev.      %Rev.Growth      %Org.Growth
 LS				
 Sales                      $471            27%               9%                6%
 Orders                     $509                              9%                7%
 CA				
 Sales                      $405            23%               4%                1%
 Orders                     $421                              5%                2%
 Life Technologies FY11 Q3
                           Rev. ($M)      %Rev.Grow.        %Org.Grow.
 Molecular Biology Sys.    $425.7            2%               -1%
 Cell Systems              $243.9           10%                7%
 Genetic Systems           $256.0           12%                1%
 PerkinElmer FY11 Q3
                          %Total Rev.
 Human Health               46%
 Diagnostics                29%
 Research                   17%
 Environmental Health       54%
 Lab Services               25%
 Environmental  & Safety    20%
 Industrial                  9%
 Waters FY11 Q3
                         %Rev.Growth        %Org.Growth       %Seg.Rev.
 Waters Div.              13.1%               9%                89%
 Instrument Sys.          14.6%                                 52%
 Chem. Consum.             9.9%                                 18%
 Service                  12.4%                                 30%
 TA                       15.5%               11%               11%
 Instrument Sys.          15.0%                                 75%
 Service                  17.1%                                 25%