Backlog Lifts Bruker

Bruker’s Scientific Instruments segment (BSI) sales grew 5.2% organically to $350.4 million to account for 93% of company sales (see page 12). Organic growth was driven by a sturdy NMR backlog and higher MS sales, along with strength in North America and China. System and aftermarket revenues grew roughly 7% and 5% organically to make up 74% and 26% of BSI sales, respectively.

Bruker BioSpin sales grew double digits organically, with growth in all businesses. NMR sales were markedly strong due to increased volume, higher pricing and broader adoption by applied and clinical research markets. This growth was further amplified by a weak comparison and installation of Bruker’s first shielded Aeon 1 GHz magnet. Service and aftermarket sales also contributed to growth.

Bruker CALID experienced growth across all businesses, especially Optics, which benefited from strong sales of NIR and remote sensing products. Daltonics sales grew in the high single digits, led by double-digit growth for the MALDI Biotyper and higher service revenue. In spite of a strong comparison, Detection sales improved slightly following the delivery of a large backlog order.

Bruker Nano sales remained vulnerable to industrial weakness. As such, Nano Surfaces sales were lower across all markets. The AXS Division, for which sales were strong in the previous year, experienced slow demand for XRF, XRD and AFM products from both academic and industrial customers, especially in Europe. The semiconductor metrology tools business started the year slow but experienced improved orders and backlog.

BSI adjusted operating margin climbed 274 basis points to 13.2% as a result of higher volume and BioSpin pricing, as well as restructuring measures, currency and delivery of the gigahertz NMR system. Bruker maintained its 2016 organic revenue growth forecast of 3%. Currency is now expected to add 1% to reported growth.

Illumina Lowers Outlook

Illumina, which recorded first quarter sales growth of 6.2% to $571.8 million (see page 12), missed revenue guidance by more than $20 million due to timing of orders and lower-than-expected HiSeq demand. Among other variables, the company stressed operational challenges along with customer purchasing and funding delays as the primary causes for the revenue shortfall versus competitive pressure or overcapacity. The firm recorded $700 million in orders and ended the quarter with $100 million in sequencing consumables backlog, which was higher than previous quarters. European sales fell 2%. In addition, the company cut its 2016 revenue growth outlook for the region from the high teens to low- to-mid single digits.

Given the HiSeq revenue shortfall and strong comparison, sequencing instrument sales declined 21%. However, benchtop sales performed well, including strong interest in MiniSeq and higher demand for NextSeq from NIPT customers in China. Though the shift of NIPT customers in China to in-house sampling boosted instrument sales, it also resulted in slower sequencing service revenue. Adjusted for retired systems, the company quantified an installed base of more than 2,000 HiSeqs.

Sequencing consumables sales climbed 24% to nearly $300 million, led by stronger-than-projected utilization rates for MiSeq and NextSeq. Microarray sales, which were positive for the first time in two years, grew 1% to nearly $90 million. Array orders jumped 85%, well ahead of expectations due to demand from the direct-to-consumer market and early interest in the new Consortium arrays, which are expected to ship in the fourth quarter.

Asia Pacific sales contracted 5% as expected due to a strong comparison for HiSeq X systems. Sales in the Americas grew 14%, slightly below projections. Nevertheless, the company maintained its 2016 revenue growth outlook of mid-teens for both the Americas and Asia Pacific.

Illumina’s gross margin slipped 47 basis points to 71.3% due to lower HiSeq X placements and reduced services margins. As expected, adjusted operating margin fell 950 basis points to 23.9% following increased investments in GRAIL and Helix (see IBO 1/15/16). Given the reduced outlook in Europe and smaller projected contribution from the Genomics England project, the company lowered its 2016 sales growth estimate from 16% to 12%. Second quarter sales are expected to grow 10% to $590–$595 million.

Strong Start for Thermo Fisher Scientific

First quarter sales for Thermo Fisher Scientific climbed 9.6%, 10.0% organically, to $4.3 billion. Acquisitions added 1.1% to revenue growth but were offset by currency headwinds of 1.6%. Top line growth further benefited from four extra selling days, which contributed just under 5% to revenue growth. Excluding the extra days, organic sales expanded roughly 5%, driven by stronger-than-expected demand from biopharmaceutical markets, which grew well above the company average. In spite of weak industrial demand and minimal contribution from extra days, instrument sales grew 6% organically due to higher placements of life science, MS and chromatography systems. Consumables sales grew double digits, or roughly 4% organically excluding the extra days. Service revenues climbed 14%, including strong demand in the pharmaceutical services and Unity Lab Services businesses.

All end-market and geographic figures below are based on organic growth and normalized days. Biopharmaceutical sales grew in the upper single digits, and health care and diagnostics sales grew roughly 5%. Sales to academic and government customers advanced in the low single digits, with improved spending in the US. However, industrial and applied sales remained hampered by weakness in the industrial markets.

Asia-Pacific sales rose in the high single digits, led by Chinese sales, which grew in the teens. Indian sales were similarly robust, with strong demand from biopharmaceutical, health care and food safety markets. Sales in North America and Europe each grew in the mid-single digits. Accounting for less than 5% of revenues, Rest of World sales declined in the high single digits.

Life Science Solutions (LSS) sales climbed 11.4% organically but were helped by extra selling days. Growth was driven by sales of bioproduction, biosciences and NGS products. LSS adjusted operating margin declined 20 basis points to 29.1% due to currency, product mix and increased investments. With minimal impact from the additional days, Analytical Technologies (AT) sales rose 5.6% organically. Chromatography sales and service revenues boosted segment growth but were partially offset by lower demand for chemical analysis products from industrial markets. AT adjusted operating margins fell 200 basis points to 14.7% primarily as a result of the extra selling days.

Adjusted gross margin declined 110 basis points to 48.2% primarily due to currency and more selling days. Adjusted operating margin slipped 20 basis points to 21.7%, despite improved operational performance. The company raised its 2016 revenue guidance by roughly $490 million to $17.86–$18.04 billion for growth of 5%–6%. The increased guidance includes $275 million from the Affymetrix acquisition (see IBO 3/31/16), $200 million from reduced currency headwind expectations and $15 million from stronger organic growth. The 2016 organic sales growth forecast, which excludes 2% growth from acquisitions and 0.5% currency headwinds, was unchanged at 4%.

Waters Rises on Recurring Sales

Waters first quarter sales advanced 3.2%, 4% organically, to $475.2 million. Currency reduced revenue growth by 1.4% but was partially offset by acquisition-related growth of less than 1%. All sales figures below exclude currency. Pharmaceutical sales, which grew 9% to account for 55% of revenues, experienced broad-based geographical demand, including double-digit sales growth in both the US and Asia. Sales to generics, specialty pharma and CRO customers were particularly resilient. Sales to larger pharmaceutical customers grew in the low to mid-single digits. Combined sales to industrial chemical, nutritional safety and environmental customers were flat due to a strong US comparison. Sales for food quality and safety applications accelerated in certain regions outside the US. Despite increased demand for research LC/MS systems in China, total government and academic sales declined 1% because of lower spending in Europe and the US. Waters products and services revenue grew 5% organically. Instruments sales grew 2%. Consumables sales climbed 8% due to higher pricing and increased run rates, especially for ACQUITY UPLC columns.

Sales of TA products and services fell 4% organically due to delayed orders resulting from the launch of the Discovery analyzers. The reduced sales growth was primarily in the US and Europe. TA sales in China and Japan each grew roughly 25% or higher excluding currency.

Total sales to the Americas, Europe and Asia grew 1.1%, 1.7% and 10.9% to account for 38%, 26% and 36% of revenues, respectively. Japanese sales climbed 8% due to double-digit pharmaceutical sales growth. Sales in China and India each grew in the mid-teens, also led by pharmaceutical markets.

Gross profit margin dipped 122 basis points to 57.7%. Adjusted operating profit margin slipped 36 basis points to 26.5% due to increased investments. The company maintained its mid-single digit growth sales forecast excluding currency for 2016. For the second quarter, sales are estimated to grow 5%–7%, with minimal impact from currency.