In the first quarter of the new year, instrument and laboratory product companies faced some challenges, including the aftereffects of the Japanese disaster and, in some cases, tough year-over-year comparisons. Despite these difficulties, the eight businesses whose quarterly results are profiled on pages 9–11 recorded total sales growth of 16.9% in the calendar-year first quarter. On an organic basis, sales increased an estimated 8.3%. For five businesses, sales grew in the double digits. Acquisitions heavily impacted sales growth for Bruker Scientific Instruments (BSI) and Agilent Life Sciences (LS) and Chemical Analysis (CA). BSI and Life Technologies generated slower sales growth for the quarter primarily due to one-time events.

Operating profits for the eight businesses improved 14.4%, as six of the businesses reported double-digit growth in operating incomes. Helping operating profit growth were acquisitions. However, Illumina’s skyrocketing operating profit was largely driven by sales of sequencing consumables to a larger installed base. Annualized consumables “pull-through” on the HiSeq sequencers is $300,000–$400,000 per system. In addition, the average selling price per HiSeq system increased 20% this quarter due to the end of a trade-in program. Bio-Rad Laboratories Life Science (LS) and Life Technologies posted operating losses.

Industrial end-market sales were a high point for the quarter. Agilent CA, Bruker Scientific Instruments (BSI) and Thermo Fisher Scientific Analytical Technologies (AT) each reported double-digit growth for the sector. Sales to pharmaceutical companies helped drive growth at Agilent LS, PerkinElmer and Waters. However, company results indicated that academia and government end-markets experienced less momentum than prior quarters. Both Life Technologies and Thermo attributed the slowdown to uncertainty about the NIH budget.

As for sales by product lines, Illumina’s HiSeq sequencers remained the star, but Life Technologies reported strong sales for its new Ion Personal Genome Machine sequencer. Both Agilent LS and Waters continued to report strong growth for LC and MS systems. PerkinElmer highlighted growth for ICP-MS and GC. Strong industrial sales boosted revenues of Bruker’s AXS product lines and Thermo’s process systems. Product lines experiencing slower sales growth included Life Technologies’ PCR and molecular biology reagents and PerkinElmer’s radioisotope products.

Among the eight companies profiled here, Life Technologies was most affected by the Japanese earthquake. Delayed orders and product shipments hurt quarterly sales for the company. Bruker also reported delayed orders from Japan due to the disaster. While uncertainties remain, most firms did not report serious order delays or damage to operations or supply chains from the disaster. For many companies, Japanese sales fell due to tough year-over-year comparisons as a result of the country’s stimulus program last year.

Geographically, Asia, led by China, remained the strongest region for sales. India also showed good growth, according to Thermo AT and Waters. Europe continued to be sluggish for most companies, affecting sales for Bio-Rad LS and Illumina, but not for Waters. Both Thermo and Waters highlighted growth in South America.

The information provided below is based on financial reports, SEC filings and conference call presentations.

 Column Graph:     Q1 CY11 Revenue Growth for Eight Companies

 Reported          16.9%

 Exc. Acq.         9.5%

 Organic           8.3%

 Bar Graph:                 Q1 CY11 Revenue Growth ($US)

 Life Technologies          1%

 Bio-Rad (LS)               2%

 Thermo Fisher Sci. (AT)    9%

 PerkinElmer                14%  

 Waters                     16%

 Bruker (BSI)               29%

 Illumina                   47%

 Agilent (LS & CA)          48%

 Bar Graph:                 Q1 CY11 Adj. Operating Profit Growth ($US)

 Bio-Rad (LS)               -73%

 Life Technologies          -4%

 Thermo Fisher Sci. (AT)    11%

 Waters                     24%

 Agilent  (LS & CA)         27%

 PerkinElmer                29%

 Bruker (BSI)               32%

 Illumina                   90%

 

In Agilent Technologies’ fiscal second quarter, the Varian acquisition (see IBO 5/15/10) added $188 million to the combined revenues of Chemical Analysis (CA) and Life Sciences (LS). For Agilent LS, academic and government revenues grew 9% organically. Sales to the pharmaceutical and biotech industries climbed 16% organically, led by instrument replacements by large pharmaceutical companies. Sales to the Americas, Asia Pacific and Europe each grew by double digits to account for 37%, 33% and 30% of LS sales, respectively. LS adjusted operating income climbed 27.1% to $61 million, but gross margin slipped 300 basis points to 52% of sales. Fiscal 2011 organic LS sales are anticipated to grow 13%.

For Agilent CA, chemical and energy sales jumped 19% organically due to higher energy costs and capital investments in alternative energy. Demand in emerging markets benefited food safety revenue, which grew 10%, and environmental sales. Sales to the Americas, Asia Pacific and Europe each grew by double digits to represent 29%, 41% and 30% of CA sales, respectively. CA adjusted operating profit rose 26.3% to $72 million. Gross margins declined 400 basis points to 50% of sales due to Varian’s lower margins. CA sales are projected to grow 11% organically in fiscal 2011.

 Agilent FY11 Q2

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

 LS    

 Sales       $464        28%                 39%             16%

 Orders      $479                            45%             21%

 CA    

 Sales       $381        23%                 60%             13%

 Orders      $380                            65%             22%

 

First-quarter revenue for Bio-Rad Laboratories Life Science (LS) rose 2.1% to $154.4 million (see page 12) but declined slightly on a currency-neutral basis to make up 32% of company sales. The decline was attributed to lower sales in Japan and Europe, as well as limited government spending in most developed countries. Sales of the new TGX gels, automated cell counter and Gel Doc EZ rose. On a currency-neutral basis, LS sales in the US were strong, Latin American sales were higher, and sales to Europe and Asia Pacific declined. LS operating income fell 72.8% to $3.1 million due to increased R&D spending and a strong year-over-year comparison. LS gross margin declined 170 basis points due to pricing pressure and lower manufacturing efficiency.

Bruker’s first-quarter Scientific Instruments (BSI) revenue climbed 29.0%, 3.3% organically, to $335.8 million to account for 94% of company sales. Acquisitions and currency contributed 23.3% and 2.5% to BSI revenue growth, respectively. BSI orders grew by more than 40%, or over 20% excluding acquisitions. Organic sales benefited from increased demand for X-ray and MS products from industrial and applied customers, but were partially offset by lower NMR sales. Sales for the AXS division experienced the highest growth. Revenue growth was negatively impacted by order delays in China and Japan, as well as a strong year-over-year comparison. Including acquisitions, System revenue grew 29.6% to make up 80% of BSI sales, and Aftermarket revenue increased 26.7%. Benefiting from acquisitions, BSI adjusted operating income jumped 31.8% to $37.7 million, and adjusted gross profit margin improved 230 basis points to 49.4% of sales. However, operating profit margin grew only 20 basis points to 11.2% of sales following increased R&D investments for the Chemical & Applied Markets (CAM) division, which is comprised of former Varian product lines (see IBO 3/15/10). CAM is expected to contribute $80 million in sales this year. Sales of the NanoSurface products purchased from Veeco (see IBO 8/31/10) are anticipated to reach more than $180 million. The company reported some US stimulus funding for the quarter and projected global stimulus contributions of about $45 million in 2011 and $20 million in 2012.

In the first quarter, Illumina’s revenues climbed 47.0% to $282.5 million, including 12 weeks of revenue from Epicentre Biotechnologies (see IBO 1/15/11). Sequencing revenue jumped 80%, led by demand for the HiSeq 2000. Product sales increased 53.6% to account for 94% of company sales, including 23.9% and 99.8% growth for Consumable and Instrument revenues to $148.1 million and $114.3 million, respectively. Sales of Sequencing consumables grew more than 70%. Microarray sales expanded, benefiting from increased placements of the HiScan and HiScanSQ systems. Microarray consumables sales were led by demand for methylation arrays and whole-genome genotyping products. Growth in all major geographic regions was led by Asia. Service and Other revenue declined 14.4% to make up 6% of sales due to a large one-time service contract in 2010. Adjusted operating profit soared 89.6% to $77.3 million. Gross profit margins slipped 220 basis points to 66.6% of sales due to a shift in product mix and increased Genome Analyzer trade-ins.

Adjusted first-quarter sales for Life Technologies grew 1.1%, but slipped 0.3% organically to $896.8 million. Acquisitions contributed 2.3% to revenue growth, and currency lowered sales by 1.0%. GAAP revenues rose 0.9% to $895.9 million. Sales declined 1.5%–2.0% due to supply and demand issues following the natural disaster in Japan. Manufacture of the 5500 next-generation sequencers and capillary electrophoresis (CE) instruments was temporarily affected due to earthquake damage at a Hitachi High-Technologies’ facility. Also contributing to weaker revenue growth was a difficult year-over-year comparison. Excluding these factors, organic sales improved 5%. Organically, sales to the Americas, Europe and Asia Pacific grew 1%, 2% and 7%, respectively. Japanese sales fell 16%. US sales were hindered by weak research spending by academic customers. Adjusted operating profit slipped 3.6% to $252.7 million. Adjusted gross profit margins declined 200 basis points to 66.3% of sales due to currency and product mix. The company reaffirmed its full-year revenue guidance of mid-single digit organic growth. Excluding currency, both second-quarter and full-year sales are expected to climb 5%–7%.

Revenue for Life Technologies Molecular Biology Systems included 2.6% growth from acquisitions and a decline of 0.8% from currency. Despite strong sales of TaqMan assays, revenue growth was negatively affected by year-over-year comparisons and lower demand for PCR and molecular biology reagents, which was due in part to the temporary closure of some labs in Japan. Cell Systems sales were strong across all product lines, including more than 20% sales growth for Bioproduction products. Genetic Systems sales included 3.7% growth from acquisitions and a 1.1% decline from currency. The Ion Torrent sequencer experienced strong demand, and food safety applications grew by double digits. Organic sales were suppressed by shipment delays of the 5500 sequencer. Anticipation of the 5500 sequencer stalled orders for the SOLiD 4 and related consumables. Sales of CE instruments and consumables declined in the low single digits due to the difficult comparison and delays. Excluding one-time factors and one-time orders, Genetic Systems sales were flat, including low single-digit growth for the CE business.

 Life Technologies FY11 Q1

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

 Molecular Bio. Sys. $425.7           -1%            -3%

 Cell Systems        $237.7           11%            11%

 Genetic Systems     $227.6           -4%            -8%

 

PerkinElmer’s first-quarter revenues grew 13.8%, 10% organically, to $447.9 million. Currency and acquisitions each contributed 2.0% to revenue growth. Organic sales benefited from new products and demand for genetic screening in emerging territories. Emerging markets sales grew in double digits to account for roughly 25% of sales. Sales to the Americas and Europe each grew in the high single digits, and sales to Asia grew in the high teens. Recurring revenue grew in the mid-single digits organically to account for 56% of total sales, and instrument and component revenues grew in the high teens to make up 44%. Adjusted operating income climbed 29.2% to $59.2 million due to cost-savings initiatives and improved productivity. Despite a shift to lower gross margin products, adjusted gross profit margin improved 20 basis points to 47.3% of sales. Full-year and second-quarter organic revenues are each expected grow in mid-single digits.

PerkinElmer Human Health sales improved 7.1%, 2% organically, to $202.0 million, including 3% and 2% growth from acquisitions and currency, respectively. Organic Diagnostic sales grew in the mid-single digits, driven by demand for neonatal and infectious screening, particularly in China. Despite higher demand from industrial and veterinary customers, medical-imaging revenue declined in single digits organically as a result of capital constraints. Organic Research sales grew in the low single digits due to sales of cellular imaging systems and multimode plate readers to academic customers, but were partially offset by lower demand for radioisotope products from large pharmaceutical customers. Adjusted operating profit for the segment rose 9.8% to $36.2 million. Going forward, the company anticipates Research sales to grow in low to mid-single digits for the year.

Environmental Health revenue jumped 19.9% to $245.9 million, including 3% growth from currency. Environmental and Safety revenue increased more than 20% due to sales of the NexION 300 ICP-MS, which more than doubled, strong demand for inorganic analysis solutions, and low double-digit growth for GC. Lab Service revenue grew in the low double digits organically due to OneSource. The Industrial business benefited from a cyclical recovery as sales grew by more than 20% organically. Demand for GC Engineered Solutions and new IR instruments was also strong. Adjusted operating profit for the segment rose 45.4% to $33.5 million due to product mix and productivity improvements.

 PerkinElmer FY11 Q1

                    % Total Rev.

 Human Health            45%

 Diagnostics             27%

 Research                18%

 Environmental Health    55%

 Lab Services            21%

 Environmental  & Safety 19%

 Safety & Security       12%

 Industrial              9%

 

First-quarter revenue for Thermo Fisher Scientific Analytical Technologies (AT) climbed 8.7% to $1,177.7 million to account for 43% of company sales. Currency and acquisitions boosted revenue growth by 1.3% and 2.5%, respectively. Organic sales climbed 4.9%, but were negatively impacted by a strong year-over-year comparison. Excluding these orders, AT sales grew 10% organically. Clinical diagnostics sales grew in the double digits, led by biomarker test kits. Process instruments sales were also strong, led by higher demand for handheld systems from the metals and mining sector. Scientific Instruments also performed well due to increased demand from pharmaceutical customers. Sales for Finnzymes (see IBO 2/15/10) and Fermentas (see IBO 5/31/10) each grew by double digits. Demand in India and China continued to outpace all other regions.

Thermo AT adjusted operating income grew 10.9% to $247.6 million, and operating income margin improved 40 basis points to 21.0% of sales due to improved productivity and global sourcing. The company raised its full-year revenue guidance by 1.6% to $11.52–$11.62 billion for growth of 9%–10%, including 1.8% growth from currency. The forecast includes Dionex (see IBO 12/15/10), which is expected to add about $310 million to revenues, and excludes the Athena Diagnostics and Lancaster Labs (see IBO 2/28/11). The midpoint for organic revenue growth for the year was unchanged at 4%. Second-quarter sales are expected to grow at the low end of the mid-single digit range.

Waters’s first-quarter sales grew 16.3%, 14.3% on a currency-neutral basis, to $427.6 million. Product and Service revenues grew 19.9% and 8.4% to account for 71% and 29% of sales, respectively. Instruments sales grew by more than 20%. MS and LC instrument sales were strong, especially for the ACQUITY H-Class and Xevo UPLC/MS systems. Sales to pharmaceutical markets grew 20%, including strong double-digit growth for generics, CROs and large pharmaceutical customers. Industrial and environmental revenue increased 18%, and government and academic sales improved 4%. Excluding currency, US, Europe and Asia (excluding Japan) sales grew 8%, 12% and 29%, respectively, and sales to the rest of the world jumped 40%. Japanese sales slipped 1% to account for 10% of revenues. South American sales grew by double digits. US sales benefited from higher pharmaceutical and applied revenues, but were partially offset by lower demand from government and university customers. Adjusted operating profit grew 24.0% to $120.2 million. Gross profit margins were unchanged at 60.3% of sales, as reduced manufacturing costs were offset by currency transactions and product mix. The company raised its full-year revenue guidance from high single digits to 12% growth, 10% organically, which would result in sales of $1,840 million. Second-quarter sales are projected to grow 15% to roughly $450 million, including 5% growth from currency.

Revenue for the Waters Division grew 16.5%, 14.5% on a currency-neutral basis, to account for 90% of company sales. Within the Division, Instrument Systems revenue grew 23% organically, led by demand for new MS systems and chemistry consumables. Thermal Analysis (TA) sales improved 14.7%, 8.2% on a currency-neutral basis. TA Instrument Systems revenue grew 12% organically, driven by new products, strong demand from the energy sector in emerging territories and higher sales of biocalorimetry systems.

 Waters FY11 Q1

                      % Rev. Growth      % Segment Rev.

 Waters Div.  

 Instrument Systems   24.6%              51%

 Chemistry Consum.    10.6%              19%

 Service              8.0%               29%

 TA   

 Instrument Systems   15.5%              75%

 Service              12.5%              25%