Fourth Quarter 2007 Sales Stay on Track

Once again this year, the seasonally strong calendar year 2007 fourth quarter did not disappoint, topping off a year of solid growth for some of the analytical instrument industry’s largest companies. Of the 10 analytical and life science instrument businesses discussed on pages 9–11 that presented quarterly results in US dollars, eight posted double-digit revenue growth. In total, sales for the nine companies presented in the graph on page 10 rose 13.2%. Beneficial currency effects, emerging markets and industrial applications continued to drive demand. Operating profits for the nine companies in the table on page 11 rose a total of 24.5% in US dollars, with eight of these companies reporting operating profit growth in the double digits or higher.

For the seven companies whose annual 2007 sales are presented in US dollars on pages 9–11, five generated double-digit sales growth. For the six companies on pages 9–11 that reported year-end operating profits in US dollars, five reported double-digit growth. Continued efficiencies due to cost controls and foreign manufacturing and sourcing, as well as strong sales increased profitability.

During the quarter, the pharmaceutical end-user market remained mixed. However, most companies reported strong growth due to generic, biotech and specialty companies, as well as contract research organizations, particularly in developing nations. Companies noted little change in this market from previous quarters and expect the same level of activity in 2008. Food and environmental testing sales stayed strong in the fourth quarter, continuing their robust growth throughout 2007. Although companies noted concern about US economic conditions, they commented that they have yet to detect any effects on their customers. Many companies emphasized that their diversified regional, end-user and product markets would shield them from the effects of a US recession.

The one country that raised some concern among several companies was Japan. Agilent BAM, Applied Biosystems, PerkinElmer LAS, Varian SI and Waters each commented on slower sales in the country. A few companies attributed the country’s declining instrument sales growth to the movement of pharmaceutical development abroad. Outside of Japan, Asia remained a highlight for all companies. In the Americas and Europe, growth was mixed. Agilent BAM, PerkinElmer LAS, Varian SI and Waters each reported strong US growth for the quarter. However, Applied Biosystems had flat US growth. For the year, Horiba Analytical Instruments and Systems’ sales in the Americas fell 19.1%. Quarterly European growth was slower than expected for a few companies, but Agilent BAM and Applied Biosystems reported double-digit growth for the region.

Quarterly growth continued to be driven by LC, MS and sales of instruments for metal analysis. Both Applied Biosystems and Invitrogen posted strong sales of consumable products, particularly real-time PCR assays. In 2008, the instrument companies discussed on pages 9–11 expect growth in the mid- to high-single digits, emphasizing a cautious approach. Information presented on pages 9–11 is based on the companies’ financial reports and conference calls.

Fiscal first-quarter revenues for Agilent Technologies’ Bio-Analytical Measurement (BAM) segment grew 15.1%, 10% excluding Stratagene, to $557 million to account for 40% of total company revenues. Life Sciences revenue grew 24%, 11% excluding Stratagene, to $241 million. Pharmaceutical and biotech sales climbed 11% despite mixed geographical results, with strong demand in Asia and sustained weakness in the US. Academic and government revenue nearly doubled including Stratagene, and grew 14% on an organic basis, due to strong demand for LC, LC/MS, microarrays and HPLC columns. Chemical Analysis revenue rose 9% to $316 million, primarily led by strong demand for GC, GC/MS and ICP-MS. The business also benefited from strong sales to the food safety, environmental and petrochemical markets, which grew 22%, 8% and 8%, respectively. Forensics revenue climbed 1%, while materials science revenue related to the semiconductor industry fell 3%. During the quarter, orders for BAM climbed 19.7% to $558 million, or 14% excluding Stratagene. Sales in the Americas grew 14%, while sales to both Europe and Asia increased 16%, with China and India recording significant sales growth of 41% and 51%, respectively. BAM adjusted operating income climbed 9.7% to $102.0 million, while gross operating margins declined 90 basis points to 18.3% of sales due to acquisition costs. For the fiscal second quarter, Agilent anticipates total revenue growth of 6%–10% to $1.40–$1.45 billion.

Analytik Jena AG’s fiscal first-quarter sales grew 28.7% to €23.1 million ($33.5 million = €0.69 = $1) from €18.0 million ($23.0 million = €0.78 = $1) for a 37% gain in reported US dollars. Instrument sales improved 26.8% to €14.6 million ($18.3 million), including Analytical Solutions sales of €10.7 million ($15.5 million), Project Solutions revenue of €2.8 million ($4.1 million) and Bio Solutions sales of €1.1 million ($1.6 million) for respective growth of 21.3%, 51.2% and 29.8%. Project Solutions revenue rose 32.1% to €8.5 million ($12.3 million). Operating profit for the period soared 102.3% to €2.6 million ($3.8 million), while operating margins jumped 410 basis points to 11.3% of sales. Instrument operating profit jumped 54.5% to €2.0 million ($2.9 million), and operating income for the Project business gained €0.6 million ($0.8 million) compared to a marginal loss in the prior year. Sales within Germany jumped 19.9% to account for 25% of total revenues, other European sales climbed 33.3% to make up 50%, US sales soared 124% to make up 8%, while Asian sales declined 6.3% to represent 13%. The company anticipates double-digit revenue growth for the fiscal second quarter.

Applied Biosystems reported fiscal second-quarter revenue growth of 6.0% to $561.9 million, including 4% growth from favorable currency effects. Revenues were primarily driven by strong demand for Consumables, which grew 11.5% to $230.6 million. Revenues from Other sources, which include services and royalties, grew 10.4% to $98.0 million, while Instrument sales fell 0.5% to $233.3 million due to customers transitioning to next-generation sequencing products and slower demand for the QSTAR hybrid quadrupole TOF MS, offset by growth for low-end real-time PCR systems. US sales declined 0.4% to $215.5 million, European sales improved 12.6% (5% on a currency-neutral basis) to $210.2 million, sales to Japan declined 10% (down 5% on a currency-neutral basis) to $47.8 million and other Asia Pacific sales rose 15% (12% on a currency-neutral basis) to $60.3 million. Adjusted operating income jumped 32.4% to $127.2 million, and gross margins improved 257 basis points to 58.1% of sales due to improved vendor pricing for enzymes and favorable currency transactions. Going forward, the company expects fiscal 2008 revenues to grow in the mid-single digits with growth in all segments except for Other product lines.

Bio-Rad Laboratories’ fourth-quarter Life Science (LS) revenue climbed 16.0%, 9.4% on a currency-neutral basis, to $184.5 million, or 40.1% of total company sales (see page 12). LS’s fourth-quarter adjusted operating profit nearly doubled to $12.5 million. Revenue growth was driven by strong sales of protein expression analysis products, process chromatography products, suspension array systems and reagents, while sales of BSE-related (Mad Cow) products continued to decline. Year-end LS revenue grew 6.9%, 2.7% on a currency-neutral basis, to $615.1 million. LS’s year-end operating profit fell 3.9% to $24.7 million. For the year, LS reported strong sales growth in Asia-Pacific and Eastern Europe, but Japan was “challenging.” Excluding BSE sales, LS’s 2007 revenue increased 11%.

For the year, Horiba’s Analytical Instruments and Systems sales climbed 14.2% to ¥40,038 million ($340.0 million = ¥117.76 = $1) to account for 35% of company sales (see page 12). Segment operating profit edged 0.2% higher to ¥2,627 million ($22.3 million), while operating margins declined 94 basis points to 6.7% of sales. Revenue growth was driven by strong sales of products related to environmental regulation, which were offset by declining sales of X-ray analyzers. The company anticipates full-year 2008 Analytical Instrument and Systems sales to grow 5% to ¥42,000 million ($356.7 million).

Invitrogen’s fourth-quarter revenues grew 11.6% to $336.4 million, including approximately 5% growth from favorable currency transactions, while adjusted operating income improved 15.1% to $73.1 million. BioDiscovery sales rose 13.5% to $239.0 million, including favorable currency affects of 5.5%. Revenue growth benefited from strong sales of molecular biology products and real-time PCR consumables and protein separation, RNAi and cellular analysis products. Cell Culture revenue climbed 7.1% to $97.4 million, including favorable currency affects of 2.0%. Cell systems sales grew 7%, 2% on a currency-neutral basis, to $97 million. Sales of both research and production media products grew in the low double digits, sera research product sales were flat and sera production product sales declined. Company sales in the Americas grew 7%, while European sales rose 19%. Asia-Pacific sales climbed 14%, with double-digit growth in both China and Korea. Adjusted operating income grew 15.1% to $73.1 million and gross margins improved 110 basis points to 63.1% of sales. BioDiscovery operating profit grew 23.3% to account for 78% of total operating profit, while Cell Culture operating profit declined 12.8% to make up 22%.

Full-year revenues for Invitrogen grew 11.3% to $1,281.7 million, including approximately 5% growth from favorable currency transactions. BioDiscovery sales improved 10.7%, 7.5 % organically, to account for 70% of total sales, while Cell Culture revenue rose 12.8%, 9% organically, to make up 30%. Revenue growth benefited from improved marketing initiatives, product introductions, operating efficiencies, an increased customer base and sustained pricing improvements. During the year, the company launched more than 1,400 products. Adjusted operating profit jumped 21.7% to $282.7 million, and gross margins improved 100 basis points to 64.0% of sales. BioDiscovery operating profit grew 24.8% to account for 77% of total operating profit, while Cell Culture operating profit declined 6.4% to make up 23%. The company anticipates 2008 revenue growth in the mid-single digits

Mettler-Toledo’s fourth-quarter revenues for the laboratory business grew 10% to 42% of company sales. Sales for laboratory products were strong across all product lines except AutoChem, whose sales declined slightly. For the year, laboratory sales improved 7% to represent 44% of total sales. Process analytics reported double-digit sales growth, despite flat growth for AutoChem sales. For the first quarter and year-end 2008, the company anticipates revenue growth of 4%–6%.

In the fourth quarter, revenues for PerkinElmer’s Life and Analytical Sciences business (LAS) grew 19.2%, 7% on an organic basis, to $382.1 million, accounting for 74.7% of total sales. Acquisitions and favorable currency effects contributed approximately 7.0% and 5% to LAS sales growth, respectively. Genetic Screening revenue grew in double digits to account for 16% of LAS revenues, led by double-digit growth for neonatal screening, prenatal screening and the ViaCell business. Service, Analytical Sciences and Drug Discovery revenues each grew in the high double digits to make up 23%, 37% and 23% of LAS sales, respectively. Analytical Sciences’ sales growth was led by strong demand for ICP, GC and IR product lines, while drug discovery sales benefited from robust reagent sales due to new products. LAS fourth-quarter adjusted operating profits jumped 16.6% to $58.7 million, while operating margins declined 33 basis points to 15.4% of sales.

Annual LAS revenues gained 16.0% to $1,327.2 million, including 5% growth from acquisitions and 4% growth from currency effects, to account for 74% of total company revenues. Year-end adjusted operating profit for LAS grew 14.7% to $177.3 million, while operating margin slipped 15 basis points to 13.4% of sales. For the first quarter 2008 and year-end, PerkinElmer forecasts low double-digit to mid-teens sales growth, respectively, for the company.

Techcomp’s full-year revenues jumped 20.0% to $65.8 million. Distribution revenue rose 19.5% to $54.7 million, and Manufacturing revenue increased 22.6% to $11.1 million (see page 12). Revenue growth was driven by strong demand for environmental and quality control products, particularly in China, where sales grew 21.7% to account for 82.2% of total revenues. Operating income rose 26.3% to $6.9 million, and operating margins climbed 60 basis points to 10.5% of sales. Sales to China (including Hong Kong), India and Indonesia grew 21.0%, 12.3% and 101.7% to account for 84.7%, 5.1% and 1.6% of total sales, respectively. Sales to all Other geographical areas improved 7.7% to make up 8.6% of total sales. Looking forward, the company anticipates sustained revenue growth from its core environmental testing products and from new proprietary consumables, including capillary GC columns. The company also remains committed to expanding operations into European markets through the development of strategic alliances.

Thermo Fisher Scientific’s Analytical Technologies segment (AT) reported fourth quarter and year-end revenue growth of 14.0% and 13.7% to $1,167.1 million and $4,256.0 million, respectively, on a pro forma basis. Favorable currency transactions contributed approximately 4% and 3% to growth, respectively. Quarterly revenues were driven by strong sales growth in the life sciences, health care and industrial markets, as well as by product introductions in the MS, elemental analysis and environmental businesses. Fourth quarter and year-end adjusted operating income jumped 33.5% and 30.7% to $245.1 million and $843.1 million, respectively, while operating margins improved over 300 and 250 basis points to 21.0% and 19.8% of sales, respectively. For 2008, the company forecasts total revenues to grow 8%–9% to $10.5–$10.6 billion.

Varian’s fiscal first-quarter sales grew 8.9% to $237.4 million, while adjusted operating profit jumped 11.5% to $28.5 million. Scientific Instruments’ (SI) sales grew 11.4% to $197.0 million due to strong sales of ICP, MR imaging systems, HPLC and MS. Adjusted operating profit climbed 11.4% to $24.1 million, while operating margins remained relatively unchanged at 12.2% of sales. Total company sales to North America, Europe, Asia-Pacific and Latin America improved 8%, 2%, 16% and 59% to account for 34%, 41%, 20% and 5% of revenues, respectively.

Waters reported fourth-quarter sales grew 12.9% to $437.0 million, including 5% growth from favorable currency transactions and 1% growth from acquisitions. Adjusted operating margins improved 20.9% to $132.2 million, leading operating margins 200 basis points higher to 30.2% of sales. In the Waters division, instrument systems grew 3%, service sales improved 7%, and chemistry revenues rose 20% or 11% excluding acquisitions. Revenue growth for instrument systems were driven by strong demand for Acquity LC/MS, Synapt MS and the TQD tandem quadrupole MS, while chemistry revenue were driven by sales of Acquity columns. Waters’s TA Instruments division reported sales growth of 19%, including 2% growth from acquisitions, due to product introductions and a strong backlog from the previous quarter. Despite more than 20% revenue growth for each of the Acquity, Synapt and TA Instruments businesses, total revenues were hindered by slower sales in Japan and to a lesser extent in Europe. US sales rose 12%, European sales grew 5% excluding currency effects, but Japanese sales fell 12%, or 8% including currency. Excluding Japan, Asian sales rose 18%. Japan accounts for about 10% of total sales.

For the year, sales climbed 15.1% to $1,473.0 million, including 3% growth from currency transactions and 1% growth from acquisitions. Revenue growth benefited from strong demand in the industrial markets, particularly for food and environmental testing. Adjusted operating profit rose 15.7% to $357.6 million, while operating margins edged 13 basis points higher to 24.3% of sales. For 2008, sales are forecasted to grow 10%–12%, 8%–10% organically, including 8% organic growth for TA Instruments.

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