Traditionally, the fourth quarter is the strongest quarter for sales of instruments and associated laboratory products due to budget releases. However, 2008 was not like any other year. Following the beginning of the banking crisis in September and the subsequent rapid deterioration of the worldwide economy, demand from major end-markets for analytical instruments, such as the chemical, petrochemical and metals industries, plunged. In addition, the strengthening of the US dollar against foreign currencies hurt US instrument companies. The stronger US dollar also decreased the purchasing power of end-users abroad. The result was a weak fourth quarter for a number of publicly held analytical instrument and lab product companies. Life science–oriented companies, such as Illumina (see IBO 2/15/09) and companies with a majority of sales in consumables, such as Life Technologies Invitrogen, fared better.

In the fourth quarter of 2008, total sales for nine of the 11 businesses profiled on pages 9–11 (Spectris does not report quarterly results and Mettler-Toledo does not report Laboratory sales separately) declined 1.2% (see graph page 10).

Agilent Bio-Analytical Measurement (BAM), Bio-Rad LS, Thermo Fisher Scientific Analytical Technologies (AT), Mettler-Toledo Laboratory, Varian Scientific Instruments (SI) and Waters each reported declining sales in the fourth quarter due to reduced demand from industrial customers, as well as weaker sales to big pharma and lower North American sales. Excluding acquisitions and currency effects, Agilent BAM and Thermo AT reported sales growth.

Sales for Waters and Varian, which both issued earnings warnings for the quarter (see IBO 12/15/08, 1/31/09) suffered due to crippled industrial spending. Agilent BAM and Thermo Fisher Scientific AT were similarly exposed, but recorded more sustained demand due to their dedicated life science product lines.

Companies showing steady growth in the fourth quarter were Analytik Jena, Dionex and Life Technologies. Analytik Jena benefited from a weaker euro and Asian sales. Sales in Asia also helped Dionex report healthy growth, as did its water-related environmental markets and two large orders. Life Technologies reported robust sales for its Cell Systems unit, although its Applied Biosystems business was affected by lower demand for capital equipment.

Calendar-year fourth-quarter operating profit for the nine companies increased 5.0% (see page 11). While Bio-Rad Laboratories’ Life Science unit (LS) and Dionex reported double-digit improvements in operating profits due to operational efficiencies and lower manufacturing costs, Waters and Varian reported operating losses.

For the six businesses that reported 2008 year-end sales (see graph above), total sales grew 8.6% in US dollars. PerkinElmer Life and Analytical Sciences (LAS) and Invitrogen each grew in double digits. Total annual operating profits for the six companies increased 16.9% in US dollars

Calendar-year fourth-quarter 2008 earnings announcements also included cost-reduction measures. Agilent and Mettler-Toledo announced sizable personnel cuts (see page 2), while Thermo Fisher Scientific AT and Varian SI (see IBO 1/31/09) made selected headcount reductions during the quarter. Bio-Rad, Dionex and Waters announced hiring freezes. In fact, every company for which results are reported here , with the exception of Analytik Jena, announced some kind of cost controls, such as salary freezes or cutbacks in discretionary spending. These announcements coupled with forecasts for fiscal-year sales declines by Agilent BAM, Mettler-Toledo Laboratory, Thermo Fisher Scientific, Varian SI, and Waters was a stark contrast to just six months ago. The information on pages 9–11 is based on financial reports, SEC filings and conference calls.

Fiscal first-quarter revenues for Agilent Technologies BAM declined 1.1% to $525 million (see page 12) to account for 45% of company revenues, but improved 2% on an organic basis. Orders slipped 1.7% to $523 million. Beginning with this quarter, the company added a Semiconductor and Board Test segment. BAM’s laser interforemeter business was moved to the new segment, and BAM’s microscopy measurement business was moved to the Electronic Measurement division. BAM’s adjusted operating income climbed 16.1% to $101 million, while gross margins improved 200 basis points to 55% of sales due to a shift in product mix. BAM sales to Europe declined 11% to make up 35% of sales, while sales to the Americas and Asia grew 1% and 10% to make up 36% and 29% of sales, respectively. Sales in China and Japan were strong, climbing 37% and 17%, respectively. For the fiscal year, BAM revenues are expected to decline 5%.

BAM’s Life Sciences revenue fell 1% to $241 million, but declined 4% excluding Velocity11 (see IBO 11/15/07). Pharmaceutical and biotech sales fell 8% and decreased 11% on an organic basis. Academic and government revenue climbed 20%, driven by 28% growth for microarray sales. Sales of LC/MS systems also grew in double digits. Revenue for consumables and services were relatively unchanged. Chemical Analysis revenue declined 1% to $287 million. Demand for environmental and forensic products declined 13% and 10%, respectively. Food safety revenue improved 13% due to higher demand for pesticide and drug residue analyses in China, while petrochemical revenue slowed to growth of 1%. Demand for GC and LC both declined.

Based on continuing operations, Analytik Jena’s fiscal first-quarter sales grew 17.3% to €17.1 million ($22.6 million = €0.76 = $1) from €14.6 million ($21.2 million = €0.69 = $1), for a 6.6% gain in reported US dollars (see page 12). Sales for the Analytical Solutions and Bio Solutions grew 27.1% and 24.3% to €13.6 million ($17.9 million) and €1.4 million ($1.8 million), respectively. Optical Solutions sales declined 22.9% to €2.2 million ($2.9 million) due to a large nonrecurring order last year, and to a lesser extent, slower demand. Operating profits for the period climbed 13.2% to €2.3 million ($3.0 million), while profit margins declined 152 basis points to 50.3% of sales. The company anticipates revenue growth in the fiscal second quarter.

Revenue for Bio-Rad LS fell 7.7%, 3% on a currency-neutral basis, to $170.3 million (see page 12), to account for 38.0% of company sales. Revenue growth was driven by sales of amplification products, protein expression, separation and analysis products. In addition to lower demand for BSE products, declining sales of capital instruments and lower process-media orders offset revenue growth. Bio-Rad LS adjusted operating profits grew more than 10% to $13.8 million due to lower operational costs and a shift in product mix to more consumables.

Full-year Bio-Rad LS revenue grew 4.6%, 1.4% on a currency-neutral basis, to $643.5 million, to account for 36.5% of total sales. While sales of BSE products declined in double digits, demand for multiplex protein analysis, electrophoresis and gene expression products remained strong. Excluding BSE sales, LS revenue grew 6.6%, driven by new product introductions for food pathogen testing, protein purification and analysis, and gene amplification. Approximately 65%–70% of LS sales were related to government-sponsored research. LS’s adjusted operating profits jumped 70.4% to $42.1 million. For 2009, the company anticipates organic revenue growth in the low- to mid-single digits, with continued weakness for BSE products and capital instruments.

Dionex’s fiscal second-quarter revenues grew 5.1% to $103.0 million, including a 4.2% decline from currency effects. Product sales improved 6.2% to account for 87.6% of sales. Installation and training services revenue slipped 0.8%, while maintenance revenue fell 2.4% to make up 3.2% and 9.2% of sales, respectively. Sales of consumables and instruments each grew over 5%. Ion chromatography (IC) sales grew in the mid-single digits, excluding currency effects, due to higher sales of IT systems and consumables, while HPLC sales recorded similar growth, despite reduced spending from the chemical/petrochemical market. Revenue from the environmental, life science and power markets improved, while demand from the food and beverage, and electronic industries declined. North American sales fell 1.9%, 0.2% on a currency-neutral basis. European revenue declined 2.7%, but was up 4.7% on a currency-neutral basis. Sales to Asia/Pacific jumped 26.0%, 27.1% on a currency-natural basis, with strong demand from Japan, China, India and Australia. Operating profits improved 13.9% to $25.9 million, while gross profit margins remained unchanged at 67.5% of sales. For the fiscal third quarter, the company anticipates a 0%–3% decline in revenues to $95–$98 million, but it reaffirmed full-year sales growth of 2%–4% to $385–$393 million.

Reported fourth-quarter revenues for Life Technologies grew 60.7% to $540.6 million, including 56.8% growth from Applied Biosystems sales (see IBO 11/30/08) and a decline of 4% due to currency. Organic revenues climbed 7% led by new products and increased pricing. Including the acquisition, adjusted operating profits doubled to $146.6 million. During the quarter, the company recorded $50 million in synergy savings. Reported full-year revenues for Life Technologies grew 26.4%, 7.5% organically, to $1,620.3 million, including approximately 14.9% growth from acquisitions. For the year, commercial applications, pharmaceutical/biotechnology and academic/government end-markets accounted for 17%, 28% and 55% of sales, respectively. On a pro forma basis, sales for Molecular Biology, Genetic Systems, Cell Systems and MS Systems were approximately $1.5 billion, $850 million, $800 million and $525 million, respectively. The Americas and Europe represented 47% and 33% of sales, respectively, while sales to Asia/Pacific and Japan each made up 10% of revenues. Life Technologies anticipates low single-digit organic growth for 2009 based on pro forma results and excluding the MS business. Currency transactions are expected to negatively affect revenues by 4%. Sales for Genetic Systems are forecasted to grow in the low-single digits, while Cell Systems revenue is expected to grow in the mid- to high-single digits. The Molecular Biology business is expected to grow in the low-single digits, but royalty revenue is expected to decline by $30 million from the $90 million recorded in 2008 on a pro forma basis. MS sales are projected to decline 10% organically.

On a stand-alone basis, fourth-quarter sales for Applied Biosystems grew 1% to $191.0 million. Currency transactions adversely impacted revenue by 4%. Sales no longer included MS revenue, which is now classified as other income due to the joint venture with MDS. MS sales declined 17%. Consumables sales grew 3%, while instrument sales, excluding MS, were down 2.5% due to lower demand for capillary electrophoresis systems. Sales were driven by demand for forensic products, SOLiD systems and consumables kits. Excluding Applied Biosystems, fourth-quarter revenues for Invitrogen climbed 5.2% to $353.9 million. Adjusted operating profit climbed 18.3% to $96.1 million, while gross profit margins declined 50 basis points to 62.6% of Invitrogen sales. BioDiscovery sales declined 4.5% due to negative currency transactions. Revenue growth benefited from higher sales of kits, protein chip products and product introductions. BioDiscovery gross margins declined 210 basis points due to a shift in product mix and lower manufacturing utilization. Cell Systems revenue included 4% growth from currency due to increased demand from Japan. Sales of bioproduction media and sera product lines each grew in double digits. Gross profit margins for Cell Systems improved 460 basis points, primarily due to increased operating efficiencies. Full-year Invitrogen revenues grew 11.9%, 7.5% organically, to $1,433.6 million. BioDiscovery sales improved 9.7%, 7% organically, to $989.9 million, while Cell Culture revenues rose 16.9%, 9% organically, to $443.7 million.

Fourth-quarter sales for Mettler-Toledo’s Laboratory business declined 2%. Pipette sales sustained growth, but sales of most other product lines were down. Full-year revenues grew 7% organically, 6% in local currencies, to account for 44% of total sales or $868 million. Product-line exits accounted for a 1% reduction in growth. Growth was driven by sales of analytical instruments, pipettes and process analytics. Sales of life science–related products accounted for 40%–45% of Laboratory revenue. The company expects 2009 Laboratory revenue to decline in the mid-single digits.

Fourth-quarter revenue for PerkinElmer LAS grew 2.9% to $390.3 million to account for 78.8% of total sales. Acquisitions contributed 3% growth, while currency transactions negatively impacted sales by 4%. Adjusted operating profits climbed 7.3% to $63.9 million due to lower operating expenses. BioDiscovery sales grew in double digits, led by strong sales of cellular imaging products, lab automation, reagents and new products. Laboratory Services revenue grew in the mid-single digits, while Analytical Sciences revenue grew in the low-single digits due to lower demand from industrial and emerging markets. Genetic Screening revenue grew in the low-single digits. During the quarter, the company shut down several BioDiscovery product lines: cellular screening fluorescence and luminescence workstations, analytical proteomics instruments, and proteomics and genomics instruments. Revenue for those product lines was estimated to be $6–$7 million.

Annual LAS revenue improved 15.0% to $1,512.6 million, including 6% and 2% growth from acquisitions and currency, to account for 78.1% of company sales respectively. Diagnostic revenue grew in the mid-teens to make up 25% of company sales, Research revenue grew in the mid-single digit to represent 15%, and Environmental/Safety and Security revenues each grew in the mid-single digits to account for 20% and 10%. Lab Services grew in the high-single digits to make up 20% of revenue. LAS adjusted operating profits grew 17.2% to $200.7 million, while operating margins improved 30 basis points to 13.3% of sales. LAS international sales were approximately $948.1 million. PerkinElmer anticipates lower demand for medical imaging and genetic screening in 2009 with 2009 diagnostic revenue expected to be flat and first-quarter growth in the mid- to high-single digits. Research revenue is projected to grow in the low to mid-single digits in 2009, with increased demand from academic and large biotech customers. Lab Services are projected to grow in the mid-single digits, while Environmental/Safety and Security markets are anticipated to decline in the low-single digits. For the year, total company revenues are estimated to be flat to down in the mid-single digits organically.

Full-year revenues for Spectris’s Materials Analysis segment (Malvern Instruments, PANalytical, Particle Measuring Systems) grew 18.4%, 8% in constant currencies, to £253.2 million ($460.4 million = £0.55 = $1) (see page 12) to account for 32.2% of total sales. Sales benefited from new protein characterization and materials applications products. Demand for analytical instruments increased from the metals, minerals and mining industry, but slowed in the second half of the year. Demand for semiconductor-related products declined, with the exception of material science–related products for universities and government-funded institutions. While the semiconductor business is expected to decline in 2009, these sales account for less than 5% of segment revenue. Adjusted operating profits climbed 7.8% to £37.5 million ($68.2 million), while operating margins fell 150 basis points to 16.3% of segment sales due to a 34% increase in R&D expenditures.

In the fourth quarter, sales for Thermo Fisher Scientific AT declined 0.9% to $1,136.7 million to account for 43.0% of total sales. Currency transactions adversely affected revenue growth by 4%. Academic sales grew above the company average, while government sales slowed, and industrial and contract research organization sales declined. Biotech sales were mixed. Process instrument sales declined, excluding those to the food and beverage industry. New scientific instruments and life science research products led revenue growth. The company also benefited from two additional business days during the quarter. Adjusted fourth-quarter operating income improved 6.1% to $254.1 million, while operating margins climbed 150 basis points to 22.4% of sales.

Full-year AT revenue grew 6.9% to $4,471.2 million, to make up 42.6% of total sales. Currency transaction and acquisitions contributed approximately 1% and 2% growth, respectively. Year-end adjusted operating income climbed 16.0% to $957.1 million, while operating margins improved 170 basis points to 21.4% of sales. For 2009, the company anticipates total revenues to decline 2%–5%, including 0.5% growth from previous acquisitions and divestitures and a 4% negative currency impact, to $10.0–$10.3 billion.

Fiscal first-quarter revenue for Varian SI declined 12.8% to $171.8 million to make up 82.5% of total sales. Acquisitions contributed 2% growth, while currency transactions reduced sales by over 4%. Revenue growth was negatively affected by purchasing delays for research products, especially for NMR and imaging systems, and company shut downs in December. Demand for analytical products were also lower due to reduced capital spending from energy-related and industrial markets. SI operating profit fell 17.2% to $16.4 million, while operating margins declined 50 basis points to 9.6% of sales. Total company sales to North America, Europe, Asia-Pacific and Latin America declined 19.2%, 12.8%, 1.4% and 6.1% to account for 31%, 40%, 23% and 6% of sales, respectively. Going forward, the company anticipates positive growth for MS and research products as demand from government-sponsored researchers and the regulated environmental and food markets are expected to increase in most countries. China continues to be the main area of growth, as do Korea and India. Varian lowered its fiscal-year sales forecast from 2%–4% growth of to a 10%–20% decline, including a 4%–5% decrease from currency effects.

Fourth-quarter revenues for Waters declined 4.3% to $418.3 million, including a 4% decline from currency. Organic revenue growth was flat. Sales were adversely affected by lower demand from the industrial chemical market, which accounted for 15% of revenues, and declining demand from developing countries due to the higher valuation of the US dollar. Pharmaceutical sales were down slightly, but instrument sales for food testing and diagnostics were strong. Leading sales higher were recurring service revenues and demand from China. In the Waters Division, instrument sales declined 5%, while recurring revenue grew 7%. TA Division sales fell 2% due to lower demand from the chemical industry. Total company sales to the US declined 10%, while sales to Japan, Europe and Asia increased 17%, 5% and 2%, respectively, excluding currency effects. Adjusted operating income declined 5.3% to $125.2 million, while gross margins improved 50 basis points to 58.9% of sales.

For the year, Waters’s revenues climbed 6.9% to $1,575.5 million, including 2% growth from currency transactions. Product sales grew 4.8% to account for 72.4% of total sales, while service revenue improved 12.9% to make up 27.6%. Pharmaceutical sales grew 3%, government and academic sales rose 10%, and industrial and food safety sales increased 13%. Waters Division sales grew 6.6% to $1,409.4 million. TA Division revenue grew 9.9% to $165.7 million, including 2% and 3% growth from currency transactions and acquisitions, respectively. Total sales to the US, Europe, Japan, Asia and Other increased 1%, 7%, 13%, 18% and 3% to account for 30%, 35%, 10%, 19% and 7% of sales, respectively. Adjusted operating income climbed 9.7% to $405.6 million, while gross profit margins improved 85 basis points to 58.0% of sales. For 2009, sales are forecasted to decline 3%–8%, including a 4% loss from currency transactions. First-quarter sales are expected to decline organically.

Chart: Fiscal Year 2008 Revenue Growth ($US)

FY08 Change

Bio-Rad (LS) 4.6%

Thermo Fisher Scientific (AT) 6.9%

Waters 6.9%

Spectris (Materials Analysis) 7.7%

Life Technologies (Invitrogen) 11.9%

PerkinElmer (LAS) 15.0%

Analytik Jena FY09 Q1

Sales (¥M) Sales ($M) % of Sales

Germany ¥5,521 $57 32.2%

Europe ¥4,759 $50 27.8%

America ¥1,158 $12 6.8%

Asia ¥5,223 $54 30.5%

Rest of World ¥487 $5 2.8%

Chart: Q4 2008 Revenue Growth ($US)

Varian (SI) -12.8%

Bio-Rad (LS) -7.7%

Waters -4.3%

Agilent Technologies (BAM) -1.1%

Thermo Fisher Scientific (AT) -0.9%

PerkinElmer (LAS) 2.9%

Dionex 5.1%

Life Technologies (Invitrogen) 5.2%

Analytik Jena 6.5%

Invitrogen FY08 Q4 (Excl. Applied Biosystems)

% Rev. Growth % Invitrogen Rev.

BioDiscovery 0.5% 68%

Cell Systems 17.0% 32%

Chart: Q4 2008 Adj. Operating Profit Growth ($US)

Varian (SI) -16.7%

Waters -5.3%

Analytik Jena 2.7%

Thermo Fisher Scientific (AT) 6.1%

PerkinElmer (LAS) 7.3%

Life Technologies (Invitrogen) 8.7%

Bio-Rad (LS) 10.4%

Dionex 13.9%

Agilent Technologies (BAM) 16.1%

Waters FY08

Waters Div. % Rev. Growth % Segment Rev.

Instrument Systems 3.4% 54%

Chemistry Consum. 9.1% 17%

Service 11.7% 28%

TA

Instrument Systems 12.1% 78%

Service 30.5% 22%