The seven instrument and lab product businesses whose quarterly results are reported on pages 9–11 ended the year facing a tough business climate, challenged by retrenched academic and government spending and the continued slowdown among industrial end-markets. However, sales in Asia and selected product markets, as well as recurring revenues, delivered growth. In making forecasts for the 2013 fiscal year, the businesses expected more of the same, with faster growth in the second half of the year.

For the seven businesses, calendar-year 2012 fourth-quarter revenues grew 3.6%, or 4.5% organically (see table, page 9). Illumina posted double-digit sales growth on both an organic and reported basis. Agilent Technologies Chemical Analysis (CA) and Waters showed flat growth.

Operating profits for the seven business rose 0.6% in the calendar-year fourth quarter, led by Illumina, which posted double-digit growth. Agilent CA, Thermo Fisher Scientific Analytical Technologies (AT) and Waters’s operating profits each declined for the quarter, as weaker sales impacted profits. Agilent, Bruker Scientific Instruments (BSI), PerkinElmer and Thermo noted continuing cost control efforts during the quarter.

In the calendar-year fourth quarter, market conditions remained consistent with the prior quarter, according to the businesses. Academic and government sales were, for the most part, flat or down as budget uncertainty depressed US spending for these markets. Both Thermo Fisher Scientific and Waters reported declining quarterly sales for these end-user segments. Pharmaceutical spending was a bright spot, with BSI CALID, Thermo Fisher Scientific and Waters each reporting strong demand. In contrast, the industrial markets were slow, characterized by delayed capital spending, according to Thermo and Waters. Even applied markets faced difficulties, with declining food and environmental sales for Waters, weak environmental sales at Agilent Chemical Analysis (CA) and flat environmental revenue for PerkinElmer.

Sequencing continued to lead the charge in sales growth in the fourth quarter, as both Illumina and Life Technologies reported impressive sales growth for benchtop systems. Consumables and service were high points for Agilent LS and CA, PerkinElmer and Waters. However, the same businesses reported slow instrument sales. Life Technologies and Thermo continued to benefit from their bioproduction-related offerings. Other areas of growth included forensics sales for Agilent CA, PerkinElmer’s informatics business and Waters’s TA Instruments.

Growth in China was strong for most of the businesses covered here. Agilent LS, PerkinElmer and Thermo each reported Chinese sales growth of more than 20%. US and European sales were mixed, with PerkinElmer reporting falling sales in Europe and Waters’s overall US sales declining. However, Life Technologies sales grew in Europe and Waters’s US sales to applied markets were good.

Year-end 2012 results for the six businesses reporting on a calendar year schedule grew 5.2% in total, led by PerkinElmer. In addition, BSI, Illumina and Thermo AT revenues each posted growth of more than 5% for the year. Year-end 2012 operating profits for the six businesses increased 5.1%.

Companies’ forecasts for 2013 indicated, for the most part, stable revenue growth. Illumina and Life Technologies noted the potential revenue impact of the US government’s sequester plan for budget cuts (see IBO 1/31/12). Thermo and Waters noted expectations for continued pharmaceutical/biotech market growth, while Life Technologies and Waters highlighted expectations for growth in applied markets.

Agilent Life Sciences and Chemical Analysis

Fiscal first-quarter organic revenue growth for Agilent Technologies Life Sciences (LS) was driven by consumables and service revenue. Instrument sales fell, but orders for LC/MS grew in the low double digits. LC sales grew modestly. Pharmaceutical sales were slightly higher. Academic and government revenues were flat. Sales to Asia Pacific and Europe each accounted for 32% of LS sales. Chinese sales grew more than 20%. Sales to the Americas made up 36%. LS adjusted operating profit grew 5% to $61 million, and gross margin improved 100 basis points to 52% of LS sales. Organic LS sales are expected to grow 4%–5% for the fiscal year.

Organic Chemical Analysis (CA) sales were only slightly higher due to order delays and lower government spending. GC sales fell in anticipation of new products, as well as lower industrial and environmental demand. Environmental sales were slow in the US, Europe and Japan, but were partially offset by demand in emerging markets. Petrochemical and food sales were flat to slightly higher. The forensics market sustained strong growth due to increased prescription drug testing. Asia Pacific sales accounted for 38% of CA revenue, with sales to China growing in the low single digits. Sales to the Americas and Europe accounted for 31% each. CA adjusted operating profit declined 8% to $81 million, and gross margin fell 100 basis points to 51% of segment sales. Organic CA sales are projected to grow 3%–4% for the fiscal year.

Bruker Scientific Instruments

Bruker Scientific Instruments’ (BSI) fourth-quarter revenue grew 9.4% organically to $482.1 million (see page 12). Adjusted gross profit margin increased 100 basis points to 49.3% of BSI sales. Full-year 2012 sales grew 7.2%, 10.2% organically, to $1,666.1 million. Acquisitions added 1.3% to sales growth, while currency lowered sales by 4.3%. System revenue grew 9.3% to make up 81% of BSI sales, driven by higher demand for NMR, MS and X-ray products. Aftermarket revenue fell 1.0%. Bruker MAT sales, which accounted for roughly 31% of BSI revenue, benefited from new products, strong demand from China within Bruker Nano Surfaces and higher demand from semiconductor customers within Bruker AXS. Bruker CALID sales, which include the Daltonics, Chemical and Applied Markets (CAM), Detection and Optics divisions, accounted for roughly 33% of BSI sales. CALID had higher demand from life science and pharmaceutical/biopharmaceutical customers, with particular strength in Latin America and Southeast Asia. Sales for the MALDI Biotyper grew by double digits. While CAM sales reached about $100 million, revenue growth was slower than projected because of soft demand from applied markets. Within the BioSpin Group, which accounted for about 36% of BSI sales, slower NMR sales in the US were offset by higher demand for ultra–high field NMR and preclinical MRI in Europe and emerging markets. Adjusted operating profit slipped 0.1% to $200.0 million due to a wider-than-expected loss for CAM. Adjusted gross profit margin improved 10 basis points to 48.8% of sales. Bruker’s 2013 sales are projected to grow 4%–5%, with similar growth for BSI.

Illumina

Fourth-quarter sales for Illumina climbed 20.9% organically to $309.3 million primarily due to 56% growth in sequencing consumables sales and demand for whole-genome services. The number of complete human genomes shipped nearly tripled to 2,500. Microarray sales fell organically but grew 4% including BlueGnome (see IBO 9/30/12). Since the introduction of the HumanCore arrays in mid-October 2012, the firm has received $13 million in orders. Excluding BlueGnome, Product revenue grew 21.1%, including 31.5% growth for Consumables. Increased MiSeq sales were offset by lower placements of HiSeq and microarray instruments. The firm exceeded manufacturing capacity, with more than 300 MiSeq orders. Overall, sequencing instrument revenue grew 6%. Sales to the US and Europe grew 20% and 26%, respectively. Asia Pacific sales grew 12%, with 30% growth in China. Adjusted gross profit margin declined 170 basis points to 67.8% of sales due to increased Service revenue.

Illumina’s 2012 sales grew 8.8%, 8.1% excluding Blue­Gnome, to $1,148.5 million. Backlog rose 3.6% to $260 million. Product sales grew 6.2% organically due to sequencer sales. The average consumables utilization rate for HiSeq increased 7% to $320,000, and the average rate for MiSeq was $50,000. Orders for genome samples reached 13,000. Total sales to the US, Asia Pacific and the UK grew 7.5%, 18.0% and 20.9% to account for 49%, 20% and 7% of revenues, respectively. Sales to other European countries fell 0.3% to make up 18%. Sales to all other markets grew 8.4% to represent 5%. Adjusted operating profit grew 15.1% to $307.1 million. Adjusted gross profit margin advanced 70 basis points to 69.0% of sales due to higher Consumables revenue. Including acquisitions, sales are projected to grow 15% in 2013.

Life Technologies

Adjusted fourth-quarter 2012 sales for Life Technologies grew 4.5% excluding currency to $989.4 million. Within Research Consumables, sales grew for benchtop, cell culture and sample preparation products due to market penetration in China, India and Korea. Within Genetic Analysis, demand for Personal Genome Machines (PGM) and Ion Proton systems more than offset lower SOLiD sales and qPCR royalty payments. Growth for Applied Sciences was driven by BioProduction sales. In local currency, Asia Pacific sales grew 18%, European sales climbed 5%, Japanese sales grew 6% and sales to the Americas grew 0.3%. Adjusted gross profit margin improved 20 basis points to 64.6% of sales.

Full-year 2012 adjusted sales for Life Technologies grew 1.6%, 2.2% excluding currency, to $3,799.3 million. Consumables and Services revenue made up 85% of sales. Applied Sciences sales were strong due to BioProduction and forensics products. Food safety sales grew in the high double digits. Ion Torrent sales doubled for the second consecutive year due to Ion Proton sales. PGM shipments were similar to a year ago at more than 700 units. Capillary electrophoresis sales were relatively flat. The decline in qPCR royalty payments was less than projected. Currency-neutral sales to Asia Pacific and Japan grew 13% and 3% to account for roughly 13% and 10% of sales, respectively. Combined sales to Europe, Africa, Russia and the Middle East represented 30% of sales. European sales grew 2% in local currency. Sales to the Americas fell 1% to make up 47%. Adjusted operating profit grew 2.1% to $1,108.4 million due to lower R&D costs. Adjusted gross profit margin improved 40 basis points to 65.6% due to product mix and pricing. Currency-neutral 2013 sales are projected to grow 3%–5% to $3.91–$3.99 billion, including less than 1% growth from acquisitions. QPCR royalty revenue is expected to decline by $15 million. First-quarter sales are projected to grow 1%–3% including currency.

PerkinElmer

PerkinElmer’s adjusted fourth-quarter 2012 organic sales grew 3% to $577.0 million. Reported sales grew 6.2% to $572.9 million. All sales figures below are organic. Recurring sales grew in high single digits. Instrument and component sales fell in low single digits. Sales to the Americas and Asia each grew in high single digits. Chinese sales grew over 20%. European sales declined in high single digits. Adjusted gross profit margin slipped 110 basis points to 48.8% of sales.

Within PerkinElmer Human Health (HH), Diagnostics sales grew roughly 5% to make up 26% of sales, including organic growth for Screening and Medical Imaging. Prenatal, newborn and infectious disease screening sales had more than 20% growth in China. Research revenue was flat to make up 22% of sales due to budget uncertainties in the US, slower demand in Europe and a 10% decline in radiometric detection and radiochemical sales. Pharmaceutical sales grew in the mid-single digits. Environmental Health (EH) sales were driven by double-digit growth for Laboratory Services, which accounted for 26% of sales. Environmental and Safety sales were flat to make up 19% of revenues. Industrial sales declined in the low double digits to represent 7%.

Adjusted full-year 2012 sales for PerkinElmer grew 9.9%, 5% organically, to $2,141.5 million. Acquisitions added 7% to sales growth, and currency lowered it by 2%. Instruments and components sales represented roughly 45% of sales, service/informatics revenue made up 32%, and reagents/consumables revenue accounted for 23%. Emerging market sales accounted for roughly 28% of revenues. US, China and Japan sales accounted for 39%, 10% and 5% of sales, respectively. Adjusted operating income climbed 16.9% to $352.6 million. Adjusted gross margin improved 80 basis points to 49.0% of sales because of productivity improvements and product mix. Organic first-quarter and full-year adjusted revenues are expected to grow 3%–4% and 4%–6%, respectively.

PerkinElmer HH revenue made up 49% of 2012 sales, with strong double-digit growth for Medical Imaging sales and higher Screening revenue. Research sales increased due to in vivo and cellular imaging systems, but were partially offset by lower pharmaceutical radioactive reagent demand. EH sales, which made up 51% of sales, benefited from informatics sales, which accounted for roughly 6% of company revenues. EH sales also benefited from sales of environmental, food, consumer safety and inorganic analysis products.

Thermo Fisher Scientific Analytical Technologies

Fourth-quarter revenue for Thermo Fisher Scientific Analytical Technologies (AT) grew 3% organically to $1,105.8 million due to strong demand for BioProcess production, MS and air quality products. Demand from industrial, and academic and government markets declined. Adjusted operating income margin fell 110 basis points to 20.0% of sales.

Thermo AT’s 2012 revenue grew 5% organically to $4,123.7 million to make up 33% of sales. Acquisitions contributed 4% to sales growth, while currency lowered revenue growth by 2%. Including Dionex, pro forma AT sales grew 3%, including a 2% decline from currency. Sales were driven by demand for analytical instruments and bioscience products. Academic and government sales fell. Adjusted operating income grew 7.3% to $772.7 million. Operating margin was flat at 18.7% of sales. Full-year 2013 company sales are expected to grow 2%–4%, 1%–2% organically, to $12.8–$13.0 billion, with acquisitions adding 1.5% to growth and currency being slightly negative.

Waters

Waters’s fourth-quarter revenues improved 0.8% organically to $521.8 million. Product sales fell 3.1% to represent 71% of sales, including a 4.6% drop in Instrument sales. Service revenue grew 8.8%. Pharmaceutical sales grew in Europe and China, but were partially offset by lower demand from large US customers, biotech firms and Indian CROs. Despite mid-single digit growth in the US due to high-end MS, government and university sales fell in the mid-single digits. Food and environmental sales fell due to weaker European demand. TA Instrument sales grew 7% organically. Excluding currency, sales to Europe, Japan and Asia (excluding Japan) grew 2%, 1% and 12%, respectively. US sales fell 3%. Gross margin fell 80 basis points to 60.0% of sales.

Waters’s 2012 sales grew 1.1% organically to $1,843.6 million. Product revenue fell 3.1% to account for 69% of sales. Instrument sales dropped 4.3%. Service revenue grew 6.4%. Pharmaceutical sales grew 1%, industrial and environment sales fell 2%, and government and academic sales declined 4%. Currency-neutral sales to Europe and the US grew 1.6% and 0.2% to account for 30% and 29% of sales, respectively. Chinese sales jumped 21.3% to represent 12%. Sales to Japan and Other Asia fell 2.1% and 2.9% to make up 11% and 12%, respectively. Other region sales fell 7.1%. Adjusted operating income fell 1.1% to $541.6 million. Adjusted gross profit margin slipped 70 basis points to 60.1% of sales. Currency-neutral 2013 sales are estimated to grow 5%, and first-quarter sales are expected to grow 4%.

 .                                       CY4Q 2012 Results

 .                                          Revenues                     Rev.Growth Summary           Adj.Operating Profit

                                   ($M) %of Co.Rev. %Growth      %Org.Gr. %Acq.Effect  %Curr.Effect     ($M)     %Growth

 Agilent Tech. (LS + CA)         $795.0     47%       0.5%          2%         0%         -1%           $142.0    -2.7%

 Bruker (BSI)                    $482.1     93%       8.1%          9%         1%         -2%            $66.1     5.9%

 Illumina                        $309.3    100%      23.7%         21%         3%          0%            $78.2    19.0%

 Life Technologies               $989.4    100%       2.0%          4%         0%         -3%           $298.6     0.6%

 PerkinElmer                     $577.0    100%       4.2%          3%         2%         -1%           $105.6     3.0%

 Thermo Fisher Scientific (AT) $1,105.8     34%       2.4%          3%         0%         -1%           $220.8    -3.2%

 Waters                          $521.8    100%       0.1%          1%         1%         -1%           $168.0    -2.0%

                               $4,780.3               3.6%          4%         1%         -1%         $1,079.4     0.6%

 .                          Agilent 1Q FY13 

               Rev.($M)   %Total Rev.   %Rev.Gr.   %Org.Gr.

 LS    

  Sales           $401        24%          2%         3%

  Orders          $397                     1%         2%

 CA    

  Sales           $394        23%         -1%         1%

  Orders          $399                    -1%         0%

 .                                Illumina FY12

                           Q4                   FY Sales

                  Rev.Gro.    %of Rev.     Rev.Gro.   %of Rev.

 Consumables        36%          63%         22%        63%

 Instrument          0%          26%        -16%        27%

 Service & Other    54%          10%         36%         8%

 .                            Life Technologies FY12

                          Q4                    FY Sales

                       Org.Rev.  %of Rev.    Org.Rev.  %of Rev.

 Research Cons.           4%        41%         2%        42%

 Genetic Analysis         4%        40%         1%        39%

 Applied Sciences        10%        19%         8%        19%

 .                                     Non-GAAP PerkinElmer FY12

                                     Q4                         FY

                        Rev.($M)  Rev.Gr. Org.Gr.   Rev.($M)  Rev.Gr.  Org.Gr.

 Human Health      

  Adj. Sales              $275     5.8%      3%      $1,050     18.3%    6%

  Adj. OP                  $60     1.2%                $225     23.4% 

 Environmental Health     

  Adj. Sales              $302     2.8%      3%      $1,091      2.8%    4%

  Adj. OP                  $56     0.9%                $168      5.9%

 .                                           Waters FY12

                                   Q4                            FY

                           Rev.($M)  %Rev.Gr.           Rev.($M)   %Rev.Gr.

 Waters Div.                $456.8    -0.7%             $1,632.7    -1.1%

  Inst. Systems              $24.0      -6%               $828.0      -6%

  Chem. Cons.                $75.0       3%               $295.0       1%

  Service                   $137.0       8%               $509.0       6%

 TA Div.                     $64.9     6.0%               $211.0     5.6%

  Inst. Systems              $49.0       4%               $157.0       4%

  Service                    $16.0      12%                $54.0      11%