Microarrays Boost Illumina Growth

 Q4 2016

After lowering guidance in the third quarter, fourth quarter 2016 sales for Illumina came in ahead of company expectations. Sales advanced 4.7% for the quarter to $619.3 million, led by demand for sequencing consumables and microarrays.

Total microarray sales climbed 14% to account for 16% of revenues. Growth was driven by a strong backlog, healthy year-end spending and robust consumer sales, which jumped more than 60%. Demand was particularly strong for the Infinium XT line of products and Global Screening Arrays.

Sequencing revenue improved 3% to make up 84% of sales. Sequencing consumables revenue advanced 20% to $331 million, led by sturdy NextSeq and HiSeq X utilization. As expected, sequencing instrument sales declined 23% to $111 million as a result of lower HiSeq X placements. However, MiSeq shipments remained steady, and NextSeq sales and orders grew sequentially led by demand from NIPT customers in the US and China. MiniSeq placements remained healthy, as the company shipped more than 110 units for a total installed base of 370 systems. The company also noted that it discontinued its NeoPrep system, which, according to a customer letter, was in part attributed to sample inconsistencies.

Geographically, Asia-Pacific remained robust, as sales in the region climbed 29%, including roughly 50% growth in China. European sales, which benefited from year-end spending, advanced 11%. In contrast, sales in the Americas, which started the year with double-digit growth, declined 4% due to slower instrument sales.

Adjusted gross margin contracted 173 basis points to 69.5%. Given the increased investment in genetic startups, manufacturing and headcount, adjusted operating margin fell 223 basis points to 25.1%.

2016

For the year, Illumina sales climbed 8.0% to $2.40 billion, but was well below the company’s initial outlook due to slower-than-anticipated demand for high-throughput systems. Nevertheless, consumables demand remained strong, driven by NIPT and oncology testing. Total sales for oncology applications advanced 20% to account for 10% of company revenues. Overall, Product sales grew 7%, and Service and Other revenue improved 11% to account for 85% and 15% of revenues, respectively.

Sequencing sales expanded 6% to make up 84% of revenues. This growth was driven by consistent consumables demand, for which sales advanced 23%. The shift of NIPT customers in China moving to in-house testing boosted consumables sales but hampered demand for sequencing services, for which sales grew in the low single digits. Given the strong comparison for high-throughput systems, sequencing instrument revenue slumped 22%. The company hopes to reinvigorate sales for this market with its new NovaSeq system. The company ended the year with 37 HiSeq X systems in backlog, of which a majority are expected to transition to the NovaSeq.

Microarray sales jumped 19% for the year to account for 16% of revenues. With a strong backlog, microarray sales are expected to growth in mid- to upper single digits.

Sales in Asia-Pacific grew roughly 20.2%, including significant growth in China due to funding for the Precision Medicine Initiative, as well as strong NIPT and oncology testing. US and European sales were 7.2% and 4.9%, respectively. Sales to Other regions declined 10.3%.

Adjusted gross margin slipped 58 basis points to 71.3%, and adjusted operating margin contracted 418 basis points to 26.3% because of increased investments.

Full-year 2017 sales are projected to grow 10%–12%, including less than 1% growth from each Helix and GRAIL, and currency headwinds of roughly 1%. However, first quarter sales are projected to grow 3% to $580–$595 million, as the transition to the NovaSeq platform is expected to temporarily impact demand for instruments and consumables.

PerkinElmer Expands Margins

Q4 2016

Fourth quarter 2016 adjusted organic sales for PerkinElmer grew 1% to $567.0 million, which was towards the low end of company guidance due to continued weakness in the industrial and environmental markets, as well as delayed product launches. During the quarter, the company divested its Medical Imaging business (see IBO 12/31/2016), currently moved into discontinued operations and realigned its organizational structure into two segments: Discovery & Analytical Solutions (DAS) and Diagnostics (see IBO 9/30/16).

DAS sales declined 1% organically to account for 72% of revenues. This decline was primarily attributed to lower demand for analytical equipment from industrial and environmental markets, for which sales declined in the mid-single digits each. Biopharmaceutical sales grew only low single digits, driven by strength in the OneSource business. Given a weak comparison, academic sales grew in the mid-single digits. Finally, food sales were particularly strong with growth in the low teens.

Sales for the Diagnostics segment, which is now primarily focused on reproductive health, infectious disease and oncology, climbed 7% organically to make up 18% of sales. The oncology-related business, which includes microfluidics and automation technologies for NGS, which were previously part of the Life Science and Solutions business, grew in the high single digits. Reproductive health sales were also strong, driven by demand in China and the Americas.

Geographically, sales in Asia grew in the high single digits. European sales were flat, and sales in the Americas declined in the low single digits due to weak industrial demand. Sales in the BRIC region (Brazil, Russia, India and China) expanded in the high single digits but were mixed. Demand in China was strong for diagnostics and analytical products, while India sales grew double digits within the DAS segment. Conversely, sales in Brazil and Russia declined.

Adjusted gross profit margin expanded 96 basis points to 50.1% due to productivity improvements and product mix. Adjusted operating margin improved 57 basis points to 21.3%

2016

Full-year adjusted sales improved 2% organically to $2.12 billion. Growth was driven by strength in the food analysis and reproductive health businesses. Food safety sales grew in the low double digits to account for 8% of total revenues. Biopharmaceutical sales increased in the low single digits, as higher service revenues was hampered by demand for plate readers and radiochemicals. Academic, environmental and industrial sales declined in the low- to mid-single digits each.

Organic DAS sales were flat for the year to account for 71% of revenues. Diagnostics revenue advanced 8% organically to make up 19% of sales, led by low double-digits sales growth in the newborn screening business.

Sales in Asia grew double digits, were flat in Europe and declined low single digits in the Americas. BRIC sales increased in the low double digits, including low- to mid-teen sales growth in China and India each. Sales in Russia were flat but declined double digits in Brazil. Overall, total sales to emerging markets improved in the high single digits.

Adjusted margins improved 114 basis points to 49.4% as a result supplier consolidation, increased regional production in China and divestments. Aside from the Medical Imaging business (see IBO 12/31/16), the company also divested NTD Labs (see IBO 4/30/16) and LABWORKS (see IBO 4/30/16) during the year. Adjusted operating margin advanced 135 basis points to 18.6%.

The company expects similar end-market growth in 2017, but with positive industrial and environmental sales growth as a result of improved execution and new products. As such, 2017 organic sales are projected to increase 4% to $2.19– $2.20 billion. This outlook includes 7% and 3% organic growth for the Diagnostics and DAS segments, respectively. Geographically, sales are expected to grow low- to mid-single digits in the US, low single digits in Europe and high single digits in the APAC regions. First quarter sales are projected to grow 2%–3% organically to $500–$510 million.

Life Science Demand Grows for Thermo Fisher Scientific

Q4 2016

Fourth quarter 2016 sales for Thermo Fisher Scientific expanded 6.5% to $4.95 billion but were flat organically. Acquisitions contributed 8% to revenue growth, while currency headwinds reduced sales by 1%. Organic growth was muted due to fewer billing days, offsetting the favorable impact of additional selling days in the first quarter of 2016. Accordingly, sales growth based on normalized days advanced 4%, driven by continued strength in biopharmaceutical markets and in Asia. All sales figures below are based on organic normalized days.

Despite a strong comparison, biopharmaceutical sales climbed 9%. Academic and government sales grew in the low single digits, led by demand in the US and China. Industrial and applied markets grew at a similar low single-digit rate, as strength in applied markets for food safety and environmental applications was offset by core industrial demand. However, the company reported improved industrial orders. Diagnostics and healthcare sales improved 3%.

Life Science Solutions sales were particularly strong, climbing 9% due to strength in the Bioproduction, Biosciences and NGS businesses. Continued uptake for the new Ion S5 systems was driven by clinical oncology applications.

Analytical Technologies sales grew 3%, as sturdy growth for chromatography and MS products were partially hampered by weakness in the Chemical Analysis business. The company also highlighted strength in the acquired FEI Electron Microscopy business (see IBO 8/15/16) and emphasized order growth for structural biology applications.

Sales growth for the Laboratory Products and Services segment, which advanced 3%, slowed to more normal levels, as year-end spending was less pronounced compared to the previous year. Specialty Diagnostics revenue also grew 3%, with balanced growth across all businesses.

Geographically, Asia-Pacific sales grew roughly 12%, led by strong demand in China, India and South Korea. North America and European sales grew approximately 2% and 5%, respectively. Sales in Rest of World declined 2%.

Thermo Fisher’s adjusted gross margin expanded 172 basis points to 49.4%. Adjusted operating margin advanced 154 basis points to 24.8%, including 40 basis points from fewer selling days. Productivity improvements and product mix further boosted operating profits, offsetting increased investments and dilution from acquisitions.

2016

Full-year 2016 sales grew 7.7%, 4.4% organically, to $18.27 billion. Acquisitions contributed 4% to sales growth, while currency headwinds amounted to 1%. Biopharmaceutical sales climbed 10% to account for roughly 31% of revenues. Diagnostics and healthcare sales expanded 4% to represent 25%. Academic and government, and industrial and applied sales grew roughly 1% each to make up 25% and 19% of revenues, respectively. However, applied markets remained healthy with sales growth around 4%.

Life Science Solutions and Analytical Instrument sales grew 7% and 3%, respectively. Sales for the Laboratory Products and Services segment grew 5%. Specialty Diagnostics revenue advanced 4%.

Asia-Pacific sales grew 12% to make up 19% of revenues, led by high-teen sales growth in China. Sales in North America and Europe improved 3% and 4% to account for 53% and 24% of revenues, respectively. Sales in Rest of World declined 4% to make up 4%.

For the year, adjusted gross margin improved 51 basis points to 48.8% and adjusted operating margin expanded 58 basis points to 23.1%.

Thermo Fisher projected 2017 sales to grow 6%–7%, 4% organically to $19.38–$19.62 billion. Acquisitions are expected to add 4% to sales growth, partially offset by projected currency headwinds of 1.5%. While demand from biopharmaceutical markets is expected to remain strong, sales growth for this market is anticipated to moderate compared to 2016 due to a strong comparison. The company projected biopharmaceutical sales to grow in the mid- to upper single digits. Industrial and applied revenue growth is expected to accelerate to roughly 4% in 2017, as stronger industrial orders should benefit growth in the second half of the year. Growth for the academic and government markets is expected to remain tepid, each with low single-digit growth. First quarter sales are expected to be slightly below the annual growth forecast due to one less selling day.

Waters Offers Conservative Outlook

Q4 2016

Waters posted fourth 2016 sales above company guidance due to sustained demand in Asia and accelerated growth in Europe. Organic sales advanced 8.6% to $628.8 million, but benefited from delayed European orders in the third quarter of 2016 and roughly 4% growth from extra selling days. Based on normalized days, organic sales improved roughly 5% organically.

Following modest growth in the first nine months, sales in the industrial-related market, which includes materials characterization, food, environmental and fine chemicals, jumped 14%, its strongest quarter in three years. Demand was particularly strong for food quality and safety testing, as well as for fine chemical applications. Core industrial demand remained challenged.

Academic and government sales, which contracted 15% in the third quarter 2016, grew 6%, driven by increased adoption of the Vion Q-Tof MS system in both Europe and Asia. Biopharmaceutical sales also grew 6% but slowed compared to the first nine month of 2016. However, this pattern was similar to 2015 due to the absence of any meaningful budget flushes.

Within the Waters segment, instrument sales climbed 12%, including similar growth for LC and MS systems, and strong demand for laboratory informatics products. Recurring revenues advanced 9% but benefited from the extra selling days.

TA sales declined 3% due to a strong comparison and softer-than-expected instrument sales. However, TA sales and orders improved sequentially, driven by demand for the new Discovery thermal analyzer.

Geographically, sales in Asia Pacific excluding Japan grew 18%. Japanese sales advanced 6%.

European sales improved 9% due to strong instrumentation demand in Western Europe. Sales in the Americas grew 2%, as growth was partially hindered by weakness in industrial markets and slower demand from clinical diagnostics customers. Gross margin advanced 55 basis points to 60.0% of sales primarily due to favorable currency impacts. Adjusted operating profit improved 103 basis points to 34.1%.

2016

Full-year 2016 Waters sales advanced roughly 6.5% organically to $2.17 billion. Biopharmaceutical sales advanced just under 10%. Sales for the industrial category advanced nearly 6%, as strong demand for food testing products was partially offset by weakness in core industrial markets. Government and academic sales contracted 3% as a result of lower spending in Europe and the US.

Sales for the Waters segment expanded 7.3%, led by strong recurring revenues, which advanced 8%. Instrument sales grew 6.6%, with slightly stronger demand for LC systems, especially ACQUITY Arc and Alliance-based instrumentation. MS sales, which started on the slower side, benefited from demand for the ACQUITY QDa and Xevo tandem quadrupole systems. TA sales were flat, as instrument demand declined due to weakness in the materials science, polymer and metals markets.

Geographically, sales in Asia excluding Japan grew 12%, driven by biopharmaceutical demand in China and India. Japanese sales improved 4% due to strength from pharmaceutical and industrial customers. Sales in the Americas expanded 3%, including roughly 5% sales growth in pharmaceutical markets, flattish growth from industrial customers and lower growth in academic and government markets. European sales advanced 6%.

Total gross margin improved 13 basis points to 58.9% for the year. Adjusted operating income climbed 104 basis points to 30.1% because of improved efficiency and cost control measures.

For 2017, Waters projected a more conservative outlook, with organic sales growth in the mid-single digits. This forecast assumes biopharmaceutical and industrial sales to grow roughly 5% each, and low single digit sales growth in academic and government markets. First quarters organic sales are anticipated to rise 3%–5%, just below the annual average due to two fewer selling days.