Major, publicly held analytical instrument companies continued to operate in a uncertain market environment in the calendar year second quarter. Industrial, environmental and academic markets remained under pressure for the most part. However, Chinese, food safety, pharmaceutical and aftermarket sales were healthy. Conversion of first quarter orders benefited Bruker and PerkinElmer (see IBO 5/31/13).

For the seven businesses (excluding Bio-Rad Laboratories Life Science) whose quarterly results are profiled on pages 9-11, total revenues increased 3.5% in the latest quarter, with organic revenues rising 3.9%. Excluding acquisitions, total revenues grew 2.9%. As in the previous quarter, Illumina led all businesses, once again posting sales growth of more than 20%. Two companies, Life Technologies and Waters, reported sales declines. However, Waters revenues increased on an organic basis.

Operating profits for the seven businesses increased 1.8%, with Bruker and Illumina reporting double-digit increases. As in the first quarter, the weakening of the yen had a negative effect on profitability. PerkinElmer and Water both noted higher costs of sales.

By end-market, industrial markets remained weak during the quarter. Thermo reported declining sales to the industrial and applied markets, while Bruker noted decreased sales for its BMAT division, which in part serves industrial market. US academic and government markets were also weak, impacted by the first full quarter of US sequestration. Agilent Life Sciences (LS) and Chemical Analysis (CA) attributed its decline in environmental, forensic and academic sales to the sequestration, while PerkinElmer noted the impact of the sequestration on its US sales of in vivo animal imaging products. Both Agilent and PerkinElmer reported soft environmental sales.

Pharmaceutical end-market sales were strong for Agilent LS, PerkinElmer, Thermo Fisher Scientific Analytical Technologies (AT) and Waters. Both Agilent LS and Waters reported good sales for early-stage drug development. Food safety was another good market, as noted by Agilent LS, Thermo AT and Waters.

Several companies continued to experience strong growth for selected product lines, including Illumina for sequencing, PerkinElmer for informatics and Thermo AT for HPLC. Agilent LS, Thermo AT and Waters each reported continued good demand for MS systems. Service revenue was also a highlight for Agilent LS and CA, and Illumina.

Geographically, Chinese sales remained strong, with none of the businesses reporting any negative effects from the country’s slower growing economy. Japan was mixed, as most companies reported that the country’s latest stimulus effort had yet to translate into orders. Japanese sales declined for PerkinElmer and Waters. However, Illumina and Life Technologies both posted solid sales growth for the country. The US and Europe showed little change in sales growth patterns, with US sales for most firms showing growth outside academia and government, and European sales flat to modestly higher.

Businesses continued to control expenses. Bruker commented on spending decreases in its CAM and BioSpin Divisions. PerkinElmer initiated a $40 restructuring effort. Thermo instituted an additional $10 million in restructuring due to negative currency effects, bringing its total expected restructuring effort for the year to $85 million.

Discussing the second half of the calendar year, businesses expected a continuation of the same market environment with some uptick in sales due to recurring revenues, Japanese stimulus spending, backlog and emerging market growth.

The summaries of business results presented below are based on financial reports, SEC filings and conference calls.

Agilent Life Sciences (LS) fiscal third quarter sales grew 4% organically, led by higher sales of consumables, services and informatics. Academic and government research revenues declined 7% due to US sequestration. Pharmaceutical and biotechnology sales grew 7%, driven by LC upgrades for early-stage discovery. New LC systems introduced during the quarter resulted in higher orders. MS sales and orders from pharmaceutical markets were soft. Sales to the Americas, Asia Pacific and Europe accounted for 36%, 35% and 29% of LS sales, respectively. LS adjusted operating margin improved 210 basis points to 16.6% of sales. Organic LS sales are expected to increase 6% for the fiscal fourth quarter.

Agilent Chemical Analysis (CA) sales improved 3% organically due to strong Chinese demand for GC and higher recurring revenues. Orders were particularly strong for GC and GC/MS. Sales to food, and chemical and energy markets grew 11% and 6%, respectively. Environmental and forensics sales contracted 11%. Despite demand in emerging markets, environmental sales were impacted by government spending cuts in the US, Europe and, more modestly, Japan. Sales to Asia Pacific, the Americas and Europe made up 42%, 30% and 28% of CA sales, respectively. Adjusted operating margin expanded 70 basis points to 21.5% of sales. For the fiscal fourth quarter, organic CA sales are projected to grow 6%.

Second quarter revenues for Bio-Rad Laboratories’ Life Science (LS) segment grew 2.4% organically to account for 32% of revenues due to higher sales of process media and digital PCR products. Demand for the new cell sorter and LC systems also contributed to revenue growth, but was partially offset by lower government sales. The acquisition of Serotec (see IBO 12/31/12) added 3.8% to revenue growth. Excluding currency, LS sales to the US, Asia and Europe each grew. European markets recorded the strongest growth, but included delayed order from the first quarter. Growth in Asia slowed as a result of lower Japanese research sales. Adjusted LS operating loss widened due to acquisitions and software upgrades. The company maintained its total full-year currency-neutral revenue growth forecast of 3.5%–4.0% including Serotec.

Bruker’s second quarter Scientific Instruments (BSI) revenue grew 7.8% organically as a result of stronger demand from academic customers, new products and operational improvements. System revenue grew 4.9% to make up 82% of BSI sales. Aftermarket revenue grew 12.2%. Overall, demand from European and academic markets varied within businesses, while demand from industrial customers declined both year over year and sequentially. BSI adjusted operating margin climbed 320 basis points to 11.6% of sales due to revenue growth, improved order execution and lower spending, especially for Chemical & Applied Markets (CAM).

BioSpin sales were driven by demand for NMR products from academic customers. Orders for NMR maintained strength, especially in North America, UK and Japan. Preclinical Imaging sales, which accounted for roughly 25% of BioSpin sales, recorded strong growth due to demand for MRI systems, and new and acquired products. Bruker MAT (BMAT) sales declined because of lower sales to industrial customers in Asia and Europe, continued softness in semiconductor and microelectronics markets, and pricing pressure. Sales for each of the four BMAT divisions were either flat or declined. CALID sales improved due to double-digit growth for the Optics division, which benefited from improved production and order execution. Greater demand for Detection products also contributed to sales. Life Science and Clinical sales were mixed, as robust sales of MALDI Biotyper products were offset by lower demand for other MS systems. As of April, the company had installed 800 MALDI Biotyper units. Despite lower-than-expected sales for CAM, orders grew by double digits. The full-year Bruker sales forecast was unchanged at 3% organic growth. The company expects continued strength in the BioSpin and CALID groups for the second half of the year. Despite sequential growth for BMAT in the second half, 2013 sales are expected to be down.

Illumina’s second quarter sales climbed 19% organically due to strong global demand and a 33% jump in sequencing revenue to account for roughly 71% of sales. Sequencing instrument sales grew 37%, led by demand for HiSeq systems and 2500 upgrades. Roughly 45% of HiSeq shipments were to clinical and commercial customers. MiSeq shipments and orders increased despite a strong year-over-year comparison. Sequencing consumables revenue rose 26%, including a roughly 50% climb in sales of sample preparation products. Sequencing service revenues were also strong due to the acquisition of Verinata (see IBO 1/15/13) and completion of 2,500 genomes. The company received record orders for more than 6,000 genomes during the quarter.

Illumina’s microarray sales improved 3% to make up roughly 29% of sales due to the acquisition of BlueGnome (see IBO 9/30/12) and higher sales of Infinium arrays. Demand from the consumer market, which is expected to generate roughly $50 million in revenue for the year, boosted sales for custom iSelect arrays. Demand for microarrays was also strong from the agriculture and cytogenetic markets. Overall, sales to the Americas and Europe grew 22% and 19%, respectively. Asia-Pacific sales climbed 36%, with particular strength in Japan as a result of stimulus spending. Adjusted gross profit margin declined 120 basis points to 69.0% of sales due to product mix. Adjusted operating margin fell 292 basis points to 25.2% of sales due to higher R&D expenses from Verinata and increased headcount. The company raised its 2013 revenue growth guidance from 15% to 20%.

Second quarter sales for Life Technologies were slightly lower than company estimates, as sales slipped 0.2% organically. Despite sustained demand for Ion Torrent products, Genetic Analysis sales declined as a result of lower sales of capillary electrophoresis and SOLiD systems. Research Consumables increased, led by demand for fluorescent imaging, stem cell and sample preparation products. Applied Science sales benefited from $9.5 million in royalty payments, which were partially offset by lower Bioproduction sales.

Excluding currency, Life Technologies sales to Asia Pacific grew 4%, Japanese sales rose 6%, European sales were flat and sales to the Americas declined 1%. Adjusted gross profit margin improved 50 basis points to 65.9% of sales due to manufacturing efficiency, licensing revenue and pricing, partially offset by product mix. Adjusted operating margin contracted 117 basis points to 27.4% of sales due to increased R&D spending for Ion Torrent and molecular diagnostics.

Adjusted and organic second quarter sales for Perkin­Elmer each grew 3%, driven by in vivo imaging sales and mid-teens sales growth for emerging markets. All figures below are organic. Recurring revenue grew in the mid-single digits. Instrument and components revenue was flat but improved from the first quarter. Sales to Asia grew in the low double digits, including high-teens growth for China and a low single-digit decline for Japan. European sales grew in the low single digits, but sales to the Americas declined in the low single digits. Adjusted gross profit margin fell 200 basis points to 47.3% of sales as a result of pricing pressure on instruments, higher service revenue, increased investments and higher royalty payments. Despite reducing operating expenses, adjusted operating margin contracted 130 basis points to 15.6% of sales. The company maintained its low single-digit organic sales growth forecast for 2013. Third quarter organic sales growth is expected to be flat to 2%.

Within Human Health (HH), Research sales improved, including double-digit growth for informatics and high single-digit growth for OneSource. In vivo imaging sales grew more than 20% organically due to strength in Europe and Asia, but also because of delayed orders in the first quarter. Radiochemical sales, which had declined on a quarterly basis over the last year, were flat. Overall, organic Research sales were strongest in Europe and Asia. Diagnostics sales were led by mid-single digit organic growth in the Screening business, as newborn testing in Asia grew in the high teens. Screening sales also benefited from demand in the Middle East and Africa. However, Medical Imaging sales declined in the mid-single digits, which was partially a result of a strong year-over-year comparison. HH adjusted operating margin fell 169 basis points to 21.5% of sales due to higher cost of goods and investments in the informatics business.

PerkinElmer Environmental Health (EH) sales were driven by demand for laboratory services from pharmaceutical and healthcare customers and increased instrument sales to the energy markets. Despite the quarterly increase, industrial sales are expected to be soft for the second half of the year. Environmental and Safety sales were negatively impacted by lower demand for inorganic analysis solutions. EH adjusted operating margin fell 157 basis points to 12.5% of sales due to pricing pressure and product mix.

Second quarter Thermo Fisher Scientific Analytical Technologies (AT) revenue grew 4% organically due to strong demand for MS, chromatography, especially HPLC, and molecular spectroscopy. Higher sales of Bioprocess production products also contributed to growth due to increased development for vaccines and biotherapeutics. Sales were partially offset by weak industrial demand. Asian sales sustained double-digit growth, driven by research, food safety and environmental markets. AT adjusted operating income margin improved 30 basis points to 17.7% of sales.

Total Thermo sales to Asia-Pacific grew in the high single digits, including more than 20% growth in China. European sales grew in the mid-single digits. North American sales declined in the low single digits. Sales to Rest of the World grew in the high single digits. The company maintained its midpoint organic growth rate of 2% for the year.

Second quarter sales for Waters improved 2% organically, but fell short of expectations due to lower capital spending in the US and timing of orders from Asia. However, the company increased its backlog by $20 million. All figures below are organic. Instrument sales fell 2% to account for 51% of revenues. Recurring revenues increased 8% to make up 49%. Sales to Europe and Asia (excluding Japan) grew 7% and 3% to account for 30% and 24% of revenues, respectively. Chinese sales grew in the high double digits to make up 13%. Sales to the US and Japan fell 2% and 6% to represent 30% and 8%, respectively. Sales to Rest of World grew near double digits to account for 8%. Adjusted gross profit margin declined 246 basis points to 58.3% of sales due to currency, product mix and amortization of software development expenses. Adjusted operating margin fell 121 basis points to 12.5% of sales as a result of lower margins and higher R&D expenditures. Including a conservative forecast for Instrument growth, the company projected organic third quarter and second-half sales to grow in the mid-single digits. Full-year sales growth is expected to be slightly below the previous forecast of 5%.

Within the Waters Division, chromatography sales and orders declined in the mid-single digits organically due to weak demand from pharmaceutical customers in the US, Western Europe and Japan. Sales of ACQUITY H-Class systems were mixed, as demand for quality control applications was offset by lower demand for early-stage drug development. Organic UPLC/MS sales grew in the mid-single digits and orders grew in the low double digits. Demand for Q-TOF and tandem quadrupole MS was also strong.

All figures below are organic. Waters pharmaceutical sales grew in the mid-single digits, but government and academic sales were flat. Chemical analysis sales increased in the low single digits. Waters Division sales to the US were slightly lower due to weak government and academic markets. European sales were strong, led by double-digit growth for MS from government and academia and mid-single digit growth from pharmaceutical and industrial customers. Latin American sales were also good. Despite higher academic spending, Japanese sales declined slightly due to lower demand from pharmaceutical and chemical markets. Sales to Asia, excluding Japan, were strong, including double-digit growth for China. TA Division sales declined 3% organically due to lower demand for biocalorimeters from government and academic customers, as well as an increased backlog of high-temperature and thermal systems in Asian markets.