The US equity markets trended lower in October as the Dow Jones Industrial Average, S&P 500 and NASDAQ reduced 0.9%, 1.9% and 2.3%, respectively. Markets fretted over mixed earnings reports, the Federal Reserve’s looming interest rate decision and unremitting political uncertainty. On the positive side, third quarter US GDP growth came in above expectations at a 2.9% annualized rate, the strongest quarter in two years. However, aside from strength in consumer spending, the better-than-expected result was attributed to inventory buildup, which may consequently limit production in the fourth quarter. Currencies continued to fluctuate, as the dollar mostly strengthened in anticipation of a higher Fed funds rate by the end of the year. Year to date, the Dow, S&P 500 and NASDAQ are up 4.1%, 4.0% and 3.6%, respectively.

Laboratory Instruments and Products

The Index shed 9.6% in October to 245.37 but is up 0.2% for the year. A majority of companies declined this month following several disappointing third quarter preliminary results, along with overall negative market sentiment. Fluidigm recorded the largest decline, tumbling 42.2%, as the company preannounced sharply lower-than-expected third quarter sales on October 12 (see IBO 10/15/16). Sales for the company, which declined 23%, were 24% below expectations primarily due to weaker demand for its single-cell Helios mass cytometry systems. The company also announced a CEO change on October 19 (see Fluidigm Names New CEO).

Adding to the earnings disappointment, on October 10, Illumina preannounced third quarter sales of $607 million, 3% below the company’s previous guidance due to slower-than-anticipated demand for high-throughput systems (see IBO 10/15/16). The company also noted a sharp decline in US orders during the quarter and, as a result, projected fourth quarter sales to be flat or marginally higher sequentially. Projected fourth quarter sales growth for the company was cut roughly 13 percentage points to 3%. The next day, Janney Montgomery Scott downgraded the company from “Neutral” to “Sell,” and Citigroup lowered its rating from “Buy” to “Neutral.” Shares sank 25.1% for the month.

Both Harvard Biosciences and Waters also declined double digits for the month, falling 11.8% and 12.2%, respectively. Harvard Bioscience met third quarter adjusted EPS expectations on October 28 but missed on revenue guidance. The company also lowered its projected full-year sales range by $3 million to $105–$107 million to account for the divestment of its liquid handling subsidiary AHN (see Harvard Bioscience Divests Business) and unfavorable currency headwinds. Full-year non-GAAP EPS guidance of $0.16–$0.18 was unchanged.

Waters reported relatively solid third quarter results on October 25 as adjusted EPS climbed 11% to $1.57, in line with expectations due to cost saving measures and strength in the biopharmaceutical market. However, quarterly sales fell slightly below consensus due to weakness in governmental and academic markets, as well as slower industrial sales within the TA segment. The company narrowed its full-year guidance from $6.48–$6.58 to $6.45–$6.60.

Despite beating third quarter adjusted EPS on October 27 with growth of 13% to $2.03, Thermo Fisher Scientific declined 7.6% for the month. However, the company’s adjusted EPS benefited from the earlier-than-projected closing of the FEI acquisition (see IBO 5/31/16) and lower currency headwinds. The company raised the midpoint of its 2016 guidance by $0.11 to $8.19–$8.30 to account for FEI and a more favorable currency outlook.

Bio-Techne posted better-than-expected quarterly adjusted EPS on October 31, led by strong revenue growth in the Protein Platforms segment. Although advancing 2.9% for the day, shares were down 5.0% for the month.

Luminex reported mixed results on October 31 as adjusted EPS missed expectations due to the acquisition of Nanosphere, which contributed lower gross margins. However, sales were slightly ahead of projections, and the company raised the midpoint of its 2016 revenue outlook by $3.5 million to $267–$270 million. Shares were down 8.3% for the month.

Illumina’s revenue shortfall and reduced outlook pressured a number of other companies in the Index, including QIAGEN, which fell 11.2% for the month. On October 26, the company announced a $250 million share repurchase plan that includes a direct capital repayment with a reverse stock split.

Only two companies in the Index, Enzo Biochem and MTS Systems, recorded positive gains for the month, climbing 19.8% and 3.3%, respectively. On October 13, Enzo Biochem reported better-than-expected results for the fiscal fourth quarter ending July 31, driven by diagnostics sales. The company ended the year with $45.3 million in net income bolstered by legal settlements and licensing agreements.

Diversified Instrumentation

The Index slid 4.4% in October to 195.50 but maintained a positive return of 4.2% for the year.

All companies decreased in value for the month with the exception of Danaher, which improved 0.2%. On October 20, the company posted strong third quarter adjusted EPS growth of 23% to $0.87 based on continuing operations, driven by cost control and operational improvements. Danaher raised its 2016 adjusted EPS guidance from $3.53–$3.60 to $3.57–$3.61.

Both Illinois Tool Works (ITW) and Corning posted better-than-expected third quarter adjusted EPS on October 20 and October 25, yet shares declined 5.2% and 4.0%, respectively. ITW narrowed its 2016 adjusted EPS outlook from $5.50–$5.70 to $5.56–5.66, resulting in a slightly higher midpoint.

Despite a slight revenue miss, third quarter adjusted EPS for Roper Technologies beat analysts’ expectations on October 31. While the company again lowered its 2016 adjusted EPS range from $6.57–$6.71 to $6.48–$6.60 due to weak order growth, Roper assessed a more favorable 2017 outlook. Shares waned 5.0% for the month.

Shares of Honeywell slumped 7.5% on October 7 after the company lowered its projected third quarter EPS from $1.67–$1.72 to $1.60 due to weak organic aerospace revenue. The revised outlook also included the split of the Automation and Control Solutions segment. However, shares recovered slightly after the company expressed a favorable 2017 outlook on October 21. The following business day, Honeywell announced a $4.5 billion Senior Notes offering with various maturities in order to repay certain outstanding debt. Finally, on October 28, the company announced a 12% annual dividend price increase to $2.66. The augmented quarterly payment of $0.665 will begin in the fourth quarter. Goldman Sachs downgraded the company from a “Conviction-buy” to a “Buy” rating on October 10.

In other financial news, on October 3, Xylem announced a $900 million Senior Notes offering due 2026 and 2046.

International

Asia Pacific markets were mixed in October. Japan’s Nikkei 225 and China’s Shanghai Composite advanced 5.9% and 3.2%, respectively. Conversely, the Philippines PSEi and Australia All Ordinaries Indexes slipped 2.9% and 2.2%, respectively.

Prices for most of the Pacific Region companies in the IBO Stock Table improved this month, led by GL Sciences, which jumped 16.1%. Conversely, Precision System Science and Shimadzu tapered 12.0% and 5.6% in October, respectively.

Hitachi High-Technologies, which improved 9.2% for the month, reported on October 27 that fiscal 2016 second quarter EPS fell 13% to ¥58.14 ($0.57). Despite the decline, earnings were well above the company’s previous forecast due to strong demand for clinical analyzers. The company raised its fiscal 2016 EPS forecast by 13% to ¥258.13 ($2.58).

Except for Switzerland’s SMI, which declined 3.8%, major European equity markets rallied in October. Italy’s FTSE and Spain’s IBEX 35 recorded the strongest returns, climbing 4.4% and 4.1%, respectively. Following a better-than-expected third quarter UK GDP growth rate of 0.5%, London’s FTSE 100 improved 0.8% for the month.

Datacolor had the highest return among European companies, expanding 13.6%. In contrast, Horizon Discovery dropped 12.8%. Sartorius, which slipped 2.2% for the month, reported on October 24 that adjusted third quarter EPS climbed 18% to €0.53 ($0.59) due to strong organic sales in the Bioprocess Solutions Division. The company maintained its 2016 currency-neutral revenue growth outlook of 15%–18%.
In rating news, on October 14, Bank of America upgraded Merck KGaA from “Neutral” to “Buy.”