The calendar-year third quarter was yet another quarter of robust growth for major analytical instrument companies, driven by food and environmental testing in foreign markets and steady industrial spending. Five of the nine analytical instrument companies whose financial results are shown in the tables on pages 10 and 11—Agilent Bioanalytical Measurement (BAM), Bruker BioSciences, PerkinElmer Life and Analytical Science (LAS), Thermo Fisher Scientific Analytical Technologies (AT) (including pro forma results) and Waters—posted a third straight quarter of double-digit revenue growth this calendar year. In addition, Agilent BAM, Dionex, Thermo Fisher Scientific AT and Varian Scientific Instruments (SI) have each posted double-digit quarterly increases in operating profits this calendar year. In total, revenues for the nine companies climbed 14.0% in the third quarter, while operating profits surged 24.2%.

Environmental and food testing applications outside the US propelled revenue growth for Agilent BAM, PerkinElmer LAS, Varian SI and Waters. These companies also noted in their conference calls that they expect such markets to continue to thrive for some time. Agilent BAM and Waters reported stellar growth for academic and government markets. And although many companies acknowledged the cost cutting efforts of some large pharmaceutical companies, they emphasized the continued strength of other large pharmaceutical firms, specialized pharmaceutical companies and CROs, as well as the continuing drive by the pharmaceutical industry to discover new drugs.

Chromatography and MS continued to be a winning combination for Agilent BAM, Varian SI and Waters. Both Bruker BioSciences and Thermo Fisher Sciences AT highlighted sales growth for molecular spectroscopy and elemental analysis products. The quarter also marked a return to revenue increases for Bruker Daltonics’ Life Science Systems products as direct sales boosted growth.

Asian sales continued their blazing pace, while European revenues remained healthy. Varian SI and Waters also noted good growth in other regions, including the Middle East. However, in general, companies continued to report slow US sales.

Agilent BAM and Varian SI each reported strong fiscal year end results. Revenues for Agilent BAM rose 24.0% to $558 million, driven by growth across multiple markets and product lines. Varian’s fiscal 2007 sales increased 111.0% to $761.5 million as sales to energy, environmental and food markets drove growth. Adjusted operating profits for Agilent BAM and Varian SI rose 47.7% and 24.5% to $381 million and $93.1 million, respectively.

Japanese instrument company Shimadzu detailed half-year results for its Analytical and Measuring Instruments segment (AMI). The company reported double-digit growth for Environmental Analyzers and foreign sales.

The company results below are based on financial reports, regulatory filings and quarterly conference calls.

Column Graph: CYQ3 2007 Reported Rev. Growth vs. Rev. Growth Excluding Acquisitions

Reported Excluding Acquisitions

Agilent Technologies (BAM) 24.0% 19.0%

Bruker BioSciences 25.5% 23.5%

PerkinElmer (LAS) 12.6% 8.6%

Waters 17.1% 14.1%

Affymetrix’s third quarter revenues grew 12.2% to $95.0 million. Product revenue improved 23.6% to $69.4 million, including probe arrays, reagents and instrument sales growth of 14.6%, 55.8%, and 24.7% to $42.9 million, $15.8 million and $10.7 million, respectively. Probe arrays sales were driven by strong demand for genotyping units, in particular the Whole-Genome 6.0 Array, which accounted for over 65% of total genotyping sales. The company also shipped 48 GeneChip systems this quarter, bringing the total to approximately 1,700 units for the year. Other new products such as Exon and Tiling arrays, which now account for more than 10% of the gene expression business, experienced strong demand. Instrument sales benefited primarily from increased volume, while reagents revenue gained from growth in unit sales and increased pricing. Product-related revenue declined 12.3% to $15.8 million as a result of lower subscription and service fees, which fell 48.6% and 10.5% to $1.0 million and $11.1 million, respectively. License fees and milestone revenue remained unchanged at $3.7 million. Royalties and other revenue jumped 59.2% to $9.5 million, including a $7.5 million license agreement that was triggered by a change of control provision. Revenue from Perlegen Sciences declined to $0.4 million from $4.6 million due to lower demand for commercial products.

Affymetrix’s quarterly adjusted operating profits improved to $9.6 million from a loss of $6.9 million primarily due to the implementation of a restructuring plan, which included the consolidation of administrative offices and the termination of employees, particularly in R&D and SG&A. Total gross margins improved 280 basis points to 62.5% of sales, benefiting from a product mix of higher margin items and lower operating costs. For fiscal 2007, the company lowered its top-line expectation by 3% to $365–$375 million with gross margins of around 60%.

Fiscal fourth quarter revenues for Agilent Technologies’ Bio-Analytical Measurement segment (BAM) grew 24.0%, or 19.0% excluding Stratagene, to $558 million to account for 38.6% of total company revenues. Favorable currency transactions accounted for approximately 2% of revenue growth. Orders climbed 15.8% to $571 million. Academic and government revenue more than doubled due to Stratagene and increased 25% organically. Life Sciences revenue improved 30%, or 17% excluding Stratagene, to $236 million, including pharmaceutical and biotech sales growth of 16%. Chemical Analysis revenue rose 20% to $322 million on account of increased sales to the petrochemical, food safety and environmental markets, which grew more than 25%, 18% and over 30%, respectively. Petrochemical growth was led by increased sales of new GC and GC/MS products, while increased regulatory testing, particularly in Asia, helped boost food safety and environmental revenues. BAM sales in the Americas, Europe and Asia improved 23%, 23% and 27%, respectively. Adjusted operating profits for BAM jumped 31.9% to $120 million, and gross operating margins improved 130 basis points to 21.5%.

Fiscal year BAM revenues gained 20.0% to $2,005 million, while year-end operating profit climbed 47.7% to $381 million including Stratagene. The company anticipates fiscal 2008 first quarter total revenues of $1.35–$1.40 billion, up 5%–9%.

Applied Biosystems’ fiscal first quarter revenues grew 5.2% to $501.2 million, or 3.2% on a currency-neutral basis. Consumables and Other sales climbed 12.2% and 10.1% to $216.2 million and $95.6 million, respectively, but Instrument sales declined 3.8% to $189.4 million. US sales rose 2.4% to $223.9 million, European sales jumped 10.5% (5% on a currency-neutral basis) to $156.8 million, sales to Japan grew 2.0% (-1% on a currency-neutral basis) to $47.8 million and other Asia Pacific sales rose 8.0% (6% on a currency-neutral basis) to $51.2 million. Adjusted operating income climbed 7.3% to $80.9 million, and gross margin improved 210 basis points to 55.8% due to lower manufacturing costs and improved vendor pricing for enzymes.

Bruker BioSciences’ revenues grew 25.5% to $131.6 million, including 5% growth from favorable currency transactions and 2% growth from acquisitions. Adjusted operating income jumped 44.2% to $11.5 million, and gross profit margins increased 290 basis points to 47.0% of revenues due to enhanced operating efficiencies and other gross margin improvement programs. Product and Service revenues rose 25.4% and 27.9% to $115.2 million and $16.2 million, respectively.

Bruker AXS sales rose 27.6%, or 22.9% on a currency-neutral basis, to $60.0 million including 5.0% revenue growth from acquisitions. Sales were led by X-ray fluorescence and X-ray diffraction systems and metals analysis. Bruker Daltonics sales grew 28.1%, or 21.9% on a currency-neutral basis, to $46.5 million, led by increases in direct sales of Life Science Systems and sales of chemical, biological, radiological and nuclear (CBRN) detection products. Bruker Optics sales improved 17.0%, or 11.9% on a currency-neutral basis, to $28.7 million.

Revenues for Dionex’s fiscal first quarter improved 13.1%, or 10.1% on a currency-neutral basis, to $82.4 million, while orders increased more than 20%. Consumable sales grew 11% to make up 20% of revenues. Sales in the life science and environmental markets were particularly strong. Sales to the petrochemical and food and beverage markets grew modestly, while electronics and power sales decreased. Product sales for ion chromatography rose in the mid-teens, while HPLC sales grew in the high single digits. Sales in North America, Europe and Asia Pacific grew 15%, 12% (4% in local currency) and 14% (15% in local currency), respectively. Adjusted operating profit grew 16.4% to $156.0 million as a result of increased sales and lower SG&A expenses as a percentage of revenues. Gross margins slipped 50 basis points to 65.2% of sales due to a geographical shift of sales to the Asia Pacific region. For the fiscal second quarter, the company forecasts revenues of $88–$91 million and diluted EPS of $0.70–$0.72. Sales forecast for fiscal year 2008 were increased by $1 million to $351–$359 million.

Sales of Mettler-Toledo International’s Laboratory products increased 8% in local currencies for the third quarter to account for 43% of company revenues or approximately $190.0 million. Revenue growth was driven primarily by the analytical instruments, process analytics, pipettes and laboratory balance businesses, while Autochem sales declined slightly.

In the third quarter, revenues for PerkinElmer’s Life and Analytical Sciences (LAS) grew 12.6% to $319.3 million to account for 73.3% of total company sales. Acquisitions and favorable currency transactions each contributed approximately 4.0% to LAS sales growth. Genetic Screening showed strong double-digit growth to represent 16% of LAS revenues, led by double-digit demand for both neonatal and prenatal screening. Service and Environmental/Chemical revenues grew in the high single digits to account for 26% and 25% of LAS revenues, respectively. Biopharmaceutical sales improved in the mid–single digits to make up 34% of LAS revenues, driven by high single-digit growth of reagent sales. LAS adjusted operating profits jumped 18.1% to $39.9 million, and operating margins grew 50 basis points to 12.7% as a result of increased volume and productivity. For the fourth quarter, PerkinElmer anticipates double-digit revenue growth and adjusted EPS of $0.43–$0.45.

Revenue for Shimadzu’s Analytical and Measuring Instruments business (AMI) for the first half of the fiscal year ended September 30 climbed 8.6% to ¥75.4 billion ($632.0 million = ¥119.24 = $1) (see page 12) to account for 54.5% of total company sales. Operating profits edged 0.2% higher to ¥11.8 billion ($98.6 million) to make up 68.6% of the total operating income. The company reported strong domestic demand for MS and testing machines, primarily in the private sector, while public demand for these products declined. Sales of General Analytical Instruments increased 9.6% to ¥43.0 billion ($360.1 million), sales of Surface Analyzers rose 3.4% to ¥7.0 billion ($58.7 million), sales of Environmental Analyzers grew 25.6% to ¥4.6 billion ($38.6 million), Testing and Non-Destructive Inspection Machine sales increased 7.7% to ¥8.2 billion ($68.8 million) and Other revenue improved 3.5% to ¥12.5 billion ($104.8 million).

Internationally, Shimadzu AMI sales of chromatography, MS and photometric analysis instruments were robust. Pharmaceutical applications also posted solid growth in North America and Europe. Sales to North and South America climbed 18.7% to ¥7.5 billion ($62.9 million), including ¥5.7 billion ($47.8 million) in North American sales, which grew 15.7%. Sales to Europe increased 21.3% to ¥8.0 billion ($67.1 million). Sales to Asia-Oceania grew 18.9% to ¥18.9 billion ($158.5 million), including a 9.6% increase in sales to China to ¥8.5 billion ($71.3 million). For fiscal year 2007, Shimadzu forecasts AMI sales to grow approximately 7.1% to ¥160.0 billion ($1,341 million) for growth in US dollars of approximately 9%, assuming current foreign exchange rates. AMI operating income is estimated to increase 4.9%.

Thermo Fisher Scientific’s Analytical Technologies’ (AT) revenue grew 12.1% in the third quarter to $1.04 billion, including 3.1% growth due to favorable currency effects and 1.6% growth from acquisitions. Organic revenue growth was driven by strong demand in the life science, diagnostics and industrial markets. Academic sales were “average” and government sales declined, but environmental sales were strong. Sales of new MS, spectroscopy and environmental monitoring products led growth. Demand for products introduced within the last two years accounted for 23% of AT’s revenue growth in the first nine months of the year. Operating income grew 26.0% to $202.5 million, and operating margin improved 210 basis points to 19.4% of sales on a pro forma basis due to increased sales volume and enhanced productivity, as well as reduced operating expenses. The company raised its total full-year revenue guidance by over 1% to $9.60–$9.65 billion for growth of 8%–9%.

Varian’s Scientific Instruments division (SI) revenues grew 13.3% to $207.3 million in the fiscal fourth quarter to make up 84.4% of total sales, while adjusted operating profits improved 18% to $25.4 million, excluding share-based compensation expenses. The company reported that North American sales grew for the first time this fiscal year, driven by magnetic resonance imaging (MRI) and NMR sales.

For the full year, Varian SI revenues improved 11.0% to $761.5 million to make up 82.7% of total sales. Adjusted operating profits jumped 24.5% to $93.1 million and operating profit margins improved 130 basis points to 12.2% of revenue, excluding share-based compensation expenses. Acquisitions accounted for only 0.3% of revenue growth, while foreign currency transactions had no significant impact on revenues. Growth was primarily attributed to increased sales of analytical instruments, particularly MS, and strong demand from industrial applications, especially from environmental, food and energy markets outside the US. The Life Science segment recorded modest growth led by sales of large MRI systems. Total company sales in Europe, Latin America and Asia Pacific improved 21.7%, 28.1% and 13.4% to 40.9%, 5.0% and 20.2% of revenues, respectively, while US sales fell 4.1% to 33.9% of revenues. For fiscal 2008, adjusted diluted EPS is forecasted to increase 11%–17% to $2.84–$2.98.

Waters’s revenues grew 17.1% to $352.6 million in the third quarter, including 3.0% growth due to favorable currency transactions and 2.0% growth from acquisitions. Sales to government and academic customers improved 21%, while sales to industrial and food safety customers rose 24%. Sales to pharmaceutical customers grew 13%. Sales to the US, Europe and Asia (including Japan) increased 18%, 20% and 13%, respectively. However, weak economic conditions in Japan negatively impacted sales to Asia. Waters Division revenue grew 15% to $315.7 million. Approximately 8% growth of the Division’s Chemistry sales were due to acquisitions. TA Division revenue increased 38.7% to $37.0 million, of which 5% growth was attributed to the acquisition of Thermometric (see IBO 8/31/06). Adjusted operating income improved 5.8% to $71.4 million, but gross margins declined 130 basis points to 56.4% due to high foreign exchange costs on UK-manufactured MS products. The company expects fourth quarter revenue growth of 14%.