Second Quarter 2016 Financial Results

Agilent Offers Cautious Outlook in Europe

Agilent Technologies posted better-than-projected fiscal third quarter organic sales, driven by robust growth in China and continued strength in the food and pharmaceutical markets. Organic sales, which excludes the discontinued NMR business (see IBO 3/31/15), currency and acquisitions, advanced 3% to $1,044 million. Organic growth slowed sequentially due to timing of orders in the forensics business and a strong year-over-year comparison. In addition, demand in the energy markets remained challenged and government spending, especially in Europe, was restrained.

All sales figures below are based on organic growth. Pharmaceutical sales expanded 10%, driven by technology upgrades and new products. Applied markets were mixed, as food sales jumped 11% due to increased regulatory measures in China. Environmental sales were also strong in China and the US but were offset by lumpy orders in the forensics business. As a result, combined environmental and forensic sales were flat. Academia and government revenue contracted 5%, including declines in most geographic regions except China. In spite of higher demand for services and consumables, chemical and energy sales fell 4% due to weak demand for capital equipment.

As expected, Life Sciences and Applied Markets Group (LSAG) sales contracted 2% organically due to timing of orders in the previous year and lower instrument sales. Lower GC sales and constrained research spending primarily hampered sales growth. However, LC sales grew in double digits, driven by product replacements and the introduction of the new 1260 Series.

CrossLab Group (ACG) sales grew 8% organically, led by demand from food, pharmaceutical and environmental markets, especially in Asia. By products, sales were strong for LC columns, lab supplies and contract services.

Diagnostics and Genomics Group (DGG) sales expanded 8% organically, including robust growth in the Pathology business. In the Genomics business, sales were strong for target enrichment, array CGH and SureSelect products, especially in the US and China. Healthy demand for Nucleic Acid Solutions also contributed to growth.

Overall, sales in the Americas declined roughly 1% to account for 35% of revenues due to a strong comparison, and weakness in the chemical energy as well as academic and government markets. European sales, which made up 28% of revenues, were hampered by slower instrument demand. Driven by growth in China, Asia Pacific sales advanced to make up 37% of revenues.

Adjusted operating margin expanded 70 basis points to 20.6% due to stronger volume in DGG. Despite a slight growth shift in end-market contributions, Agilent maintained its fiscal 2016 organic sales growth outlook of 4.5% at the midpoint to $4.14–$4.16 billion. Fiscal fourth quarter organic sales are expected to grow 1.2% at the mid-point, including projected declines of 5% and 4% in the academic and government, and chemical and energy markets, respectively.

Bruker Disappoints

Bruker’s Scientific Instruments (BSI) segment posted disappointing second quarter results as organic sales contracted 8.7% to account for 93% of company sales. Weaker academic spending in Europe and soft industrial demand negatively impacted revenue growth. Industrial markets were down across nearly all industries, including metals, minerals and mining, and even automotive due to reduced capital expenditures following VW’s emissions scandal in Germany. In addition, the company noted lower MALDI Biotyper sales in China and the US. Overall, demand was particularly weak in Europe and Japan, for which sales declined in double digits. System sales declined roughly 14% organically to account for 70% of BSI sales. Aftermarket revenue grew roughly 7% organically.

Bruker BioSpin sales declined due to timing of ultra-high field NMR orders in the previous year. However, this decline was partially offset by higher NMR sales to applied customers as well as favorable pricing. Sales for Bruker CALID and Bruker Nano were particularly weak as a result of delayed academic funding and slower industrial demand. The BioSpin business was further impacted by lower MALDI Biotyper sales. However, the semiconductor metrology tools business reported steady improvement due to the acquisition of Jordan Valley Semiconductors (see IBO 10/15/15) and a strong backlog.

In spite of weak volume, BSI adjusted operating margin improved 27 basis points to 11.1% as a result of previous restructuring measures. The company lowered its 2016 organic revenue growth forecast from a gain of 3% to negative 2%.

Bioproduction Boosts Merck KGaA Outlook

With the acquisition of Sigma-Aldrich (see IBO 9/30/14), second quarter sales for Merck KGaA’s Life Science division (LS) climbed 85.0%, 8.1% organically, to €1.4 billion ($1.6 billion = €0.89 = $1) to make up 38% of revenues. The acquisition added 79.7% to revenue growth, while currency headwinds reduced growth by 2.8%. Sales continued to benefit from Sigma-Aldrich’s extensive web-based platform, which further contributed to strength in emerging markets in the Americas as well as in China.

All sales figures below are organic. Process Solutions sales expanded 13.5%, driven by increased production activity of large molecular across all major geographic regions. Applied Solutions sales advanced 3.9% due to higher sales of biomonitoring products and demand for analytical testing. Sales for the Research Solution business, which grew 3.2%, benefited by strong demand for chemical analytics and molecular biology products from emerging markets.

Driven by strength in the Process Solutions business, sales in Europe and North America climbed 8.0% and 4.8% to make up 34% and 36% of LS revenues, respectively. Following modest growth in the first quarter, Asia-Pacific sales jumped 10.4% to make up 23%. Sales in China were particularly strong due to demand for systems hardware within the Process Solutions business. Excluding currency headwinds of more than 20%, Latin America sales grew 13.3% to make up 5%, driven by demand for instrumental analysis applications from pharmaceutical customers.

Merck LS adjusted operating margin expanded 325 basis points to 25.4% due to the acquisition, product mix and synergies. Given the continued strength in the Process Solutions business, the company raised its 2016 LS sales growth range from mid-single digits to mid- to high single digits.

QIAGEN Reaches Faster Growth Level

QIAGEN recorded its fastest quarterly growth in three years, as second quarter organic sales climbed 5% to $334.4 million. Currency headwinds of 1% were offset by the acquisition of MO BIO Laboratories (see IBO 1/15/16). Excluding US HPV sales, organic sales expanded 7%. The stronger-than-expected performance was driven by demand for sample technologies as well as double-digit consumables sales growth for the QIAsymphony. Overall, consumables and other related revenue grew 5% organically to account for 87% of revenues. Instrument sales advanced 2% organically, led by strong placements of QIAsymphony systems, of which 60% and 40% of systems were delivered to diagnostic and life science customers, respectively. Shipments for these systems are on track to reach the full-year goal of 250 units.

Geographic sales below are on a currency-neutral basis. Emerging markets were again strong, as sales from the top seven emerging markets climbed 20% to account for 16% of sales. Accounting for 46% of revenues, sales in the Americas grew 3%, or 6% excluding HPV revenue, including growth in Mexico and Brazil. Sales in the Europe/Middle East/Africa (EMEA) jumped 13% to make up 34%, led by demand for diagnostics products. Several European regions including Germany, the UK and Switzerland recorded single digit sales growth, while Turkey maintained double-digit sales growth. Asia-Pacific/Japan sales, which accounted for 20% of revenues, expanded 6%, including more than 10% growth in China, as well as healthy contributions from Australia, Singapore, India and South Korea. However, Japanese sales declined in the strong double-digits.

All figures below are organic. Despite a 15% decline in codevelopment project revenue for companion diagnostics, Molecular Diagnostics organic sales grew 3%, or 7% excluding US HPV sales. Growth was driven by strong sales of QIAsymphony systems and consumables sales, and more than 25% sales growth for QIAsymphony TB tests.

Life sciences sales, which grew 7% organically, were driven by higher demand of QIAsymphony systems, especially from pharmaceutical customers. Pharma sales advanced 8% organically, led by double-digit instrument sales. Applied Testing sales climbed 9% organically due to timing of orders from the first quarter, as well as US demand for new human ID and forensics products. Academia sales grew 6% due to higher budget spending in the US, especially for consumables.

Total adjusted gross margin slipped 56 basis points to 70.1%. Adjusted operating margin fell 400 basis points to 20.7% due to increased headcount, R&D investments and geographic expansion. The company maintained its full-year organic sales growth outlook of 5%, including roughly 1.5% headwind from US HPV test sales, which are anticipated to decline to roughly $30 million for the year. Acquisitions, including Exiqon (see IBO 3/31/16), are projected to add 1%–2% to sales growth. Third quarter sales are projected to grow roughly 6%–7% organically.


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