Illumina Delivers in China

Despite continued weakness in Europe, Illumina’s second quarter sales advanced 11.3% to $600.1 million. Results were slightly above company expectations and notably stronger than the first quarter, led by demand for sequencing and microarray consumables, as well as higher genotyping services revenue and improved order execution. Sales for the NIPT business were particularly strong in China, as customers continued to move to in-house sampling. Funding for the precision medicine project in China boosted oncology sales, which grew more than 45% overall. Total sales in Asia-Pacific climbed 29%, including 70% growth in China and modestly higher sales in Japan. Sales in the Americas expanded 13%, while European sales declined 4%.

Total sequencing sales advanced 8% to account for roughly 83% of sales. Growth was impeded by a tough comparison, which included the releases of the HiSeq 3000 and 4000 systems in 2015. As a result, sequencing instrument sales fell 21%. However, HiSeq X orders were above company expectations, driven by new customers in China. The company also projected increased shipments to US customers in the fourth quarter on account of budget flushes. Benchtop sales remained strong due to demand for the new MiniSeq, as well as higher NextSeq sales to NIPT customers in the US and China. Sequencing consumables sales climbed 25% to $310 million, led by stronger-than-projected NextSeq utilization.

Microarray sales jumped 30% to roughly $100 million, representing their strongest growth since 2011 due to demand from direct-to-consumer and biobanking markets. Array orders grew more than 60%, including initial orders for the Infinium Global Screening Array and XT products. Total array sales are expected to grow double digits for the year.

Illumina adjusted gross margin expanded 50 basis points to 72.4% due to higher sequencing consumables sales and stronger microarray pricing. However, adjusted operating margin contracted 400 basis points to 27.2% as a result of increased headcount and investments in its genetic startups. The company maintained its 2016 sales growth outlook of 12%, including roughly 14% and 16% revenue growth in the third and fourth quarters, respectively.

Mixed Markets For PerkinElmer

Adjusted second quarter sales for PerkinElmer advanced 1.5% to $538.8 million. However, organic sales, which exclude currency and divestment headwinds of 1% each, grew slightly below company expectations at 3%. The modest shortfall in growth was attributed to softer-than-expected industrial and medical imaging sales, as well as slower academic and government spending in the US. Nevertheless, demand in China, especially for core diagnostics and food testing products, were above company projections. Biopharmaceutical and reproductive health sales each grew double digits. New products contributed 3.0% to revenue growth.

Despite more than a 25% revenue decline in Brazil, sales to emerging markets grew in the mid-teens, including roughly 20% organic growth in China. Overall, organic sales in Asia and Europe grew roughly 12% and 2%, respectively. Sales in the Americas declined in the low single digits due to a strong comparison in academic and government markets.

Human Health (HH) revenue grew 6% organically. Within the Diagnostics business, core diagnostic sales grew in the strong double digits organically, including more than 25% sales growth in China, as well as roughly 51% growth in India, which accounted for only a small portion of sales. Neonatal screening sales further benefited from key wins in Pakistan, Jordan and Poland. Sales for the blood screening business more than doubled, driven by strong demand for reagents. Conversely, sales for the medical imaging business declined in the high single digits due to lower capital expenditures by hospitals in Europe.

Sales for the life science solutions business grew roughly 2% organically. Increased demand from biopharmaceutical markets along with double-digit growth for the OneSource business was partially offset by lower academic and government spending in the US due to a very strong comparison. HH adjusted operating margin slipped 15 basis points to 22.7% as higher pricing was offset by increased R&D investments.

Environmental Health (EH) sales contracted 1% organically due to lower industrial sales, which fell from high single digits to low double digits. Conversely, food quality and safety-related sales grew in the mid-teens, led by demand in China and stronger investments by food companies. Laboratory service revenue was also higher. EH adjusted operating margin expanded 160 basis points to 14.6% due to product mix and previous restructuring initiatives.

PerkinElmer adjusted gross profit margin improved 85 basis points to 47.9% as a result of lean manufacturing initiatives and product mix. Adjusted operating income advanced 49 basis points to 17.5%. The company maintained its 2016 organic growth outlook of 4%, but now includes a weaker industrial projection offset by strength in China. Full-year sales growth estimates in China was raised from the low teens to mid-teens. Third quarter sales are expected to grow 2%–3% organically to $570–$575 million. Excluding extra selling days in the previous year, third quarter organic sales growth should be 4%–5%.

Thermo Fisher Sees Thriving Pharma and China Markets

Second quarter sales for Thermo Fisher Scientific grew 6.2%, 3.6% organically, to $4.5 billion, which was mostly in line with expectations. Acquisitions added 3.0% to revenue growth but were partially offset by currency headwinds of 0.4%. Pricing contributed roughly 0.6% to revenue growth. All sales figures below are organic. In spite of a strong comparison, biopharmaceutical sales grew roughly 8%, led by robust demand for bioproduction products, as well as solid growth within the consumables channel and biosciences businesses. Driven by demand for immunodiagnostics and NGS products, healthcare and diagnostics sales grew roughly 4%. Sales to academic and government, as well as industrial and applied markets each grew in the low single digits. However, applied sales grew roughly 5% due to demand for environmental and food safety products in China.

Geographically, Asia-Pacific sales grew roughly 12%, including mid-teens sales growth in China and low single-digit growth in Japan. Sales in other emerging markets, such as South Korea, India and Southeast Asia, were also robust. North American and European sales each grew in the low single digits. Sales to Rest of World declined approximately 5%.

Life Science Solutions (LSS) sales climbed 6.5% led by bioproduction and NGS sales, which each grew in the teens. Biosciences sales were also healthy, while sales for the genetic analysis business grew in the low single digits excluding Affymetrix (see IBO 3/31/16). Regarding the acquired businesses, eBioscience and flow cytometry sales performed well, while microarrays sales contracted. LSS adjusted operating margin improved 28 basis points to 28.9%.

Analytical Technologies (AT) sales advanced 2.7%. Combined chromatography and MS sales grew 7%, and environmental instrument sales were slightly higher. Conversely, sales of chemical analysis products declined in the mid-single digits due to weak industrial markets. AT adjusted operating margin improved 29 basis points to 18.3% because of productivity gains and favorable currency.

Sales for the Laboratory Products and Services segment grew 5.3%, which slowed from a very strong trailing 12 months but remained above the historical average. Adjusted operating margin for the segment improved 10 basis points to 15.5%.

Thermo Fisher’s adjusted gross margin advanced 58 basis points to 48.6%. Adjusted operating margin expanded 51 basis points to 22.8% as a result of productivity improvements, higher pricing and increased volume. The company slightly lowered its 2016 revenue guidance by roughly $30 million to $17.84–$18.00 million. The modified sales range includes stronger projected organic growth, which was raised from 4.0% to 4.5%, but higher currency headwinds of 1.1%. Acquisitions are projected to add 2% to revenue growth for the year.

Waters’ Recurring Sales Surge

Waters surpassed second quarter sales expectations as revenues climbed 7.8% organically to $536.6 million. Growth was driven by demand from biopharmaceutical markets, new products and strength in Europe and China. All sales figures below exclude currency. Robust demand from smaller and specialty customers boosted pharmaceutical sales, which expanded 12% to account for 58% of revenues. Sales to the company’s largest pharmaceutical customers grew in mid-single digits. Combined revenue to industrial chemical, nutritional safety and environmental markets expanded 7% to make up 31% of sales. Accounting for 11% of revenues, government and academic sales contracted 4% due to weakness in Japan.

Overall, sales in Asia advanced 9%, including double-digit growth in China and 3% growth in Japan. European sales expanded 12%, driven by demand for services and MS products from pharmaceutical customers. North American sales grew 5%, as strength in pharmaceutical markets was partially offset by slower government and academic spending.

Sales for the Waters segment grew 8% organically, led by increased activity for small molecule QA/QC, large molecule R&D and food testing applications. Consumables revenue was particularly strong, especially for ACQUITY UPLC and protein separation columns, as well as Oasis PRiME sample preparation cartridges. Instrument sales benefited from continued uptake of the new ACQUITY Arc. Excluding currency, Waters’ sales in Europe and China jumped roughly 10% and 20%, respectively.

TA sales climbed 10%, or roughly 8% excluding acquisitions. Growth was driven by demand for the new Discovery analyzers and thermal products. Geographically, TA sales were particular strong in the US, Europe and Japan.

Adjusted gross margin for Waters improved 111 basis points to 58.9% of sales. Benefiting from currency, especially the decline in the British pound, adjusted operating margin expanded 182 basis points to 29.1%. The company raised its 2016 currency-neutral sales growth outlook from the mid-single digits to 6%-7%. Currency is expected to be roughly neutral to revenue growth. Third quarter sales are projected to grow 6% excluding currency.