Sequential improvements in quarterly revenue growth provided some good news for major, publicly held analytical and life science instrument and laboratory product companies in the calendar-year third quarter. But despite the trend, revenues were down year over year for seven of the nine companies whose results are presented in the table on page 10. Fourth-quarter forecasts presented few expectations for a change in fortunes, although currency effects are expected to turn positive for US companies.

For nine of the 12 businesses whose results are detailed on pages 9–12 (excluding Mettler-Toledo Lab, Oxford Instruments and Shimadzu Analytical and Measuring Instruments [AMI]), total calendar-year third-quarter revenues declined 5.3%. Bruker Scientific Instruments (SI) and Life Technologies posted the sole positive returns, while Varian Scientific Instruments outdistanced all decliners. Varian closed out its final fiscal year as an independent company, posting a 19.5% decline in sales. In general, currency effects negatively affected sales growth of US companies by two percentage points.

In contrast to last quarter, total operating profits declined at a faster rate than sales for the nine companies, falling 5.8%. Acquisitions and sales growth helped Bruker SI and Life Technologies record operating profit growth, while lower sales led to double-digit percentage drops year over year in operating profits for five companies.

Academia, government and food safety continued to be the strongest end-user markets for most companies. Bruker SI and Waters each reported good growth for these market segments. Industrial markets struggled once again, although Agilent Bio-analytical Measurement (BAM), Oxford Instruments, Thermo Fisher Scientific Analytical Technologies (AT) and Waters noted signs of stabilization. Pharmaceutical and biotech markets were mixed. However, companies noted few disruptions resulting from pharmaceutical merger activity.

Declines in sales of replacement chromatography systems dragged down sales for Agilent BAM, Shimadzu AMI and Waters, but sales of higher-end chromatography systems held up, according to Agilent BAM, Dionex and Waters. MS sales were strong for Bruker SI and Thermo Fisher Scientific AT, while sales of life science research reagents yielded strong results for Life Technologies and Thermo Fisher Scientific AT. Also in the life sciences market, Bio-Rad Laboratories Life Science (LS) and Life Technologies reported strong real time PCR sales. H1N1-related sales again contributed to revenues for Life Technologies and Thermo Fisher Scientific AT.

On a regional basis, China continued to show strong growth for most companies, even in markets that faltered elsewhere, such as petrochemicals, according to Agilent BAM. Europe remained down for most companies, including double-digit declines for Agilent BAM and Dionex. Sales in the Americas, in general, also showed little improvement.

US stimulus funds trickled in to researchers, resulting in sales, according to Bio-Rad LS, Bruker SI and Life Technologies. All companies stated that they expect stimulus funds to have their greatest impact on revenues in calendar-year 2010.

Oxford Instruments and Shimadzu AMI reported fiscal half-year results that highlighted the effect of currency transactions on sales. Currency changes boosted Oxford Instruments’ revenues by £12.3 million ($19.5 million). A sharp increase in the yen depressed sales for Shimadzu AMI, which fell more than 20%.

Company information and results presented on pages 9–11 is based on financial reports, regulatory filings and quarterly conference calls.

Fiscal fourth-quarter revenues for Agilent Technologies’ Bio-analytical Measurement segment (BAM) declined 8.4% to $544 million to represent 47% of company sales. Orders declined 1.0% to $590 million. Sequentially, BAM sales improved 9% and orders jumped 20%. Sales to the Americas and Europe contracted 12% and 11% to account for 36% and 33% of BAM revenues, respectively, while sales to Asia were relatively flat to represent 31% of sales. Sales to Japan grew 2%, while sales to China were unchanged, though fourth-quarter orders to China were up 30%. Adjusted operating profit declined 19.9% to $109 million. Gross profit margins slipped 100 basis points to 55% of sales.

BAM Life Sciences (LS) revenue fell 7% to $256 million due to an 8% drop in pharmaceutical and biotech sales and a 4% decline in academic and government sales, which accounted for roughly 73% and 27% of segment revenue, respectively. Academic and government orders were slightly higher, but pharmaceutical orders were down 3%. GC and LC sales each dropped in double digits. Sales of microarrays were flat, but orders grew in the double digits. On a sequential basis, LS sales grew 4% and orders jumped 29%. Chemical Analysis revenue fell 10% to $288 million, as environmental, petrochemical and forensics revenues were down 10%, 19% and 32% to account for 28%, 32% and 8% of segment revenue, respectively. Consumables and service revenues were stable. Food safety sales jumped 19% to make up 28% of segment sales. Demand for high-end LC/MS systems was relatively strong.

In the third quarter, revenues for Bio-Rad Laboratories’s Life Sciences segment (LS) slipped 4.1%, 0.4% on a currency-neutral basis, to $150.4 million to make up 33% of company sales. Excluding the BSE business, currency-neutral sales rose 2.4% as demand for process media, protein interaction systems and real time PCR instruments and reagents was strong, particularly in Asia. Sales to academic and biopharmaceutical customers in the US and Europe were lower. LS recorded roughly $1 million in stimulus-related spending. Adjusted operating profit grew 3.2% to $9.6 million, while gross margins improved 100 basis points.

Bruker’s revenues jumped 9.5%, 11.4% on a currency-neutral basis, to $265.1 million. Product and Service revenues grew 8.9% and 12.5 % to account for 87% and 12% of sales, respectively, while Other revenue rose 33.3%. Revenue growth was boosted by a weak year-over-year comparison, and by stimulus spending by academia and government, primarily in the US, Germany and Japan. Adjusted operating income soared 72.2% to $26.0 million due to acquisitions and lower operating expenses. Gross profit margin declined 100 basis points to 45.0% of sales due to a change in product mix and competitive pricing in industrial markets.

Bruker Scientific Instruments (BSI) sales climbed 7.6%, 9.3% on a currency-neutral basis, to $251.6 million, driven by demand for magnetic resonance systems, MS, optical emission spectroscopy and X-ray products. BSI operating profit rose 49.4% to $26.9 million. Gross profit margins decreased 180 basis points to 45.6% of sales. In the first nine months, excluding exchange rates, Daltonics revenue was up almost 10%, with Life Science MS sales up in the high teens.

Dionex’s fiscal first-quarter revenues declined 3.0%, down 2.0% on a currency-neutral basis, to $90.7 million due to lower demand from the chemical/petrochemical and electronic/power markets, particularly in Europe. Life science sales improved across all regions, while sales to the environmental and food and beverage markets were flat, despite growth in China. Ion Chromatography sales declined 4%. HPLC sales grew in the mid-single digits. Consumables sales were relatively flat and system sales were slightly lower. Operating profit fell 15.5% to $16.5 million. Gross profit margins dropped 135 basis points to 65.8% of sales. Second-quarter revenues are projected to grow 5% to $107–$110 million, including 5%–6% growth from currency. For the year, the company forecasts revenue to grow 7% to $408–$417 million, including 2%–3% and 3%–4% growth from currency and acquisitions, respectively.

On an adjusted pro-forma basis, third-quarter sales for Life Technologies grew 2.7% to $805.1 million, including a loss of 2% from currency transactions and the divested LIMS business (see IBO 6/30/09). GAAP revenues were $800.7 million. Organic sales to Europe, Asia Pacific and Japan rose 8%, 21% and 7%, respectively, and sales to the Americas improved 1% despite a decline in royalty revenues of $7 million. Excluding royalties, sales to the Americas grew 5%. Adjusted operating profits rose 14.9% to $219.7 million. Adjusted gross profit margins improved 20 basis points to 67.0% of sales. The company achieved $90 million in synergy savings, with $5 million in savings expected in the fourth quarter. Fourth-quarter organic revenues are forecasted to grow in the high single digits, including $5–$10 million from stimulus funding. PCR royalty revenues are anticipated to decline $5–$8 million, with a negative impact on profit margins.

Revenue growth for Molecular Biology Systems was driven by H1NI-related products, qPCR and transfection-related products. H1N1-related sales contributed $14 million to company sales. In Genetic Systems, sales to applied markets grew in double digits, and Capillary Electrophoresis Research sales grew in the low single digits, benefiting from sales in Asia Pacific. Cell Systems recorded double-digit revenue growth for the Dynal beads and stem cell businesses, offset by lower sales of bioproduction-related products. The joint-venture MS business, which contributed $5.6 million to operating income, grew 2%, 3% on a currency-neutral basis, to $111 million due to demand from applied markets.

Sales of Mettler-Toledo’s Laboratory products fell 8% to account for 45% of revenues, or $196 million. Demand for analytical instruments, laboratory balances and process analytic products declined in Europe and the Americas. Pipette sales increased and automated chemistry sales declined, while service and consumables revenues improved 6.5%.

In the first half of its fiscal year, Oxford Instruments’ sales were unchanged at £92.8 million ($147.3 million = £0.63 = $1), but included 13.3% growth from currency transactions. Adjusted operating income climbed 17.1% to £4.1 million ($6.5 million). Gross margins improved 97 basis points to 42.1% of sales. Orders increased 37.3% to £133.9 million ($212.5 million) due to a £40 million ($63 million) order for superconducting wire. Demand from industrial markets was weak, but showed improvement in the second quarter. Sales of scientific research–related products were robust. Revenue for the Nanotechnology Tools business rose 9.0% to £43.5 million ($69.0 million), but operating profit slipped 4.5% to £2.1 million ($3.3 million) due to product mix. Sales for the Industrial Products segment fell 14.2% to £30.9 million ($49.0 million), and operating income declined 36.4% to £0.7 million ($1.1 million). Service revenue grew 7.5% to £18.7 million ($29.7 million) due to North American MRI service, and operating profit rose 12.5% to £2.7 million ($4.3 million).

PerkinElmer’s third-quarter sales declined 8.7% to $437.1 million, including a 2% decline from currency transactions and 1% growth from acquisitions. Adjusted operating income fell 15.0% to $54.6 million. Gross profit margins were unchanged at 42.9% of sales. Organic sales in the Americas declined in the mid-single digits. European sales declined in the low double digits. Asian sales fell in the low single digits with softness in Japan, despite double-digit growth in China. Fourth-quarter organic revenues are expected to decline in the mid-to-high single digits. Full-year organic revenues are expected to decline in the mid-single digits. Human Health sales fell 8.4%, 6% on a currency-neutral basis, to $180.2 million. Within Human Health, Diagnostics sales declined 4.3%, including a drop of over 30% for Medical Imaging. Genetic Screening revenue grew in the high single digits. Research revenue fell 4.1%. Adjusted operating profits for Human Health slipped 4.6% to $34.2 million. Environmental Health revenue declined 8.9%, 7% on a currency-neutral basis, to $256.9 million, including 1% growth from acquisitions. Lab Service revenue grew in the mid-single digits organically due to One Source. Environmental sales declined in the low double digits. Safety and Security sales fell in the high single digits organically, while Industrial sales were down over 20%. Adjusted operating profits for Environmental Health fell 23.7% to $28.3 million.

Second-quarter revenues for Shimadzu’s Analytical and Measuring Instruments segment (AMI) declined 18.8% to ¥34.0 billion ($363.0 million) to account for 56% of company sales. Operating income slumped 46.4% to ¥3.9 billion ($41.7 million). For the first half of the fiscal year, sales fell 21.4% to ¥58.0 billion ($607.4 million) to make up 55% of revenues. Sales were severely hampered by a decline in private-sector capital spending and R&D investment. In the General Analytical Instruments segment, chromatography sales declined 14.9% to make up 46% of AMI sales. However, chromatography sales to China jumped 22%. MS sales were positive, while spectrometer sales declined modestly and HPLC sales were lower, despite steady demand from the pharmaceutical market. In contrast, GC sales were sharply lower due to weak demand from industrial markets. For the first half of the fiscal year, sales to Japan and Asia-Oceania declined 21.1% and 17.6% to account for 52% and 28% of sales, respectively, while sales to the Americas and Europe fell 18.2% and 33.5%, respectively, to each represent 10% of sales. Sales to China and North America fell 5.6% and 19.4% to account for 16% and 7% of segment sales. Operating income fell 51.1% to ¥5.4 billion ($56.5 million). Fiscal 2010 sales for the segment are expected to decline 9.1% to ¥138.5 billion ($1,475 million), with a 26.8% decline in operating income to ¥15.5 billion ($16.6 million).

Quarterly revenues for Thermo Fisher Scientific Analytical Technologies (AT) fell 6.2%, 4.3% on a currency-neutral basis, to $1,018.6 million to account for 40% of company sales. Lower demand for environmental and process control instruments from industrial markets was partially offset by higher sales of specialty diagnostics and bioscience products, as well as increased pricing. In bioscience, sales were strong for bioprocess container systems and bioreagents for life science research. MS sales also remained strong. Adjusted operating income fell 11.4% to $202.7 million, and operating income margin slipped 117 basis points to 19.9% of sales. The company increased the midpoint of its full-year revenue guidance by 0.5% and narrowed the revenue range to $9.95–$10.05 billion for an expected 4%–5% decline, including 2% positive currency effects and 1.5% growth from acquisitions net of divestitures.

Fiscal fourth-quarter sales for Varian’s Scientific Instruments division (SI) fell 30.4% to $164.7 million to account for 84% of company revenues. Sales were down due to lower demand for analytical instruments and disruptions relating to the pending acquisition by Agilent (see IBO 7/31/09). Adjusted operating profit plunged 55.7% to $13.3 million. Adjusted operating margins fell 460 basis points to 8.1% of sales. Fiscal full-year SI sales declined 19.5% to $675.3 million to make up 84% of sales. Fiscal full-year adjusted operating income dropped 26.0% to $72.3 million, and adjusted operating margins declined 150 basis points to 20.5% of SI sales.

Waters’s third-quarter revenues slipped 3.2%, 2.2% on a currency-neutral basis, to $374.0 million. Acquisitions contributed 2% growth. Three extra business days also benefited revenue growth. Products sales declined 6.5% to account for 69% of sales as instrument sales declined 10%. Service revenue rose 5.4% to make up 31%. Waters Division revenue declined 1.4% to $339.1 million. TA revenue dropped 17.5% to $34.8 million, including 2% growth from the VTI acquisition (see IBO 7/31/08). Pharmaceutical and industrial sales declined 2% and 8%, respectively. Government and academic sales improved 4%. Sales to the US, Europe and rest of the world declined 3%, 7% and 12%, respectively, while sales to Asia (including Japan) grew 4%. Sales to Japan declined 8%. Excluding currency effects, sales to Europe and Asia declined 2% and 1%, respectively. Adjusted operating income declined 1.5% to $98.8 million. Gross margins were relatively unchanged at 59.0% of sales. On a currency-neutral basis, fourth-quarter sales are expected to be flat, with growth from acquisitions offsetting the impact of four fewer business days. Waters expects a 4% benefit from currency.

Bruker Scientific Instruments FY09 Q3

% Rev. Growth % Segment Rev.

System 11.7% 79%

Aftermarket -5.1% 21%

Chart: Q3 CY09 Revenue Growth ($US)

Varian (SI) -30.4%

PerkinElmer -8.7%

Agilent Technologies (BAM) -8.4%

Thermo Fisher Scientific (AT) -6.2%

Bio-Rad (LS) -4.1%

Waters -3.2%

Dionex -3.0%

Life Technologies 2.7%

Bruker (BSI) 7.6%

Dionex FY10 Q1

% Rev. Growth % Cur. Neu. % Co. Rev.

North America -0.4% 0.5% 28%

Europe -12.3% -6.7% 39%

Asia/Pacific 7.9% 5.8% 33%

Life Technologies FY09 Q3

Rev. ($M) % Growth % Org. Growth

Molecular Bio. Sys. $393.9 5% 8%

Genetic Systems $216.4 5% 7%

Cell Systems $189.2 -3% 0%

Mass Spec. $111.0 2% 3%

Shimadzu Analytical and Measuring Instr. FY10 H1

Sales (¥B) % Growth

Gen. Analytical Instr. 36.4 -15.2%

Surface Analyzers 3.9 -30.9%

Env. Analyzers 3.7 -26.0%

Test. and Non-Destr. Inspec. Machin. 5.4 -37.2%

Other 8.7 -26.0%

Chart: Q3 CY09 Adj. Operating Profit Growth ($US)

Varian (SI) -55.7%

Agilent Technologies (BAM) -19.9%

Dionex -15.5%

PerkinElmer -15.0%

Thermo Fisher Scientific (AT) -11.4%

Waters -1.5%

Bio-Rad (LS) 3.2%

Life Technologies 14.9%

Bruker (BSI) 49.4%

Waters FY09 Q3

% Rev. Growth % Segment Rev.

Waters Div.

Instrument Systems -7% 51%

Chemistry Consum. 5% 18%

Service 5% 31%

TA

Instrument Systems -24% 72%

Service 6% 28%