Agilent Lowers Outlook

Given currency and the discontinued NMR business (see IBO 3/31/15), which reduced sales growth by 7% and 1%, respectively, Agilent Technologies fiscal third quarter sales ending July 31 grew 0.5% to $1,014 million (see page 12). Despite the modest growth, sales were above analysts’ expectations. Core sales, which exclude the NMR business, currency and acquisitions, advanced 9%. Delayed shipments from the Americas logistics center in the previous quarter contributed roughly 1.5% to sales growth. All sales figures below are based on core growth. Overall, sales were driven by strength in the pharmaceutical and biotechnology, and environmental and forensics markets, which grew roughly 15% each. Food sales advanced 7%, including strong demand in China. Academic and government sales expanded 5%, and chemical and energy sales were flat for the third quarter in a row. Growth in downstream chemical and refining process was slower than projected. Geographically, China grew in the low double digits, driven by demand from pharmaceutical, life science research, diagnostics, food and environmental markets, as well as the delayed shipments. Overall, Asia Pacific sales grew 8.8% to account for 34% of revenues, including 3.8% growth in Japan. Sales in the US and Europe expanded 7.6% and 10.8% to make up 36% and 30%, respectively.

Combined sales for the Life Sciences and Applied Markets Group (LSAG) and Agilent Crosslab Group (ACG) grew 7% organically to account for 84% of revenues. Demand was strong from pharmaceutical markets, especially for new products. Sales and orders for the Infinity II LC grew in double digits.

Agilent orders grew 3% organically. This growth was subdued by a slow start to the quarter, delayed government orders, and weakness in oil and chemical markets. The delayed government orders mostly impacted LC/MS products in the US, which were also challenged by a strong year-over-year comparison. Order growth in China was strong and was positive for Europe. Operating margin improved 85 basis points to 50.6% of sales, and adjusted operating profit grew 6.6% to $203 million. The company delivered $35 million of the projected $50 million gross savings for fiscal 2015 from its new restructuring and efficiency program. Given the underperformance from the chemical and energy markets and stronger-than-projected currency headwinds, the company lowered its fiscal full-year revenue outlook by $37 million to $4.03–$4.05 billion. Agilent remains focused on reaching a 22% operating margin, an increase of 300 basis points over fiscal 2014. Core fiscal fourth quarter revenues are expected to grow 6%–7% to $1.03–$1.05 billion.

Bio-Rad Reports Strong Quarter

Sales for Bio-Rad Laboratories Life Science (LS) grew 0.2%, 8.6% organically, to $170.6 million to account for 34% of revenues. Organic LS sales were driven by strong demand for real-time and digital PCR products, as well as cell biology products. Higher sales of western blotting systems and reagents also contributed. LS sales were strong in the US, Europe and China but declined in Russia and Japan. LS gross margins fell roughly 200 basis points due to product mix, lower pricing and higher royalty expenses. On a reported basis, LS operating loss narrowed 19.4% to $5.8 million as a result of currency, lower R&D headcount and reduced external product development costs.

Currency and Pharma Boost Merck KGaA

Second quarter sales for Merck KGaA Life Science climbed 17.3%, 6.2% excluding currency, to €772.8 million ($858.7 million = €0.90 = $1) (see page 12) to make up 24% of revenues. All sales figures below are organic. Process Solutions (PS) sales grew 11.0% to make up 46% of Life Science revenue, driven by demand from biopharmaceutical customers for virus removal and purification products. Lab Solutions (LS) sales rose 4.1% to make up 39% due to demand for lab-water consumables, as well as biomonitoring and OEM diagnostics products. Bioscience sales fell 2.2% to make up 15% as a result of weakness in the Research Content and Reagents business across all geographies.

Life Science sales in Europe and North America grew 3.7% and 9.9%, respectively, with strong growth for PS. US sales were also strong for Life Science but declined for Bioscience. Asia-Pacific sales grew 5.3%, as strong growth in China, Singapore and South Korea was partially offset by weakness in Japan. Latin American sales grew 7.8% organically, led by PS, and advanced analytics and biomonitoring product sales. In the Middle East and Africa region, sales jumped 9.3%. Life Science gross margin expanded 130 basis points to 57.9% due to product mix, increased sales volume, currency and pricing. Adjusted operating profit climbed 22.1% to €170.8 million ($189.8 million). The firm maintained its moderate organic sales growth outlook for 2015 for Life Science.

Shimadzu Rises on Domestic Recovery

Shimadzu Analytical and Measuring Instrument (AMI) fiscal 2016 first quarter sales ending March 31 grew 19.5% to ¥43.2 billion ($355.7 million = ¥121.37 = $1) to represent 60% of revenues. Excluding currency, AMI sales grew about 12%. Japanese sales grew roughly in the double digits, led by a strong private sector recovery, including robust sales of GC, MS, surface analyzers and nondestructive inspection machines to chemical, food, metal and transportation industries. Government demand also contributed. Excluding currency, European sales grew in the double digits due to demand for LC and GC from pharmaceutical and academic customers, and higher MS sales to medical institutions. North American sales benefited from currency, as well as increased demand for LC and MS from health care, contract analysis, food and pharmaceutical markets. Sales in China were mixed but recorded strength for LC, GC and surface analyzers to government, pharmaceutical, contract analysis, petro- and coal-chemical customers. LC sales were strong to pharmaceutical markets in Southeast Asia and India. AMI operating income soared 63.2% to ¥4.7 billion ($38.6 million) but benefited significantly from currency. Shimadzu raised its fiscal 2016 sales and net income outlook by 2% and 5% to ¥336 billion ($2.8 billion) and ¥21 billion ($175 million), for growth of 6.8% and 13.8%, respectively.

Waters Upholds Strong Growth

Waters posted better-than-expected second quarter sales due to demand from pharmaceutical markets, especially for new products, as well as robust sales growth in China and India. Adjusted for 7% currency headwinds and a 0.4% contribution from acquisitions, organic sales rose 10%. Organic orders grew at a similar pace. Pharmaceutical sales were led by strong demand from biotech, generics, specialty pharmaceutical and CRO customers. Sales to large pharmaceutical customers grew in the low single digits. Sales for the health science business grew in the strong double digits to account for less than 10% of revenues. Government and academic sales grew roughly 9% excluding currency, including double-digit growth in China. Combined sales to industrial chemical, nutritional safety and environmental customers grew in the high single digits excluding currency. Overall, US sales grew 7%, while Europe and Japan each grew 5% excluding currency, to account for 32%, 26% and 7% of revenues, respectively. Sales in Asia outside of Japan soared 26% to make up 29%. Sales to Other regions declined in the mid-single digits to account for 7%.

Waters Division instrument sales grew 13% excluding currency, led by demand for new LC and MS systems, and for QC products. Strong demand for ACQUITY and Alliance LC systems were led by pharmaceutical markets in the US, India and China. Service revenue grew 9% with balanced growth across all geographies. Consumables revenue grew 9% as well, driven by sales of ACQUITY UPLC columns. Service and chemistry sales were also spurred by pharmaceutical demand and strong run rates in applications such as QC. All geographic sales figures for the Waters Division exclude currency. US and European sales climbed 10% and 5%, respectively, led by demand from pharmaceutical and industrial chemical customers. Growth was partially offset by slower academic and government shipments in the US, as well as weakness in Eastern Europe. Sales in China grew roughly 25% with solid demand from government, academic and private sector labs. Growth in China also benefited from strong demand from American and Western European companies in the region, as well as a weak year-over-year comparison. Japanese sales grew 5%, led by demand from government and university customers, as well as higher sales to chemical materials markets. Sales in India grew at a strong double-digit rate, driven by demand from generic-pharmaceutical customers. TA Division sales fell 2% organically due to weakness in the industrial chemical markets and a strong comparison.

Margins slipped 30 basis points to 57.8% of sales. Despite increased R&D spending and elevated investments in the diagnostics health sciences initiative, adjusted operating profit grew 6.1% to $134.8 million primarily due to currency benefits. The company raised its 2015 currency-neutral revenue growth outlook from mid-single digits to 7%–8%. Currency is projected to reduce revenue growth by 6% for the year. While Waters anticipates continued strength in China for the second half, a stronger comparison is expected to ease growth to the low double digits. Excluding currency, sales are projected to grow 7% in the third quarter and 3%–4% in fourth quarter as a result of fewer selling days and a stronger comparison.