Momentum continued in the third quarter for sales growth at nine major analytical instrument and laboratory product companies. Driving sales were the rebound in industrial markets and continued growth in academic and applied markets, as well as weak year-over-year comparisons. However, for some companies, the European market remained lackluster.

For the nine businesses whose quarterly financial results are profiled on pages 9–11, calendar-year third-quarter sales grew 18.2% in aggregate. Six of the nine businesses reported double-digit revenue growth. Five businesses posted double-digit sales growth on an organic basis. Acquisitions boosted revenue growth for Agilent Chemical Analysis (CA) and Life Sciences (LS), Bruker Scientific Instruments (BSI), Dionex and Thermo Fisher Scientific Analytical Technologies (AT).

Operating profits for the nine businesses increased 23.6%, with eight of the nine businesses showing growth in double digits. Sales of new products, lower-cost manufacturing and revenue growth increased operating profits. During their quarterly conference calls, Agilent and Waters both announced the transfer of additional product lines to manufacturing sites in Asia.

Sales grew in industrial markets in Asia and North America, benefiting results for Agilent CA, Thermo Fisher Scientific AT and Waters. Demand in applied markets was led by food applications, as noted by Agilent CA, Dionex, Thermo Fisher Scientific AT and Waters. However, environmental markets were mixed. Academic markets worldwide exhibited strong growth, with Agilent LS, Life Technologies and Waters commenting on the growth. However, government spending was more uneven. Illumina, Life Technologies and Thermo Fisher Scientific AT highlighted revenues related to US stimulus funding. Pharmaceutical spending was mixed, as Agilent LS reported double-digit growth, but PerkinElmer reported restrained capital spending.

Geographically, Asia and North America led growth. Agilent CA and LS and Waters commented on strong US demand. In Asia, Agilent LS and Dionex noted growth in Korea. Europe was more problematic. Agilent LS, Bio-Rad Laboratories Life Science (LS) and Waters all reported weak spots among European end-user markets. Bio-Rad LS and Waters expect weakness to continue. However, BSI, Life Technologies and PerkinElmer expect demand in Europe to remain stable.

Sequencing sales were a stand out this quarter. Illumina and Life Technologies both reported robust growth for next-generation sequencing systems. Microarrays sales at Agilent LS and Illumina indicated strength in the market for newer applications. Driven by new products, HPLC sales grew for Agilent LS, Dionex and Waters. Both Agilent LC and Waters noted signs of an HPLC replacement cycle among drug companies. BSI and Thermo Fisher Scientific AT reported good demand for spectroscopy systems.

Overall, the companies were optimistic about future prospects. However, the calendar-year fourth quarter should provide a greater test, as year-over-year comparisons become more difficult. The information on pages 9–11 is based on company financial reports, regulatory filings and quarterly conference calls.

Combined fiscal fourth-quarter sales for Agilent Technologies Chemical Analysis (CA) and Life Sciences (LS) grew 50.7%, 17% organically, to $820.0 million. The Varian acquisition (see IBO 5/15/10) contributed $192 million in revenue. The company raised its expected cost-saving synergies for the Varian integration by 33% to $100 million annually over the next several years. For fiscal 2011, LS and CA sales are anticipated to grow 12%–14% and 5%–7%, respectively.

For Agilent LS, the Varian acquisition, net of the Hycor divestiture (see IBO 2/15/10), added 18% to revenue growth. Academic and government revenues climbed 31%, sales to the pharmaceutical and biotech industries grew 14%, and sales to the applied markets increased 20%. All LS product lines grew by double digits, led by SureSelect and LC sales. LC product sales, led by the 1290 and 1260 systems, improved 21%. Quarterly sales to the Americas, Asia Pacific and Europe accounted for 41%, 27% and 32% of LS sales, respectively. LS adjusted operating income grew 31.9% to $62 million, but gross margins declined 300 basis points to 51% of sales.

For Agilent CA, Varian contributed 56% to revenue growth. Food and environmental sales were strong, driven by demand for new GC/MS, ICP-MS and GC triple quad MS products. Demand from energy and petrochemical markets also grew. However, state forensic revenues declined in the US. Sales to the Americas accounted for 36% of CA sales, while Europe and Asia Pacific made up 32% each. CA adjusted operating profit climbed 38.7% to $86 million, but gross margins slipped 200 basis points to 53% of sales due to Varian’s lower margins.

Revenues for Bio-Rad Laboratories’ Life Sciences segment (LS) grew 1.9%, 3.5% excluding currency, to make up 32% of company sales. Revenue growth was led by higher demand for gene expression products, real-time PCR systems, the TC10 automated cell counter and precast electrophoresis gel products. Sales to North American and Asia Pacific increased, but were partially offset by lower European sales. LS adjusted operating profit jumped 18.8% to $11.4 million as a result of reduced expenses, improved manufacturing efficiency and a weak year-over-year comparison.

Bruker Scientific Instruments’ (BSI) revenue grew 15.5%, 14.9% organically, to $290.5 million to account for 94% of company sales. The Chemical Analysis division (CAD) (see IBO 3/15/10) contributed 6.8% to revenue growth, and currency lowered sales by 6.3%. Systems and Aftermarket revenue climbed 18.7% and 3.7% to make up 81% and 19% of BSI sales, respectively. Strong demand for magnetic resonance, MS and X-ray systems and higher academic and government revenues were driven by product introductions and stimulus spending in the US, Germany, Japan and China. Orders in Asia continue to grow even though stimulus funding was not renewed. Adjusted operating profit for BSI expanded 50.2% to $40.4 million. The CAD business was not profitable. Adjusted gross profit margins increased 380 basis points to 49.5% of sales due to a shift towards high-end instruments, cost-savings initiatives and favorable currency impact from European manufacturing. For the fourth quarter, the company increased its CAD revenue expectations by 68% to $12–$15 million. The Veeco businesses (see IBO 8/31/10) are expected to contribute $15–$20 million in revenue in the fourth quarter and more than $130 million in 2011. Total company revenues are expected to be flat for the fourth quarter organically and to increase over 12% for the year. In 2011, total revenues are expected to exceed $1.45 billion.

Dionex’s fiscal first-quarter revenues grew 13.5%, 11.3% organically, to $102.9 million. ESA (see IBO 9/30/09) contributed 4.1% to revenue growth. Currency reduced sales by 1.9%. Revenues from Products, Maintenance, and Installation and Training Services improved 9.0%, 55.5%, 4.0% to represent 84%, 13% and 3% of sales, respectively. Ion Chromatography sales grew 8% due to strong demand from life science, and food and beverage markets. HPLC sales jumped 31%, 14% excluding ESA, due to new products. Overall, sales to the life sciences, chemical/petrochemical, and food and beverage markets improved. Sales to the Electronics market were flat, and power-related revenue declined. Environmental revenue was also flat, with demand in Europe declining. North American and European sales grew 22% and 1% to account for 30% and 34% of sales, respectively. Excluding currency, European sales improved 9%. Asian sales jumped 21%, 17% in local currency, to represent 36% of sales. Strong Chinese sales were led by life science and petrochemical revenues, but were partially offset by lower environmental sales. Operating profit grew 10.0% to $18.1 million, and gross profit margins fell 130 basis points to 64.5% of sales due to higher HPLC and ESA product sales, which carry lower gross margins. The company increased its fiscal full-year revenue outlook by 3% to $452–$460 million for organic growth of 7%–9%. For the second quarter, the company anticipates revenues to grow 10% to $119–$122 million.

In the third quarter, Illumina’s revenues jumped 49.9% to $237.3 million due to a more than 50% increase in sequencing revenue. Sequencing orders jumped 70%. Product sales increased 49.5% to account for 95% of company sales, including 52.9% growth in Consumable revenue to $133.0 million. Sequencing and microarray consumable revenues increased roughly 60% and 45%, respectively. Microarray sales were led by a 50% jump in Whole Genome Bead chips revenue due to strong sales of the Omni 2.5. The company also reported strong demand for content and cancer arrays in the human research market, and bovine and porcine arrays in the agriculture market. Instrument sales grew 44.6%, 25.6% sequentially, to $69.9 million due to demand for the HiSeq 2000 and iScan.

Microarray instrument orders nearly doubled. Service and other revenues rose 57.0% to make up 5% of sales. All major geographic regions recorded growth, led by the Americas and Europe. Asian sales were not as strong on a sequential basis. Stimulus spending accounted for $18 million in revenues. During the quarter, the company shipped more than 60 ECHO systems (see IBO 7/31/10). Adjusted operating profit soared 82.3% to $60.5 million. Gross profit margins slipped 140 basis points to 66.2% of sales due to a shift in product mix and increased Genome Analyzer trade-ins. The company did not provide a revised 2010 outlook, but expected higher revenue growth than previously forecasted. In the second quarter, the company projected full-year revenue growth of 28% to $852 million (see IBO 8/31/10).

Second-quarter sales for Life Technologies grew 8.0%, 6.0% organically, to $867.1 million. Acquisitions and currency contributed 1.5% and 0.5% to revenue growth, respectively. Excluding H1N1-related revenues and a one-time Japanese forensic order, organic sales increased 9%. US stimulus funding accounted for $10 million in revenues, which is the same amount expected for the fourth quarter. Organic sales to the Americas and Europe grew 8% and 5%, or 10% and 6% excluding H1N1-related revenue, respectively. Sales to Asia rose 7%, but Japanese sales declined 1%.

Excluding one-time orders, sales to Asia and Japan grew 11% and 13%, respectively. Asian sales were softer due to the implementation of an information technology (IT) system. Adjusted operating profits climbed 14.8% to $252.2 million. Gross profit margins slipped 20 basis points to 66.8% of sales due to product mix. For the fourth quarter, the company projected organic revenue growth in the mid-single digits and 1.5% growth from acquisitions.

Life Technologies’ Molecular Biology Systems sales grew 4% excluding H1N1-related sales, driven by higher demand for genomic assays and the ViiA 7 PCR instrument. Segment sales were partially offset by order delays resulting from the IT project and a slight deceleration in growth in Asia. Revenue for the Genetic Systems division included 1.4% growth from currency. In this division, next-generation sequencing sales grew in the double digits. The Capillary Electrophoresis (CE) business grew 5%, 9% excluding one-time orders, due to demand for the 3500 Genetic Analyzer and high single-digit consumable sales. CE instrument and consumable growth was also supported by use for diagnostic testing in hospital clinics and labs. Cell Systems revenue benefited from double-digit growth in the BioProduction, Dynal beads and stem cell businesses.

PerkinElmer’s third-quarter revenues climbed 11.2% to $419.1 million, including 2% growth from acquisitions and a loss of 0.5% from currency. Adjusted operating income grew 20.9% to $57.5 million, but adjusted gross profit margins slipped 30 basis points to 47% of sales due to product mix, and higher sales and marketing expenses in emerging regions. Organic sales benefited from increased consumer safety regulatory requirements in Asia, as Chinese sales increased 20%. China’s State Food and Drug Administration ordered 200 instruments for 130 labs. Sales in China, India and Brazil totaled $50 million. Sales to the US and Asia grew in the low double digits, while European sales grew in the high single digits. Fourth-quarter revenues are anticipated to grow in the high single digits.

PerkinElmer Human Health sales grew 8.6%, 4.6% organically, to make up 46% of revenues.

Acquisitions contributed 5%, but currency reduced sales by 1%. Diagnostics sales increased roughly 15%, or in the high single digits organically, led by strong demand for medical imaging products. Research sales were flat as higher academic sales for instrument and reagents were offset by lower capital spending by pharmaceutical customers. Adjusted operating profits for the Human Health segment grew 9.3% to $37.6 million. Environmental Health sales grew 13.5%, including a negative 1% from currency, to account for 54% of sales. All market segments and geographic regions grew in double digits. Environmental and Safety sales grew in the low double digits due to strong demand for inorganic analysis products used for metal and water analysis. Demand for quality and safety assurance testing in food and pharmaceuticals was also robust. Industrial revenue increased in the high teens organically, led by increased sales to chemical, petrochemical and semiconductor customers. The Lab Service business grew in the mid-teens organically. Adjusted operating profits for Environmental Health improved 37.2% to $29.6 million due to increased sales volume and restricted spending.

Third-quarter revenue for Thermo Fisher Scientific’s Analytical Technologies (AT) grew 14.2%, 8.1% organically, to $1,163 million to account for 43% of total sales. Acquisitions contributed 7.9% to sales growth and currency negatively impacted sales by 1.8%. Sales were strong for MS, clinical diagnostics, process instruments and bioscience products. A drop in H1N1-related sales negatively impacted the Microbiology business. For the total company, stimulus-related sales were $15 million. AT adjusted operating income grew 23.3% to $249.9 million. Operating income margin improved 160 basis points to 21.5% of sales due to restructuring initiative and global sourcing. The company raised its total full-year revenue guidance less than 1% to $10.72–$10.80 billion for growth of 6%–7%, or 4%-5% organically.

Third-quarter revenues for Waters improved 7.2%, 9.2% on a currency-neutral basis, to $401.0 million. Product sales climbed 9.0% to account for 71% of revenues. Service revenue grew 3.2%. Waters Division sales grew 5.9% to $359.0 million due to demand from industrial chemical customers. Despite growth in the US and Asia, government and university sales were negatively impacted by weakness in Western Europe. Instrument sales were led by double-digit growth for ACQUITY systems. TA Division revenue jumped 20.6% to $42.0 million. Overall, US and Asian (including Japan) sales grew 11% and 23%, respectively. European sales declined 10% and rest of the world sales grew 4%.

Excluding currency, European sales contracted 3%, Asian sales grew 19%, and rest of the world sales improved 3%. Adjusted operating income grew 7.5% to $106.2 million. Gross margins improved 30 basis points to 59.4% of sales. On a currency-neutral basis, fourth-quarter and full-year sales are expected to grow 8%.

Bar Graph: Q3 CY10 Revenue Growth for Nine Companies

Reported 18.2%

Exc. Acq. 10.2%

Organic 11.4%

Bar Graph: Q3 CY10 Revenue Growth ($US)

Bio-Rad (LS) 1.9%

Waters 7.2%

Life Technologies 8.0%

PerkinElmer 11.2%

Dionex 13.5%

Thermo Fisher Scientific (AT) 14.2%

Bruker (BSI) 15.5%

Illumina 49.9%

Agilent (LS & CA) 50.7%

Bar Graph: Q3 CY10 Adj. Operating Profit Growth ($US)

Waters 7.5%

Dionex 10.0%

Life Technologies 14.8%

Bio-Rad (LS) 18.8%

PerkinElmer 20.9%

Thermo Fisher Scientific (AT) 23.3%

Agilent (LS & CA) 35.8%

Bruker (BSI) 50.2%

Illumina 82.3%

Agilent FY10 Q4

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

LS

Sales $431 27% 35% 17%

Orders $469 33%

CA

Sales $389 25% 73% 17%

Orders $401 68%

Bruker Scientific Instruments FY10 Q3

% Rev. Growth % Segment Rev.

Systems 18.7% 81%

Aftermarket 3.7% 19%

Life Technologies FY10 Q3

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

Molecular Biology Sys. $415.4 2.0% -0.1%

Genetic Systems $227.3 11.8% 10.5%

Cell Systems $221.4 15.0% 14.9%

PerkinElmer FY10 Q3

% Total Rev.

Human Health

Diagnostics 28%

Research 18%

Environmental Health

Lab Services 20%

Environmental and Safety 18%

Industrial 8%

Waters FY10 Q3

% Rev. Growth % Segment Rev.

Waters Div.

Instrument Systems 7% 52%

Chemistry Consum. 6% 18%

Service 3% 30%

TA Div.

Instrument Systems 27% 76%

Service 4% 24%