Company Quarterly Results

Bad Timing for Agilent

Agilent Technologies fiscal second quarter sales ending April 30 contracted 2.5% to $963 million due to stronger-than-expected currency headwinds and divested product lines. In addition, timing of orders and shipping delays from the new Americas logistics center negatively impacted revenue growth by $30 million, or 3.0% of revenue growth. In spite of these challenges, organic sales improved 4.5%, or 5.0% excluding the divested NMR and x-ray diffraction businesses (see IBO 3/31/15 and 10/15/14). The XRD business was just under $15 million in annual sales, while NMR revenue, which amounted to roughly $80 million last year, is expected to amount to $65 million in fiscal 2015. All geographic figures be-low are organic. Sales in the Americas and Europe grew 10.0% and 3.6% to account for 36% and 31% of revenues, respectively. Asia Pacific sales were flat, as a 15.7% decline in Japan was offset by growth of 5.2% in Other Asia Pacific to ac-count for 6% and 27% of revenues, respectively. Given the shipping challenges, sales in China declined in the low to mid-single digits. However, orders in China expanded in the high single digits, led by demand from pharmaceutical and bio-pharmaceutical markets. Japanese orders also improved in the single digits. Total adjusted operating profit grew 5.8% to $176 million. As a percentage of sales, operating margin rose 144 basis points to 18.3% due to restructuring efforts. The company delivered roughly half of its expected gross savings of $50 million for fiscal 2015 (FY15) and projected operating margin of 22% by FY17.

Combined sales for the Life Sciences and Applied Markets (LSA) and Agilent Crosslab (AC) segments grew 3.3% organically to account for 82% of Agilent revenues. Demand was driven by aftermarket sales and roughly 12% organic sales growth from pharmaceutical and biotechnology markets. The company also highlighted a broad-based recovery in the pharmaceutical market this quarter, including mid- to large-sized companies. Despite positive demand in China, food and environmental organic sales were only slightly higher. Organic academic and government sales contracted 2%, primarily due to delayed spending in Japan. Organic chemical and energy sales fell at a similar rate due to weak demand in the energy market. By product, sales were strong for LC, including the new 1290 Infinity II system. Demand for microfluidics, MS, ICP-OES and software also contributed to revenue growth. Orders were strong for services, and for LC and LC/MS, which each grew in double digits. Adjusted operating profit for LSA improved 5.6% to $75 million but declined 1.4% to $69 million in AC.

Research Recovery Helps Bio-Rad

Sales for Bio-Rad Laboratories’ Life Science (LS) segment contracted 3.4% to $155.9 million to account for 34% of revenues. Excluding currency, LS sales grew 4.0%, driven by strong demand for digital-PCR products and higher sales of process chromatography media and cell-biology products. Geographically, LS sales were strongest in North America. Excluding currency, sales in Europe and emerging markets grew, while Asia-Pacific declined. Operating margin for the LS segment expanded 390 basis points as a result of product mix, improved manufacturing efficiencies and discontinued noncore product lines. LS operating expenses were reduced due to lower patent fees and a smaller R&D headcount. The company maintained its total 2015 currency-neutral revenue growth outlook of 3%.

Currency Lifts Merck KGaA

First quarter sales for Merck KGaA’s Life Science division jumped 12.4%, 3.4% organically to €738.0 million ($29.2 million = €0.89 = $1) to make up 24% of company revenues. Currency contributed 9.8% to revenue growth, while the divested Discovery and Development Solutions business (see IBO 1/15/14) lowered sales by 0.8%. All sales figures below are organic. Process Solutions (PS) sales grew 5.4% to make up 46% of Life Science revenue, driven by demand from biopharmaceutical customers for single-use systems and purification consumables. Lab Solutions (LS) sales grew 2.2% to make up 39% of sales due to demand for lab-water consumables and biomonitoring products. Bioscience sales improved 0.5% to make up 15% of sales, as demand for protein detection products was offset by lower sales of antibodies.

Merck Life Science sales in Europe fell 2.4% due to weak demand across all businesses and countries, and a strong year-over-year comparison. Despite challenges in the Bioscience business, North American sales jumped 12.7%. Latin American sales were also strong, gaining 7.3% due to demand for lab water, advanced analytics and biomonitoring products. Asia-Pacific sales grew 2.1%, as strong growth in China and South Korea was partially offset by weakness in Japan. In the Middle East and Africa region, sales grew 3.3%. Given the significant manufacturing and research operations for the Life Science division in the US, costs of sales were hurt by currency. As a result, gross margin declined 142 basis points to 56.6%. Conversely, adjusted operating profit, which grew 9.9% to €156.2 million ($175.5 million), benefited from currency and higher sales volume. For 2015, the company projected moderate organic sales growth for the Life Science division.

Shimadzu Gains Overseas

Shimadzu FY14 sales for the Analytical and Measuring Instrument (AMI) division ending March 31 grew 5.7% to ¥192.6 billion ($1.75 billion = ¥109.96 = $1) to represent 61% of total revenues. However, excluding currency contributions, AMI sales grew in the low single digits, driven by chromatography sales, which climbed 11.1% to account for 51% of revenues. Japanese sales fell 2.9% to account for 44% of segment revenues as demand from universities and other institutions that rely on government subsidies waned. However, regional sales for MS improved due to demand from government agencies and pharmaceutical companies. Sales of nondestructive-inspection machines were also higher in Japan. North American sales climbed 20.8% to make up 11% of AMI sales. While roughly half of the growth in the US was attributed to currency, demand was strong for MS products from food and clinical trials customers and for LC from healthcare markets. European sales advanced 18.1%, or in the mid- to high single digits excluding currency, to make up 11% of sales. Organic growth in Europe was led by demand for MS products from a broad range of industries, including food and environmental markets. In China, in which sales grew 10.6% to account for 20% of sales, demand was strong for LC and GC from pharmaceutical and other customers. Sales to Other Asia expanded 12.6% to represent 9% of sales. LC sales to pharmaceutical manufacturers were robust in India. Sales to all other regions grew in the low double digits to make up 4% of revenues.

Shimadzu AMI operating income climbed 15.3% to ¥26.8 billion ($243.7 million). FY15 AMI revenue is estimated to grow 4.6% to ¥201.5 billion ($1.75 billion = ¥115.00 = $1). Operating income is expected to rise 9.0% to ¥29.2 billion ($254 mil-lion).

Waters Reports Robust Q1 Growth

First quarter organic sales for Waters climbed 15%, with balanced growth across all major product lines, and similar growth for instrument systems and recurring revenues. Growth benefited from strong demand from pharmaceutical life science customers and for new products, on both the LC and MS sides, and quality control. Emerging markets were also better than expected, as demand from generics customers and CROs expanded, and sales of food safety and environmental testing to the Chinese government increased. In addition, the company benefited from initiatives in the health care market as well as extra selling days, which added roughly 4% to sales growth. By end-market, pharmaceutical life science sales grew in the high teens excluding currency with broad based customer and geographic demand. Government and academic sales grew roughly 4% excluding currency, as strength in the US and Europe was partially offset by weakness in Japan and slower public spending in China. Combined sales to industrial chemical, nutritional safety and environmental customers grew roughly 11% excluding currency.

Within the Waters Division, sales in the US and Europe grew 20% and 13%, respectively, driven by life science markets and healthy spending from government and academic customers. Sales in China grew 16% due to demand from private sector labs. Japanese sales were flat, as lower government spending offset demand from life science and chemical industry markets. India recorded strong double-digit growth, led by demand for instruments, software and services from generic drug customers. Other Asia regions grew in the mid-teens. Rest of world sales grew 12%. TA Division sales grew 14% with strength across most regions except Europe, which had a strong comparison. Segment sales were driven by demand for thermal analysis instruments and robust growth in China.

Margins for Waters also improved, climbing 250 basis points to 58.9% of sales due to product mix and sales volume, as well as improved manufacturing costs. Despite continued R&D investments, adjusted operating income grew 24.1% to $123.7 million. On its conference call, the company stated that it expects its partnership with PerkinElmer (see IBO 3/15/15) to contribute roughly $20 million in 2015. Waters maintained its currency-neutral sales growth outlook in the mid-single digits. Second quarter sales are expected to be flat, or grow roughly 7% excluding currency.

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