First Quarter Shows Mixed Results

IBO has moved up its quarterly financial review of major publicly held instrument and lab product businesses to the mid-month issues in order to provide more time-sensitive reporting. In addition, IBO has reorganized its Sales Indexes to one primary Laboratory Instruments and Products Sale Index, which will be presented in the May 31 issue. These changes were incorporated to reflect a more accurate growth representation of analytical instrument– and laboratory product–related revenues.

Currency and Divestments Hit Bruker

Bruker’s first quarter Scientific Instruments (BSI) sales fell 16.9% to account for 93% of revenues (see page 12) due to divestments (see IBO 8/15/14, 10/15/14) and stronger-than-expected currency headwinds. Excluding these factors, BSI revenue declined 3.0% organically because of delayed deliveries of preclinical-imaging systems and lower NMR sales, which were negatively impacted by weak backlog orders in the previous year. However, orders picked up in the first quarter as the company gained from Agilent’s discontinued NMR business (see IBO 10/15/14). Bruker highlighted demand for the MALDI Biotyper, especially in China, as well as Detection sales, which were heightened by previous export license delays. Demand for x-ray systems within the AXS division was also strong, and the acquired fluorescence microscopy products (see IBO 7/31/14) and BioAFM sales performed well. On an organic basis, Bruker CALID and Bruker Nano sales each grew in the low single digits, while Bruker BioSpin sales contracted. BSI adjusted operating margin climbed 340 basis points to 10.5% of sales.

Total first quarter Bruker sales were stable in the Americas and Europe but weak in the India, Middle East and Africa regions, as well as in certain regions in Asia. The company’s aggressive restructuring activity and further outsourcing drastically improved its adjusted margins and bottom line. Adjusted gross margin expanded 310 basis points to 47.3%. The company maintained its 2015 organic revenue growth forecast of 1%. Restructuring within the Bruker BioSpin magnetic resonance spectroscopy business should be completed in the second quarter.

Illumina Shines on Clinical Demand and New NGS Systems

Illumina first quarter sales jumped 33% organically, marking its third consecutive quarter of more than 30% organic growth. Sales benefited from record consumables revenues, NIPT samples and HiSeq X placements, as well as stronger-than-expected demand from clinical markets. Sales to clinical and translational customers climbed 60% and accounted for nearly half of instrument placements. Clinical sales accounted for close to 35% of total shipments. Sales to all other markets grew in the mid-teens. Excluding HiSeq X sales, research and clinical sales to the oncology market grew 37% to roughly $100 million. Overall, sequencing sales climbed 40%, including instrument and consumables revenue growth of 32% and 39%, respectively. Sequencing services and other revenue were particularly strong, climbing over 65%, led by NIPT services, oncology agreements and increased maintenance contracts.

Sequencing instrument sales benefited from record shipments of HiSeq X systems. The MiSeq HLA installed base increased to 125 units. New-to-sequencing customers represented over 40% of NextSeq sales. Sample preparation sales grew more than 25%. Microarray sales fell 11% due to a large genotyping project completed in the previous year. Excluding this, array sales fell 3%, as higher revenue from genotyping services was offset by lower sales of array instruments. The company announced three new biobanking contracts, which could result in over a million samples.

Illumina shipments in the Americas grew 32%, and European shipments expanded 30% despite currency headwinds. Sales to Asia Pacific grew at a slower rate, rising 10%, hindered by currency and weak demand in Japan. However, sales in China more than doubled due to HiSeq X. Adjusted gross margin improved 190 basis points to 71.7% of sales as a result of new systems and strong consumables growth. The stronger margins and leveraged operating expenses resulted in operating profit growth of 58.4% to $179.8 million. The firm raised its currency neutral–sales growth outlook by 100 basis points to 23% for FY15, but also increased its expected currency headwinds to 3%. As a result, it maintained its reported revenue–growth outlook of 20%. Second quarter sales are projected to fall below the yearly average due to the lower HiSeq X backlog and $20 million sequential headwind from weak Japanese funding.

Diagnostics Lifts PerkinElmer

Despite stronger-than-expected currency headwinds, PerkinElmer first quarter sales grew 3% organically. Each business grew organically across all major geographic regions. Total organic sales grew in mid-single digits in the Americas and low single digits each in Europe and Asia. China grew in the high single digits organically. The OneSource business was transferred from Environmental Health’s (EH) Laboratory Services segment to Human Health’s (HH) Research segment.

HH revenue was led by double-digit organic Diagnostics sales in China. Diagnostics sales grew in the mid-single digits organically. Medical Imaging sales expanded in the mid-single digits organically but primarily because of a weak comparison. Organic Research sales advanced in the low single digits, driven by sales of new products, automation systems, OneSource and informatics. OneSource revenue grew in the mid-teens excluding currency to $35 million. Research sales were partially offset by unexpected softening in Japan, where sales declined in the high single digits. Academic and government markets improved only modestly, while pharmaceutical and biotechnology sales continued to be stable. HH adjusted operating margin expanded 270 basis points due to increased revenues from informatics and reagents, and stronger profitability from OneSource.

EH sales grew 2% organically due to demand for materials characterization products from environmental and industrial markets. Sales for the Perten Instruments (see IBO 11/30/14) business grew in the low double digits. EH revenues were led by demand in the US, while Asia Pacific sales declined in spite of higher sales in China. EH adjusted operating margin declined 270 basis points due to currency, acquisitions and increased R&D expenses.

PerkinElmer adjusted gross profit margin advanced 70 basis points to 47.7% of sales as a result of product mix and supply chain improvements. Adjusted operating income margin advanced 80 basis points to 15.7% of sales as lower SG&A expenses were partially offset by increased R&D spending. While currency is expected to have a slightly greater impact for the year, the company maintained its 2015 organic revenue growth outlook of 3%–5%. This forecast implies a slightly stronger second half of the year due to new products, which are expected to contribute roughly 1.5% to projected 2015 sales of $2.24–$2.29 billion. Full-year market and geographic growth rates are expected to fall in line with the first quarter. Second quarter sales are projected to grow 3%–4% organically to $550–$560 million.

Thermo Fisher Scientific Misses the Mark

Thermo Fisher Scientific fell short of first quarter growth projections as organic sales advanced 1.7%. It experienced weaker-than-expected demand from academic and government markets, which declined 3% as a result of delayed government spending in Japan. This decline affected sales for Analytical Technologies (AT) and Life Sciences Solutions (LSS), which advanced only 0.7% and 0.8% organically, respectively. In spite of soft government sales of high-end MS systems and weak core industrial demand, AT sales benefited from strong chromatography sales. Organic LSS sales, which grew 2% on a pro forma basis, assuming Life Technologies was owned in both periods, benefited from robust BioProduction demand and revenue synergies. This growth helped offset some weakness in the academic, government and applied markets.

For Thermo as whole, industrial and applied markets, as well as diagnostics and healthcare markets each grew in the low single digits. Pharmaceutical and biotech sales improved in the mid-single digits. Emerging markets were strong, including South Korea and India. Sales in China grew in the high single digits with strong demand for lab equipment, consumables and bioscience reagents, as well as good growth for air- and water-quality monitoring products. Asia Pacific sales grew in the mid-single digits, North American sales grew in the low single digits, and European sales declined in the low single digits. Sales in Rest of World grew in the low single digits. European sales were slightly lower than expected and were offset by stronger demand in China.

Despite the slow top line growth, Thermo expanded adjusted gross margin by 110 basis points to 49.3% due to the acquisition of Life Technologies (see IBO 4/15/13), targeted price increases, negotiating with its suppliers and cost controls. Adjusted operating margin expanded 60 basis points to 21.9% of sales due to productivity improvements, continued global sourcing and cost synergies. Adjusting for stronger currency headwinds and recent acquisitions, the company lowered its 2015 revenue outlook from $16.80–$17.00 billion to $16.67–$16.83 billion. The company maintained its organic growth forecast of roughly 4%, citing strong bookings, new products and revenue synergies. Thermo remains confident that it can deliver $60 million in revenue synergies in 2015, and increased expected cost synergies by $10 million to $125 million for the year due to further headcount reductions and sourcing synergies. Thermo also expects academic and government demand to improve throughout 2015, with low-single-digit growth in Japan.

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