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Instrument companies rebound in third quarter.

The third quarter 2006 Laboratory Instrument Sales Index features results for 22 of 24 companies in the Index, with estimated sales and operating profit included for Oxford Instruments and Analytik Jena. There was one change to the Index this quarter: Biacore has been removed due to its acquisition by GE Healthcare (see IBO 6/30/06). Third quarter revenues climbed an impressive 10.3% to $3,820 million. Operating profit growth rebounded from a slow second quarter, improving 9.7% to $577 million. Index operating margin slipped 10 basis points to 15.1% of sales in the third quarter.

For the second straight month, the Laboratory Instrument Sales Index growth benefited from a strong quarter from two of the larger companies in the Index, Applied Biosystems and Agilent Bio-Analytical Measurement (see page 12), which experienced mid double-digit and high single-digit sales growth, respectively. Also, both companies posted operating profit growth just below 30% to carry the Index.

Bio-Rad Laboratories' Life Science segment experienced third quarter revenue growth of 4.0%, or 2% excluding currency effects, to $137.4 million, but operating profit dropped 20.3% to $6.3 million (see page 12). Life Science segment sales increased due to improved protein expression, analysis and purification product sales, with particular growth in emerging markets. However, the segment's BSE product line continued to decline. Operating profit continued to suffer from lower gross margins created by lower average selling prices of BSE products.

Third quarter sales for Harvard Bioscience improved 10.3% to $18.9 million, while adjusted operating income dropped 18.1% to $2.3 million (see page 12). Excluding stock-based compensation expenses attributed to SFAS 123R, operating profit would have remained virtually flat at $2.8 million. Sales growth included 3.7% organic growth, 3.6% from the acquisition of Anthos (see IBO 6/30/06) and 3.0% from beneficial currency effects. Organic growth was derived across various product lines, primarily from increased demand for core physiology and cell biology instruments, new spectrophotometer products and international markets. The company remains unable to find a buyer for its Capital Equipment business, which experienced a 19.4% drop in third quarter revenue to $3.8 million. Harvard Bioscience hopes to sell the division during the fourth quarter of 2006 or the first quarter next year.

In the third quarter, Illumina reported another significant jump in quarterly sales, which climbed 174% to $53.5 million, 29% higher than the second quarter. The company shipped 30 BeadArrays this quarter, bringing the total installed base to 211. Illumina also turned in its fourth straight profitable quarter with adjusted operating profit totaling $15.3 million compared to a loss of $1.5 million in the prior year. Excluding stock-based compensation expenses, operating profit would have reached $19.0 million. Operating profit benefited from the jump in sales as well as from a 320 basis-point increase in gross margin to 69.4 % of sales. Product revenue jumped 188% to account for 88% of total sales, while Service and other revenue doubled to make up 12%. Product revenue growth benefited largely from increased consumables sales, which accounted for approximately 71% of product revenue due to the company's increased installed base as well as from the launch and shipment of new whole-genome genotyping products. The company forecasts fourth quarter sales of $54-$58 million, representing growth of at least 135%, and raised year-end revenue guidance to $178-$182 million for estimated growth of more than 142%.

Invitrogen's third quarter sales gained 7.4% to $311.0 million, with organic growth of just 3% due to problems with Integrating recently acquired businesses. Adjusted operating income tumbled 14.8% to $58.3 million, primarily due to $10 million in stock-based compensation expenses. Excluding those additional costs, operating profit would have remained almost flat at $68.3 million. BioDiscovery sales gained 10.6% to $201.2 million, while Cell Culture (formerly BioProduction) revenue inched up 2.1% to $109.9 million. BioDiscovery operating profit dropped 8.8% to $40.8 million, while Cell Culture operating profit gained 15.8% to $27.5 million. The BioDsicovery segment experienced organic growth of 2%, derived from strong sales of cellular and protein analysis products, offset by continued weakness in Japan. But the segment grew in double digits In the rest of Asia-Pacific and had strong sales in Europe as well. Cell Culture's organic growth of 4% was attributable to strong growth in research and production media, which was partially offset by a decline in sales of sera-related products. After another difficult quarter for Invitrogen, the company lowered its full-year revenue growth forecast to just 4%, with forecasts of flat sales during the fourth quarter of approximately $310 million.

Luminex reported third quarter sales of $12.5 million, an increase of 16.3% over the same period a year ago, and cut its operating loss in half to a minimal $0.4 million. Excluding stock-based compensation, the company would have turned a profit of nearly $1 million. Operating profit benefited largely from an 11-point increase in gross margin to 62% of sales due to increasing consumables sales. Revenues consisted of $4.9 million from the sale of 164 Luminex systems, $3.5 million from consumables and $4.1 million from royalties and "other." System sales improved 6.5%, and royalties and "other" revenue jumped 52%, but consumables revenue was in effect flat. Two customers accounted for 28% of quarterly revenues and two partners purchased 66% of systems sales. Growth was primarily attributable to higher selling prices due to the launch of the new LX200 System.

QIAGEN NV announced a 19.5% increase, or 10% organic growth, in third quarter revenues to $117.9 million and a 10.5% gain in adjusted operating profit to $27.7 million (see page 12). Sales from acquisitions added 7% to overall growth and beneficial currency effects added another 3%. Consumables revenue grew 20% to account for 89% of total sales, instruments sales gained 15% to represent 10% and other revenue improved 15% to make up just 1%. Organically, sales of consumables improved 11% and instruments gained 7%, with particular strength in sales in the applied testing, molecular diagnostics and pharmaceutical markets. North American sales accounted for 46% of total sales and grew 13%, while European sales represented 42% and improved 19%. Asian sales jumped 63% to make up 12% of total sales due to significant growth in China. Academia, pharmaceutical and biotech, applied testing, and diagnostics accounted for 40%, 25%, 10% and 25% of revenues, respectively.
Laboratory Instrument Index, Total

 2002 2003 2004 2005 2006

Total Annual Revenues ($M) 11747 12495 13,490 14210 --
3rd Quarter Revenues ($M) 2905 3050 3236 3462 3820
Annual Oper. Profits ($M) 1479 1762 2058 2239 --
Annual Oper. Profits (%) 12.6 14.1 15.3 15.8 --
3rd Quarter Oper. Profits ($M) 343 432 486 526 577
3rd Quarter Oper. Profits (%) 11.8 14.1 15.0 15.2 15.1

 % Change

 02/03 03/04 04/05 05/06

Total Annual Revenues ($M) 6.4 8.0 5.3 --
3rd Quarter Revenues ($M) 5.0 6.1 7.0 10.3
Annual Oper. Profits ($M) 19.1 16.8 8.8 --
Annual Oper. Profits (%) -- -- -- --
3rd Quarter Oper. Profits ($M) 25.6 12.6 8.2 9.7
3rd Quarter Oper. Profits (%) -- -- -- --

IBO Laboratory Instrument Sales Index companies: Affymetrix, Agilent
Technologies (Bio-Analytical Measurement), Analytik Jena AG, Applied
Biosystems, Bio-Rad Laboratories (Life Science), Bruker BioSciences,
Ciphergen Biosystems, Dionex, Harvard Bioscience, Hodba (Analytical
Instruments), Illumina, Invitrogen, Luminex, Molecular Devices, O.I.
Corp., Oxford Instruments (Analytical), PerkinElmer (Life and
Analytical Sciences), QIAGEN NV, Shimadzu (Analytical and Measuring
Instruments), Strategic Diagnostics, Tecan, Thermo Electron (Life and
Laboratory Sciences), Varian (Scientific Instruments) and Waters.
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Publication:Instrument Business Outlook
Date:Nov 15, 2006
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