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Fisher Cautious on Acquisition Opportunities, Remains Optimistic on Strength Across Customer Segments

Following a nearly 8-percent increase in sales for its fourth quarter of 2005, Fisher Scientific officials expect continued sales strength across all of its core scientific research customer segments in 2006.

Fisher has greatly expanded its presence in the molecular biology tools and diagnostics fields over the past couple of years, and it continues to evaluate acquisition opportunities, though company officials said they believed the valuations of available candidates are too high. However, as it considers potential additions, the firm is likely to sell or divest its struggling laboratory workstations business this year.

"We remain convinced that there are significant potential consolidation opportunities both in life science consumables and in some areas of diagnostic consumables," said Paul Meister, Fisher's vice chairman, during the firm's fourth-quarter conference call today. "We believe that we have been successful over the last 15 years or so being disciplined about pricing of acquisitions, [and] recently, we have a touch of caution about the valuations we've seen on these."

He added, "We are constantly in the mode of trading off internal development opportunities versus external acquisition opportunities, and it is tough to call when acquisitions will drop. I'm slightly less optimistic about near-term acquisition activity in light of some of the valuations we've seen."

"We are constantly in the mode of trading off internal development opportunities versus external acquisition opportunities, and it is tough to call when acquisitions will drop. I'm slightly less optimistic about near-term acquisition activity in light of some of the valuations we've seen."

The firm completed and integrated four acquisitions in 2005, with the $49-million purchase of Cellomics in August being a key component of its plans for the molecular biology research market (see BioCommerce Week 8/11/2005).

Fisher's laboratory workstations business is certainly one segment where the company won't expand. After reporting slight revenue gains for the segment in the fourth quarter, Fisher said that market conditions for that particular business remain challenging. "We are evaluating its fit with the overall strategic direction of the company and considering all options, which may well result in a sale of the business," Meister said.

Q4 Sales up 7.8 Percent, Led by Scientific Products

Fisher reported fourth-quarter sales of $1.42 billion, a 7.8-percent increase over fourth-quarter 2004 sales of $1.32 billion. Excluding the impact of foreign exchange, Fisher's fourth-quarter revenue growth would have been 9.3 percent, with organic growth accounting for 7.4 percent of that number.

Meister said during the call that the firm benefited from sales growth across virtually all of its core scientific research customer segments in 2005. The firm's sales to pharma were driven by "core market strength, customer-specific initiatives, and increased demand for our suite of biopharma services," said Meister. "We are cautiously optimistic that this strength in the pharma market will continue throughout 2006. Although, pharma tends to be a mixed bag and is difficult to predict."

Meister noted that the firm had double-digit sales growth to biotech customers, and he sees continued strength in this market in 2006.

Unlike officials at some other tool providers, which are cautious about the outlook for academic spending, Meister expressed optimism for sales to that market this year. "Despite a slowdown in the growth of the NIH and NSF budgets, we believe strength in the academic market will continue as NIH grants are augmented by larger endowments, discrete funding initiatives, and other sources of private capital," he said.

Meister also said spending conditions improved in Europe in the second half of 2005, and he expects the firm's sales growth there to exceed the industry pace in 2006. In Asia, the firm has accelerated growth at a double-digit rate, he said, "and we are aggressively expanding the scope of our operations across the region, particularly in China."

Revenue for the firm's scientific products and services segment grew 9.3 percent year over year to $1.1 billion. Excluding the effect of foreign exchange, revenue for the segment would have been 11.2 percent, with 8.9-percent organic growth.

Fisher said sales for its healthcare products and services group were up 4.5 percent to $324 million year over year, while sales for its laboratory-workstations segment grew 1.4 percent to $50.5 million.

The firm's healthcare product sales have been driven by its expanding presence in the in vitro diagnostics market, Meister said, and he expects sales to that market to continue to grow as the industry moves to a more predictive model.

"The push toward personalized medicine has been driven by developments in molecular diagnostics and life-science research," Meister said. "In 2006, we are optimistic about our initiatives to drive better than market growth through our faster-growing products and new product introductions."

The firm's net income more than doubled to $117.2 million, or $.95 per basic share, compared with $51 million, or $.43 per basic share, for the fourth quarter last year.

For fiscal 2005, Fisher reported sales of $5.6 billion, a 20.6-percent increase over sales of $4.6 billion in 2004. Its net income for the year was $389.1 million, or $3.20 per basic share, a 134-percent increase over profits of $166.4 million, or $1.93 per basic share, in 2004.

For fiscal 2006, Fisher is predicting revenue growth, excluding the impact of currency translation, of 8 percent to 10 percent, with organic growth of 6 percent to 8 percent. The firm expects its earnings per share to be in the range of $.88 to $.90 per diluted share for the first quarter of 2006 and $4.05 to $4.20 per diluted share for full-year 2006.

Fisher's 2006 outlook specifically excludes expected results from the lab workstations segment.

Though Fisher does not break out its R&D spending, it said that it expects to spend more on R&D and sales and marketing initiatives, primarily in the biosciences and healthcare businesses, during the first quarter of 2006.

Fisher finished 2005 with $407.2 million in cash and cash equivalents.

— Edward Winnick ([email protected])

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