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More Cost-Saving in Store for Bruker As Q1 Organic Revs Jump 6 Percent

Following job cuts and other cost-cutting measures last year, Bruker BioSciences hit its goal for first-quarter revenue and net earnings, and executives at the firm are cautiously optimistic Bruker will grow revenue at a greater clip than competitors in the industry.

The company also reaffirmed its intention to continue cost-saving measures in the near future, but stressed that more job cuts are not likely to be an option. Rather, Bruker will look for ways to "reduce inventories, improve cash flow, improve quality, [and] redesign cost efforts," according to a senior officer.

Last week, the Billerica, Mass.-based firm reported 2005 first-quarter revenue of $74.9 million, a 9.9-percent increase over revenue of $68.2 million in the first quarter of 2004. However, taking into account a favorable foreign currency effect of 2.6 percent, the firm reported a 6.3-percent increase in organic revenue growth.

Although revenue dropped from record quarterly receipts of $85.8 million reported in the fourth quarter of 2004, the sequential dip in the first quarter was not unexpected. The firm had cautioned that the first quarter was traditionally the "lowest quarter of the year" in terms of sales (see BioCommerce Week 3/10/2005).

Revenue for its Bruker Daltonics business grew 10 percent year-over-year to $42.6 million. Of that amount, 70 percent was derived from the sale of mass spectrometry systems, 10 percent from substance-detection systems, and 20 percent from after-market sales, the company said. Sales from the firm's Bruker AXS unit, which makes X-ray analysis equipment, increased 11 percent year-over-year to $32.5 million.

In a conference call following the release of the results last week, Bruker CEO Frank Laukien said, "We didn't detect any significant differences in demand or growth for AXS and Daltonics," adding that products for the two units are at a similar level of growth and demand.

Europe, Asia Good; Pharma 'Promising'

Laukien noted that the Asia-Pacific region continued to show the strongest growth geographically. He said sales in the US and Europe were comparable, though Europe was a slightly stronger market than North America in the first quarter.

Michael Willett, a Bruker spokesman, told BioCommerce Week that the firm currently has 12 sales reps in the Americas — 10 in the US, one in Canada, and one in Latin America. He said the firm has also done some hiring in Eastern Europe, particularly Poland, where it set up operations last year to expand its ability to sell in that market.

According to Laukien, demand for the firm's products among academic customers has "continued to be good. We've also had some promising sales to big biotech and pharma, [and] we have not seen some of the trends reported by others," he said, referring to the slowdown in large pharma spending reported by Bruker's main competitors in the field, particularly Waters (see BioCommerce Week 4/28/2005).

Laukien also said during the call that the firm "did not notice any new trends in the first quarter within the relative mass spec landscape. It's a continuation of the trends we saw last year, or at least it's too early to see a trend clearly."

Asked what trends he was referring to, Willett told BioCommerce Week the business remained strong. "We're continuing the same mass spec trends from last year, and we're doing well in proteomics particularly," he said.

He pointed to the company's recent product introductions at the PittCon meeting in Orlando, Fla., in February, which included three new mass spectrometers, three mass-spectrometry accessories, and a benchtop machine for high-throughput protein crystallization.

Bruker's highest-priced new release was its micrOTOF-Q ESI-Q-qTOF mass spectrometer — a benchtop model that offers a resolution of 15,000 at full sensitivity, a mass accuracy of 3 ppm, and a high dynamic range. That instrument costs about $500,000.

Bruker's new Q-TOF was designed to be used with another new release — the Apollo II ion funnel electrospray ionization source. By increasing the ion-holding capacity by 10 times, the Apollo II funnel raises the sensitivity of the micrOTOF-Q up to ten-fold, according to Bruker. The Apollo II can also be used with Bruker's Fourier-transform mass spectrometers, especially its apex-Qe line of hybrid Q-q-FTMS mass spec, the firm said at the PittCon meeting.

During PittCon 2004, Bruker introduced at least seven new products with proteomics applications, but sales did not provide instant top-line benefits. However, the strong showing in the fourth quarter last year suggested that the new introductions had begun to pay off by year end — and may also indicate that Bruker could see a jump in sales later this year.

More Cost-Saving Ahead

Bruker's net income for the first quarter was $400,000, or $0.0 per share, compared with 2004 first-quarter net income of $500,000, or $.01 per share. The firm met its previously stated goal of "break-even" net income in the period.

Laukien said during the conference call that income from operations and net income as a percentage of revenues improved sequentially for the third straight quarter. "These improvements are a result of our continued efforts to control spending and cost-cutting efforts that have been implemented globally over the past several quarters," he said.

Those cost-cutting efforts included laying off 60 employees in September, which the firm expects will save $6 million on an annual basis. A second phase of the restructuring occurred in December and included a 20-percent pay cut for Laukien (see BioCommerce Week 12/23/2004).

In November, Laukien told analysts that the company will continue looking for ways to save money, and hinted that additional steps will be announced before the end of the year. "We will go beyond [what was announced in September], and we will have an announcement before the end of the year," he said (see BioCommerce Week 11/11/2004).

Bruker CFO William Knight said during the conference call, "We are continuing our efforts to bring overall gross margins up to industry-standard levels over the next several years." The company reported a gross profit margin of $31.4 million, a 1.7-percent improvement year-over-year.

Knight added during the conference call that many of the "cost-cutting steps [initiated last year] have been implemented. There are further optimization steps that don't involve cost-cutting but hopefully can improve our productivity and efficiency," he said, "and there's additional steps we're taking at several of our factories to reduce inventories, improve cash flow, improve quality, [and] redesign cost efforts. These will be ongoing for the next two to three years."

Laukien said the company was not planning additional job cuts, and confirmed the company's previous fiscal 2005 guidance of 10 percent to 12 percent revenue growth and 3 percent to 5 percent operating income growth. He declined to provide guidance for the second quarter, pointing out that because the firm sells big-ticket, capital equipment, "we may from time-to-time experience fluctuations between our anticipated and actual results" — a sentiment shared by many of his BioCommerce Week Index mates (see BioCommerceWeek 4/14/05 and BioCommerceWeek 4/07/05).

Indeed, Laukien said Bruker "remain[s] somewhat cautious about the remainder of 2005, particularly in due of the apparent slowdown reported by many other companies in our industry."

As of March 31, Bruker held cash and short-term investments of $84.8 million, compared with $77.7 million at the end of the fiscal 2004 year and $76.7 million at the end of the first quarter last year.

— Edward Winnick ([email protected])

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