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PerkinElmer Banks on Cell-Analysis Products, Service to Grow Revs as Costs Limit Q1 Profit

This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
 
PerkinElmer last week posted a 14 percent increase in first-quarter revenues, while restructuring, acquisition, and service contract start-up costs took a chunk out of its profit.
 
The firm reported first-quarter revenue of $403 million, up from $355.5 million in the first quarter of 2006. Though a variety of costs hurt its operating margins and profit, company officials expect both of those to improve as new products, particularly in the cell-analysis space, drive revenues for the remainder of the year.
 
Revenue for the company’s Life and Analytical Sciences business increased 14 percent to $299.5 million, while its Optoelectronics revenue rose 11 percent to $103.4 million year over year.
 
The firm said in a statement that health sciences revenue accounted for 84 percent of total receipts for the quarter and was “driven primarily by strong growth in genetic screening, medical imaging, and service as a result of new products, key customer wins, and market expansion.”
 
Acquisitions contributed about 4 percent of the overall growth in the quarter for the LAS segment.
 
“In LAS, we’re starting to feel like we’re getting some good momentum,” Rob Friel, president of the LAS business, said during the firm’s first-quarter conference call last week. He remarked that it is the fourth consecutive quarter that the segment increased both its reported and organic revenue growth rate.
 
The firm saw low- to mid-single digit growth across biopharma, according to Friel, with cellular analysis products growing the fastest among those customers. He also said there has been “nice growth” in automation and liquid handling, areas in which the firm has introduced new instruments over the past year.
 
Early last year, the firm launched a new Janus automated workstation for high-throughput liquid handling. The launch signaled a shift in PerkinElmer's reliance on large, high-throughput instruments to more flexible and benchtop systems.
 
The genetic screening market, in which PerkinElmer is the top player, also continues to expand worldwide, Friel noted.
 
PerkinElmer’s first-quarter profit fell to $14.7 million, or $.12 per share, from $23.6 million, or $.17 per share, in the comparable period a year ago. Its adjusted operating margins were flat overall but down slightly for the LAS segment due to “a big step up in R&D and significant start up investments in large new service contracts,” said CEO Greg Summe during the conference call.
 
PerkinElmer is one of several firms in the BCW Index that has recently placed greater emphasis on its service business. A company official told BioCommerce Week last year that the firm’s service programs bring in over a quarter of a billion dollars annually (see BioCommerce Week 6/28/2006).
 
“The service investment really comes about contract by contract,” Summe explained during the call last week. “Through 2006, we took on a significant number of new contracts — and even in ’07 — and then every time we do that, we have an upfront investment. It’s typically a multi-vendor repair, validation, [and] support contract, so it requires significant investment in getting the customer up and running.
 
“We expect to get through those [upfront investments] in a fairly quick, sort-of two-quarter time frame,” said Summe.
 
He noted that the margins on the service contracts would improve throughout the year and eventually be higher than corporate levels.
 
PerkinElmer recorded a $4.4 million restructuring charge, a $1.4 million inventory-revaluation charge, and a $1.6 million in-process research and development charge related to recent acquisitions.
 
The firm’s R&D spending in the quarter increased to $27.8 million from $22.8 million year over year.
 
PerkinElmer expects second-quarter revenue to grow in the low double-digit range, with acquisitions contributing roughly 5 percent of that growth. It also forecast earnings per share of $.21 to $.23, including intangibles and stock-option expenses. Excluding those items, the firm said its EPS will be in the range of $.28 to $.30, an increase of 8 percent to 15 percent over the second quarter of 2006.
 
Counting on New Products
 
Summe said he expects “our momentum to continue through the year, as our new products and services continue to make a greater contribution to our overall revenue."
 
Included among those new products is a variety of cell-screening and -analysis instruments PerkinElmer gained through a series of acquisitions in late 2006 and early 2007. Last month, the firm said it had acquired Improvision, a privately held developer of cell-imaging software, for an undisclosed amount (see BioCommerce Week 4/4/2007).
 

“We are investing in [cell analysis], as we believe researchers will increasingly find the cellular level an efficient, information-rich area for biological analysis.”

It was the third acquisition in four months for PerkinElmer, following its acquisitions of Evotec Technologies for $30.5 million (see BioCommerce Week 12/6/2006), which provided the firm with high-content screening tools, and Euroscreen, which gave PerkinElmer a greater presence in the GPCR-screening market (see BioCommerce Week 1/3/2007).
 
“We are investing in [cell analysis], as we believe researchers will increasingly find the cellular level an efficient, information-rich area for biological analysis,” said Friel during the call. “With our recent acquisitions, we believe we will have the world’s leading cellular-analysis business.”
 
Summe said that the recent acquisitions fit the firm’s overall strategy when it comes to M&A activity.
 
“Our M&A has been focused on smaller- to medium-sized opportunities for a couple of reasons,” he said. “One, because we are focused around organic growth, we’re looking for selective products and technologies that have good organic growth.
 
“So, they’re growth accretive, and we can take them and give them wider distribution, or we can broaden the product line, or we can provide a complete system,” he said.
 
The “second reason is they tend to be a little lower risk in terms of the integration. And the third reason is the valuations are better than we have found on the larger-size deals,” said Summe.
 
“All this is subject to change depending on what opportunities come along,” he said. “So far, we’ve been working the pipeline hard, looking not so much to broaden out our portfolio but to build the relative market shares within each of the businesses that we’re in now.”
 
Summe said PerkinElmer spends a lot of time on planning acquisition integrations to minimize the risk of potential problems. “We’re targeting fairly specific properties, [which are] are small, contained, and tend to be in fairly narrow product lines,” he said. “So, they bolt on to the existing products we have. Our philosophy here has been not to take a lot of cost out of these acquisitions, because these are growth-based acquisitions.”
 
PerkinElmer finished the first quarter with roughly $119.6 million in cash and cash equivalents.

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