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PerkinElmer's Q1 Revenues Dip 1 Percent; Sequestration Hits Imaging Business

NEW YORK (GenomeWeb News) – PerkinElmer reported after the close of the market Thursday that its first-quarter revenues declined 1 percent as it missed the consensus Wall Street estimates on the top and bottom line.

The Waltham, Mass.-based firm brought in total revenues of $505.4 million for the three months ended March 31, down from $510.9 million in Q1 2012 and below the Wall Street estimate of $532.3 million.

Its Human Health segment had revenue of $281.3 million, down a fraction of 1 percent from $280.8 million in Q1 2012. Its Environmental Health segment saw a sales drop of 3 percent to $224 million from $230.1 million.

"The majority of the business delivered solid growth in the quarter despite challenging global economic conditions," PerkinElmer Chairman and CEO Robert Friel said in a statement. "However, a portion of our portfolio experienced more significant headwinds specifically in Europe and Japan."

"Our shortfall in the quarter was almost exclusively due to three distinct parts of our business that together represent about 15 percent of our revenue," Friel said on a conference call following the release of the results.

He cited a decrease in sales of environmental instruments in Western Europe, which fell in the mid-teens versus a company expectation of a low-single digit decline.

In addition, Friel cited weakness in Japan, which represents around 5 percent of PerkinElmer's overall revenue. He said the firm had expected a "slight decline" in Japan in the first quarter, but its revenues there actually fell more than 25 percent.

"Lags in government funding resulted from the delay of supplementary budget approval along with a lower yen and a general cautionary spending environment that affected not only our radiometric detection business but the majority of our product offerings across the portfolio in Japan," said Friel.

Finally, he said that the firm saw a "significant decline" in its in vivo imaging business, "a product line that has been a historically strong performer generating mid-teens growth and one in which we believe we have very strong market share.

"There is a portion of this business that is exposed to academic funding in the US," said Friel. "We assumed its growth would moderate to mid-single digits in the early part of this year due to concerns over sequestration. However, this business was also down more than 25 percent in the quarter as delays in funding for academic laboratories brought on by austerity concerns were more severe not only in the United States but internationally as well."

He added, however, that the firm's diagnostics business grew in the mid-single digits with screening and medical imaging providing growth drivers. In addition, Friel said that parts of its research business, primarily sample prep for next-generation sequencing and reagents for biotherapeutics and high-content screening, had "good growth" in the quarter. The research business, overall, was down in the mid-single digits, due largely to the in vivo imaging declines.

Friel added during the Q&A portion of the call that the imaging business is "starting to see some recovery," and in the second half of the year the firm anticipates historical growth levels for that part of the business.

PerkinElmer posted a profit of $32.2 million, or $.28 per share, compared to $22.6 million, or $.20 per share, for Q1 2012. On an adjusted basis, EPS was $.36 versus $.43 and fell short of analysts' consensus estimate of $.48.

The firm reported R&D spending of $34.2 million, up 5 percent from $32.6 million, while its SG&A expenses declined 3 percent to $151.5 million from $156.8 million.

PerkinElmer finished the quarter with $125.9 million in cash and cash equivalents.

The firm said that it expects FY 2013 organic revenue to increase in the low-single digit range, and it expects to report adjusted EPS of between $2.00 and $2.10.

In Friday morning trade on the New York Stock Exchange, shares of PerkinElmer declined 11 percent to $30.71. It had fallen as low as $29.50 earlier in the session.

After the conference call, ISI analyst Ross Muken downgraded PerkinElmer's stock to Buy from Strong Buy and dropped his price target on the firm's stock to $36 from $40.

"However, we contend that most of the issues the company faced in the Q were temporary and readily addressable, therefore we recommend buying on weakness (~$30)," he wrote in a note published Thursday evening. "We continue to see [PerkinElmer] as an attractive turnaround story, with intriguing strategic optionality given its market cap in a consolidating industry."

Mizuho Securities analyst Peter Lawson wrote that he sees "no fundamental changes in the business, or share losses," and reiterated his Buy rating with a $36 price target, reduced from a previous target of $39.

Isaac Ro of Goldman Sachs lowered his price target on the stock to $39 from $42. "We acknowledge that the magnitude of the 1Q miss was surprising," he wrote in a note. "However, the sources of the miss look to be transient, not permanent."