Replies to post #127997 on Biotech Values

[DewDiligence]

Moreover, about 50% of PKI’s business pertains to environmental testing rather than biotech. So the proportion of PKI’s business that’s exposed to ILMN-related woes is about 25% — the non-service-contract half of the biotech half.

All told, the PKI sell-off looks like an overreaction in a skittish stock market. We’ll know for sure when PKI reports its earnings on Nov 3.

[DewDiligence]

Illumina Earnings Miss Drags Down Rivals

[As previously noted (#msg-67809056, #msg-67789894), the sell-off for PKI, which derives a relatively small portion of its revenues from sales of instruments and consumables used in drug/biotech research, strikes me as an overreaction.]

http://www.bloomberg.com/news/2011-10-07/illumina-shares-fall-after-company-drops-full-year-forecast.html

›By Michelle Fay Cortez and Elizabeth Lopatto - Oct 7, 2011 4:31 PM ET

Illumina Inc. (ILMN), maker of tools for genetic analysis, fell the most ever after dropping its profit forecast because of concerns that research funding will be reduced, sending shares of rival equipment makers down.

Illumina plunged 32 percent to $27.18 at the close in New York, the biggest decline since the San Diego-based company sold shares to the public in July 2000. Life Technologies Corp. (LIFE) fell 6.5 percent to $36.82, while Thermo Fisher Scientific Inc. (TMO) declined 5.9 percent to $50.49.

Purchasers delayed orders in the third quarter because of “uncertainty” surrounding research funding the U.S. and Europe, Illumina said in a statement yesterday. The company said third-quarter revenue is expected to be about $235 million, less than analysts’ estimates of $278 million. The weakness in demand may continue as the U.S. government, looking to curtail spending, mulls the research budget for agencies including the National Institutes of Health.

“It’s a pretty safe assumption, given the rhetoric coming out of Washington, that NIH budgets aren’t going up,” said Les Funtleyder, a money manager and health-care strategist at Miller Tabak & Co. in New York. “All these companies have run into similar problems. Illumina is still among the leaders, but it’s a leader in a slowing industry.”

Sluggishness in the U.S. academic markets may be a frequent theme for the coming earnings season, said Dan Leonard, an analyst for Leerink Swann in Boston. It may trigger a spate of mergers and acquisitions, he said.

Possible Consolidation

“If we’re entering a multiyear period where research budgets are going to be under pressure, you could see additional consolidation,” he said in a telephone interview. “These are high-quality companies that generate a lot of cash and their business isn’t going away.”

Leonard estimated that 75 percent of Illumina’s problems stem from internal problems. While the company introduced powerful new products that have been embraced by consumers, it hasn’t found ways to utilize capacity, he said.

“It’s like a catch-up stage on the customer side,” Leonard said. “They have all the new toys, and they need to use them more optimally.”

On July 26, Illumina had forecast adjusted earnings-per- share growth of 33 percent to 36 percent from last year’s $1.06.

Diagnostic toolmaker PerkinElmer Inc. (PKI) fell 8.3 percent to $17.93, while Bruker Corp. (BRKR) declined 4.4 percent to $13.09. Affymetrix Inc. (AFFX) dropped 4.8 percent to $5.42.‹

[DewDiligence]

PKI Reports 4Q11 Results

[After bottoming in Oct 2011 due to bad news at ILMN (which now seems paradoxical in light of Roche’s offer), PKI has risen 52% (!). This is actually not that surprising insofar as PKI is a fine company with participation in The Global Demographic Tailwind (#msg-68686075, #msg-67237827) and a modicum of buyout vig that never deserved to be selling at such a cheap valuation (#msg-67809056). The company’s sales are split about 50/50 between healthcare (consisting of diagnostics for the general public and lab products for pharma research) and environmental testing. PKI acquired CALP in late 2011 and expects the deal to be immediately accretive to non-GAAP EPS (#msg-66915400). 2012 non-GAAP EPS guidance is $1.98-2.04, so the stock is currently trading at a 2012 P/E of about 13x. I have a pretty large holding, FWIW.

Samuel Shapiro (whom I had never heard of) filed a 13G today showing a 5.9% equity stake (http://www.sec.gov/Archives/edgar/data/31791/000090901212000046/t306635.txt ).]

http://finance.yahoo.com/news/PerkinElmer-Announces-bwtmp-2244248768.html?x=0&.v=1&c=1

›Thursday February 2, 2012, 4:05 pm EST

• Revenue from continuing operations of $540 million, reported growth of 15% and organic revenue growth of 6% [organic growth excludes acquisitions and FX]; adjusted revenue of $555 million

• GAAP loss per share from continuing operations of $0.75, impacted by non-cash adjustments related to the recent acquisition of Caliper Life Sciences and pension liabilities of divested businesses; adjusted earnings per share of $0.62, up 38%

• Operating loss of $27 million and adjusted operating income of $103 million, up 250 basis points as a percentage of adjusted revenue to 18.5%

• Operating cash flow of $83 million, up 95%

• Establishes full year 2012 guidance range for GAAP earnings per share of $1.22 to $1.28; adjusted earnings per share guidance range of $1.98 to $2.04

WALTHAM, Mass.--(BUSINESS WIRE)-- PerkinElmer, Inc. (NYSE: PKI), a global leader focused on improving the health and safety of people and the environment, today reported financial results for the fourth quarter ended January 1, 2012. The Company reported a GAAP loss per share from continuing operations of $0.75, as compared to earnings per share of $0.37 in the fourth quarter of 2010. On a non-GAAP basis, which includes the adjustments noted in the attached reconciliation, the Company announced adjusted earnings per share of $0.62, representing an increase of 38% as compared to the fourth quarter of 2010.

“The closing of the Caliper acquisition caps an exceptional year of strategic acquisitions for PerkinElmer,” said Robert Friel, chairman and chief executive officer of PerkinElmer. “We have created a highly differentiated portfolio by significantly strengthening our capabilities in molecular analysis, imaging, sample preparation and informatics, providing our customers with an extensive range of broad-based, application-driven solutions.”

Revenue from continuing operations in the fourth quarter of 2011 was $540.2 million, up 15% as compared to the same period a year ago. Adjusted revenue in the fourth quarter of 2011 was $554.7 million, up 6% on an organic basis, as compared to the fourth quarter of 2010, both of which include the adjustments noted in the attached reconciliations. Revenue from continuing operations in the Human and Environmental Health segments increased by 20% and 11%, respectively, as compared to the same period a year ago. Organic revenue, which includes the adjustments noted in the attached reconciliation, increased 5% in the Human Health segment and 7% in the Environmental Health segment compared to the fourth quarter of 2010.

“Our excellent fourth quarter financial results complete a terrific year for PerkinElmer, with strong growth in revenue, adjusted earnings per share and cash flow,” continued Mr. Friel. “The progress we made in 2011, both operationally and strategically, better positions us to make a dramatic impact on human and environmental health while continuing to deliver strong financial returns.”

Operating loss from continuing operations for the fourth quarter of 2011 was $27.3 million, as compared to operating income of $48.8 million for the same period a year ago. Adjusted operating income, which includes the adjustments noted in the attached reconciliation, increased by approximately 250 basis points as a percentage of adjusted revenue to $102.5 million, as compared to $75.2 million in the fourth quarter of 2010.

During the quarter, the Company recorded two significant non-cash charges, one primarily related to the defined benefit plan liabilities of divested businesses and the other related to the acquisition of Caliper. The first charge resulted from the Company’s election to change the way it accounts for its defined benefit plans to a mark-to-market methodology. The Company believes this change provides better alignment with its current underlying business performance as these plans primarily relate to previously divested operations. Adopted in the fourth quarter of 2011, and applied retrospectively, this new method resulted in mark-to-market pre-tax, non-cash charges in 2011 and 2010 of $69.5 million and $0.5 million, respectively.

The second charge resulted from the acquisition of Caliper, with the Company recording a one-time, non-cash tax charge of $79.7 million in the fourth quarter of 2011 related to the repatriation of approximately $350.0 million of international earnings. The use of tax attributes obtained with the acquisition of Caliper is expected to essentially mitigate all cash taxes due in connection with this repatriation.

Financial Overview by Reporting Segment

Human Health

• Revenue from continuing operations of $258.5 million [48% of total revenue] for the fourth quarter of 2011, as compared to $215.7 million for the fourth quarter of 2010.

• Operating income of $21.8 million, as compared to $24.4 million for the same period a year ago.

• Adjusted operating profit margin was 22.8% as a percentage of adjusted revenue, an increase of approximately 350 basis points as compared to the fourth quarter of 2010.

Environmental Health

• Revenue from continuing operations of $281.7 million [52% of total revenue] for the fourth quarter of 2011, as compared to $254.2 million for the fourth quarter of 2010.

• Operating income of $32.7 million, as compared to $31.0 million for the same period a year ago.

• Adjusted operating profit margin was 18.8% as a percentage of adjusted revenue, an increase of approximately 320 basis points as compared to the fourth quarter of 2010.

Financial Guidance

For the full year 2012, the Company forecasts organic revenue to increase in the mid-single digit range relative to 2011. For the full year 2012, the Company forecasts GAAP earnings per share from continuing operations in the range of $1.22 to $1.28 and on a non-GAAP basis, which is expected to include the adjustments noted in the attached reconciliation, adjusted earnings per share in the range of $1.98 to $2.04.‹