PerkinElmer Inc reported second-quarter 2016 earnings of 67 cents per share, which beat the Zacks Consensus Estimate by a penny. Additionally, the figure was better than the management’s guided range of 65—66 cents. Earnings also increased 11.7% year over year driven by modest top-line growth and margin expansion.

Revenues increased 1.5% on a year-over-year basis to $572.8 million, which lagged the Zacks Consensus Estimate of $573 million, but was within the management’s guided range of $570-$575 million. The year-over-year upside was primarily attributed to growth across both segments.

Organically, revenues grew 3% in the quarter, but missed the company’s expectations of 4% growth. Management stated that organic revenue for four of its focus areas grew by more than 10% in the reported quarter. The focus areas are food quality and safety, pharma services and solutions, reproductive health, and emerging market diagnostics. Per PerkinElmer, these focus areas represent 40% of its total revenues.

In terms of end-market, PerkinElmer witnessed accelerating diagnostic demand, healthy pharma and biotech as well as a strong demand for food applications during the quarter. This was partially offset by weakness in industrial markets as well as soft academic and government demand, primarily in the U.S. during the quarter.

Region-wise, PerkinElmer achieved double-digit organic revenue growth in Asia and low single-digit growth in Europe, while revenues declined in low single-digit in the Americas. Emerging markets organic revenues increased mid-teens, driven by a strong performance in China, which more than offset weak demand in Brazil.
 

Organic revenue growth in China grew double digit in the quarter, with broad-based strength across both Human and Environmental Health segments. Within Environmental Health, Haoyuan blood screening business reported robust revenue performance, with strength expected to continue into the second-half 2016. On the Environmental side, food and environmental testing solutions were the key growth drivers in China.

Segment Details

Human Health (61.7% of total revenues) segment revenues increased 3.5% year over year to $353.7 million, while Environmental health (38.3% of total revenues) revenues decreased 1.4% year over year to $219.2 million in the quarter. Environmental Health organic revenues declined 1% in the quarter, while Human health increased 6%.

On an organic basis, diagnostics business (29% of Human Health revenues) revenue growth was driven by double digit growth in the company’s core diagnostics franchises. Both China and India were up more than 25% in the quarter. The company also won a number of neonatal wins in Pakistan, Jordan and Poland.

Medical imaging declined high single digits due to continued weak hospital demand. However, an increased demand for a number of new CMOS applications was witnessed as diversification efforts within the portfolio gain traction.

Life Science Solutions (33% of Human Health revenues) organic revenues increased in low single-digits.

Margin Details

Adjusted gross margin was 47.9%, up 90 basis points (bps) year over year, driven by successful cost-cutting (Lean) initiatives, volume leverage and favorable product mix.
 

Adjusted selling, general & administrative (SG&A) as percentage of revenues were 24.3%, flat over the year-ago quarter. Research and Development (R&D) spending was $2 million higher in the quarter driven by continuing investments on the four focused areas.

Adjusted operating margin expanded approximately 50 bps in the reported quarter. Environmental Health margin expanded 160 bps on the back of strong mix, benefits from year-ago restructuring actions and solid operational execution.

Human Health margins were essentially flat, largely due to planned growth investments and mix, partially mitigated by the positive impact of pricing initiatives implemented at the end of 2015.

Product/Clinical/Partnership Updates

PerkinElemer recently entered into collaboration with the Genome Institute of Singapore. The institute aims to develop a high-throughput screening platform to predict therapeutic sensitivity in tumor models in real time, with the ultimate goal of translating precision oncology research results into the clinic. In order to do this, the institute is using a number of PerkinElmer products, including automation and liquid handling solutions, as well as tissue and cellular imaging platforms.

PerkinElmer’s solutions are now used by a major dairy company in China to verify nutrients, test vitamin content, and detect heavy metals in their products. The customer win reflects the company’s expanding footprint and the strength in its product portfolio which includes solutions like Perten and Delta.

In the fast-growing area of reproductive health, PerkinElemer is partnering a number of states in the U.S. to facilitate the screening of lysosomal storage diseases (LSDs). Management noted that early detection of these rare inherited metabolic disorders is in compliance with the HRSA-recommended newborn screening panel.

PerkinElemer continues to introduce number of new products like the latest Avio 200 ICP spectrometer, which is the smallest analyzer of its kind on the market. The company also launched more than 25 new biochemical and immunoassays that support drug discovery applications.

During the quarter, PerkinElmer launched a NGS 3K assay, which runs on its LabChip Touch microfluidic platform. Per company “this assay delivers the highest sensitivity at the lowest DNA sample concentration, providing customers with improved sample quality control for their sequencing experiments.”

Acquisitions/Divestitures

PerkinElmer expanded its next generation sequencing (NGS) capabilities with the recent acquisition of BioScientific, a company based in Austin, TX. BioScientific provides biotechnology solutions for food and feed safety testing along with life science research. The company stated that BioScientific's laboratory preparation offering broadens Perkin Elemer’s NGS workflow solutions.

Guidance

Management at PerkinElmer expects challenging global economic conditions to persist, with no immediate relief at sight. However, the company is well poised to continue investments in its focus areas throughout 2016.

For the second half, PerkinElmer continues to see accelerating growth for its diagnostic business with expanding market share as well as addressable market. The company’s OneSource business continues to benefit from the growth in spending in pharmaceutical and growing outsourcing.

Management states that food analysis business is gaining from increased synergies across the company’s product portfolio as well as the overall growth of the market.

However, growth concerns in the industrial end markets are a headwind. Medical imaging continues to face declining market demand, which is also hurting growth.

For the third quarter of 2016, revenues are forecasted to grow organically by almost 2% to 3%. The current revenue guidance is pegged at the range of $570 million to $575 million. Adjusted earnings are expected in the range of 65 cents to 67 cents per share.

For full-year 2016, PerkinElmer expects organic revenue growth of 4%. Research & Development expenses are forecasted to increase 50 bps owing to continuing investments.

Adjusted earnings are still projected in the band of $2.75 to $2.85 per share.

Zacks Rank & Other Stocks to Consider

Currently, PerkinElmer has a Zacks Rank #2 (Buy).

Better-ranked stocks in the same space include Halyard Health , Merit Medical (MMSI Quick QuoteMMSI - Free Report) and Masimo Corp (MASI Quick QuoteMASI - Free Report) . All the three stocks sport a Zacks Rank #1 (Strong Buy).

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