Quarterly earnings result in gains for IBO indexes

Instrument Business Outlook, Oct 31, 2006

For the second straight month, all three US stock indexes grew, sending the Dow Jones to an all-time high of above 12,000. Once again, crude oil continued to play a significant role as prices bounced back and forth throughout the month, falling close to this year's low before settling at just above $58 per barrel. US economic news was largely favorable this month. On October 5, the Labor Department reported 302,000 first-time claims for unemployment insurance benefits for the week ended September 30, falling below the forecast of 315,000. The University of Michigan's consumer sentiment index jumped to 92.3, well above analysts' estimates of 86.5. Also, US indexes were boosted by the Federal Reserve's October 25 decision to maintain the federal funding rate at 5.25%, following mixed third quarter earnings reports.

However, it wasn't all good news for the US economy. Markets were negatively impacted by North Korea's nuclear bomb test on October 9, which prompted fears of profit taking following the Dow Jones' record highs of the previous week. Additionally on October 27, the US government reported third quarter GDP growth of just 1.6%, the weakest growth in more than three years and well below the forecast of 2.2%. Finally, core US consumer prices rose 0.2% in September as anticipated, but the year-over-year index remained close to an 11-year high. Non-food, non-energy inflation registered a 2.4% increase in September, just below the 2.5% gain in August, which was the largest jump since April 1995.

The NASDAQ led the way in October for the third month in a row, climbing 4.8% to 2,366.71. The Dow Jones Industrial Average and S&P 500 gained 3.4% and 3.2% to 12,080.73 and 1,377.94, respectively. For the year, the Dow and S&P are up 12.7% and 10.4%, respectively, while the NASDAQ has improved 7.3%.

The three IBO Indexes performed well. The laboratory Instrumentation Index rose a whopping 8.7% in October. The Process/Metrology/Motion Instrumentation Index rebounded, climbing 6.9%, while the lab Consumables/Equipment Stock Index gained 2.9%.

Laboratory Instrumentation Stock Index

This month, the Laboratory Instrumentation Index gained 8.7% to close at 530.09, with 16 companies improving, five declining and Beckman Coulter unchanged. SEQUENOM showed the strongest growth by far, jumping 64% in October, followed by a 33% gain for Illumina. However, Ciphergen Biosystems and CombiMatrix each dropped 20%.

After the first 10 months of the year, the Laboratory Instrumentation Index has climbed 17.5%, with 13 companies having gained and 9 showing losses. Illumina has soared 212% thus far, while Bruker BioSciences has gained 64%. Transgenomic, Affymetrix and CombiMatrix have lost 53%, 47%, and 43%, respectively.

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On October 6, Citigroup initiated coverage on shares of Affymetrix and Applied Biosystems at ratings of "Sell" and "Hold," respectively. After the bell on October 25, Affymetrix reported third quarter revenues of $84.7 million (see page 12), which were above analysts' estimates of $80.9 million, sending shares up 19.3% the following day (see page 11). The same day, UBS upgraded shares to a "Neutral" rating, but Deutsche Bank lowered its price target to $19 per share from $20.50 based on the company's lower third quarter product-related revenue and lower gross margin. Also on October 25, Applied Biosystems reported fiscal first quarter adjusted earnings of $0.29 per share, four cents higher than expected, sending shares up 13.5% and leading UBS to upgrade shares to a "Neutral" rating.

A number of other companies' share prices were also affected by quarterly results. On October 18, Illumina reported third quarter revenues (see page 12) well above Wall Street expectations and earnings that were double estimates of $0.16 per share. The company also boosted its fourth quarter revenues and earnings estimates, leading shares to jump 19.5%. After the bell on October 25, Luminex reported breakeven third quarter earnings as expected, but revenues of $12.5 million (see page 12) were short of the forecasted $13.7 million, leading shares to tumble 20.7% the following day. PerkinElmer reported adjusted third quarter earnings of $0.30 per share (see page 12) that topped forecasts of $0.26, leading shares to improve 5.6% on October 27. On October 25, Thermo Electron reported third quarter adjusted earnings of $0.44 per share (see page 12), exceeding estimates by a penny, and raised its till-year adjusted earnings by 3% to $1.74-$1.77 per share. However, company shares slipped 2.4%, after improving 4.6% the prior day in anticipation of the results. Finally, Waters gained 4.2% on October 24 after it reported third quarter earnings of $0.49 per share (see page 12), three cents above analysts' estimates.

Process/Metrology/Motion Instrumentation Stock Index

The Process/Metrology/Motion Instrumentation Stock Index rose 6.9% in October to 403.34, as seven companies improved and two declined. Zygo and RAE Systems were the best performers, climbing 36% and 27%, respectively, while Strategic Diagnostics dropped 17%.