All four IBO indexes defy market turbulence

Instrument Business Outlook, July 31, 2008

Disappointing economic news continued to weigh on the US markets this month. On July 31, the US reported second-quarter economic growth of 1.9%, compared to economists' expectations of 2.3%. The US also lowered its GDP estimates for the first quarter of this year and the fourth quarter of 2007 to 0.9% and negative 0.2%, respectively. In addition, overseas demand considerably weakened, leaving economists with a bleak global economic outlook (see page 1).

Despite the bearish environment, there were several encouraging signs in July. Crude oil prices fell 13% to the end the month at $124 a barrel. Also, consumer spending and durable goods orders were better than expected. Second-quarter corporate earnings, while mixed, remained moderately positive. And, despite weak results from the financial sector, the government's support of Fannie Mae and Freddie Mac prompted investors to return to the markets, igniting a sharp rally. Over July 15-16, the Dow, S&P 500 and NASDAQ climbed 4.4%, 3.7% and 3.1%, respectively. However, investors remained apprehensive due to deteriorating economic data, as the likelihood of a recession increased.

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For July, the markets remained mixed as the Dow and NASDAQ ended higher, improving 0.2% and 1.4%, while the S&P 500 fell 1.0%. For the year, the Dow, S&P 500 and NASDAQ are all trading lower, down 14.2%, 13.7% and 12.3%, respectively.

Due to a number of the larger-and medium-sized companies in the IBO Stock Indexes reporting strong second-quarter results, all four IBO Indexes climbed appreciably higher. The Process/Metrology/Motion Instrumentation Index gained the most ground, improving 8.4%, while the Lab Consumables/Equipment. Laboratory Instrumentation and Diversified Instrumentation Stock Indexes rose 6.2%, 6.1% and 3.3%, respectively.

Laboratory Instrumentation Stock Index

For the month, the Laboratory Instrumentation Index climbed 6.1% to close at 639.07. Seventeen companies improved, while six companies declined. Symyx Technologies and X-Rite led the Index, each gaining 36%, while Cepheid fell 27%. Year to date, the Index has lost 2.6%, with Sequenom leading the way, up 124%, while X-Rite has declined 70%.

In July, a number of companies in the Index reported strong second-quarter earnings and increased full-year guidance. On July 22, Illumina reported second-quarter EPS of $0.32 (see page 12), $0.04 better than estimates, and 81% above the second quarter of 2007. The company also raised its 2008 adjusted earnings guidance by approximately 5% to $1.65-$1.75 a share and announced a two-for-one stock split, sending shares up 9.3%. On the same day, Waters reported adjusted second-quarter EPS of $0.76 (see page 12), beating estimates by 7.0%, and raised its 2008 EPS forecast by $0.05 to $3.25-$3.35. Waters' second-quarter EPS jumped 29% year over year, helping shares climb 11.1%.

On July 24, PerkinElmer announced adjusted second-quarter EPS of $0.36 (see page 12), $0.02 ahead of Wall Street expectations, leading shares up 3.5%. The company also increased its adjusted full-year EPS range by 2%-3% to $1.50-$1.53. on the same day, Thermo Fisher Scientific announced adjusted EPS of $0.79 (see page 12), $0.02 ahead of analysts' forecasts, and increased the lower end of its adjusted full-year EPS by $0.04 to $3.11-$3.17 a share. Despite Thermo's 23% increase in year over year EPS, shares ended the day relatively unchanged. After the close on July 30, Symyx Technologies announced a second-quarter loss of $0.05 a share, $0.11 better than analysts' expectations, sending shares up 9.6% the following day. The company also provided an improved full-year EPS outlook, estimating a loss of $0.29-$0.23 per share compared to previous guidance of a loss of $0.34-$0.28 per share.

Bruker and Applied Biosystems both beat analysts' estimates, but neither company provided specific EPS guidance. On July 31, Bruker reported adjusted second-quarter EPS of $0.13 (see page 12), $0.04 better than analysts' expectations, leading shares up 16.2%. Year over year, Bruker's EPS soared 160%. Applied Biosystems reported on July 24 adjusted fourth-quarter EPS of $0.49 (see page 12), $0.04 better than analysts' expectations, leading shares up 1.1%. The company anticipates 2009 EPS to grow higher than the forecasted mid single digit revenue growth.

Not all companies in the Index reported positive results. After the market close on July 23, Varian reported fiscal third-quarter EPS of $0.54 (see page 12), $0.13 below analysts' expectations, and revised downward its full-year adjusted earnings outlook by approximately 5%-6% to $2.69-$2.79 a share. The following day, shares fell 17.7%. on July 24, Affymetrix reported a second-quarter loss of $0.04 a share (see page 12), compared to analysts' expectations of $0.09, and lowered its full-year revenue guidance by 7%-10%, sending shares down 26.8%. On the same day, Cepheid reported a second-quarter loss of $0.13 a share (see page 12), $0.07 below analysts' expectations, leading shares down 35.1%. The company now expects a loss of $0.35-$0.38 for the year, double the previous forecast. Sequenom announced after the market close on July 30 a second-quarter loss of $0.21 a share, $0.06 lower than analysts' consensus, but maintained its frill-year revenue outlook. Shares traded tip 1.0% the following day.