Good day, ladies and gentlemen. My name is Carmen, and I'll be your coordinator for today. And welcome to the Thermo Fisher Scientific Third Quarter 2010 Earnings Conference Call. I would now like to introduce our moderator for the call, Mr. Kenneth Apicerno, Vice President, Investor Relations.
Mr. Apicerno, you may begin the call.
Good morning and thank you for joining On the call with me today is Mark Casper, our President and Chief Executive Officer and Pete Wilbur, Senior Vice President and Chief Financial Officer. Please note that this call is being webcast live and will be archived on the Investors section of our website, thermofisher.com, Under the heading Webcasts and Presentations until Friday, November 26, 2010. A copy of the press release of our Q3 And our next question comes from the line of John Franzrebrenberg. Please go ahead. Good day, ladies and gentlemen.
Good day, ladies and gentlemen. Good day, ladies and gentlemen. Various remarks that we may make about the company's future expectations, plans and prospects constitute forward looking statements for purposes of the Statements as a result of various important factors, including those discussed in the company's Form 10 Q for the quarter ended July 3, 2010, under the caption Risk Factors, which is on file with the Securities and Exchange Commission and available in the Investors section of our website under the heading SEC filings. While we may elect to update forward looking statements at some point in the future, we specifically disclaim any obligation to do so Even if our estimates change, therefore, you should not rely on these forward looking statements as representing our views as of any date subsequent to today. Also during the call, we'll be referring to certain financial measures not prepared in accordance with Generally Accepted Accounting Principles or GAAP.
A reconciliation of these non GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our 3rd Quarter 20 10 Earnings and Future Expectations and also in the Investors section of our website under the heading Financial Results. So with that, I'll now turn the call over Mark?
Thanks, Ken. Good morning, everyone, and thank you for joining us for our 20 We're very pleased to report excellent financial results, highlighted by record 3rd quarter EPS performance. As I outlined earlier this year, we are intensely focused on achieving strong EPS growth and we successfully delivered on that goal again this quarter. We are also pleased to announce that we are raising our EPS and revenue guidance for 20.10, which we will discuss later during the call. Let me begin by reviewing our Q3 results at a high level.
As you saw in our press release, earnings per share grew 15% to a record $0.90 versus $0.78 in the 2,009 quarter. I'd like to focus on the 3 key drivers of our EPS performance. The first, top line revenue growth the second, Operating excellence and the 3rd, disciplined capital deployment. So let me start with covering top line revenue growth. Revenues for the Q3 increased 6 percent to $2,680,000,000 compared with $2,530,000,000 in the 2,009 quarter.
Our Analytical Technologies segment contributed significantly to our revenue growth in the quarter. In our analytical instruments business, which you may recall had a solid first half, we saw even stronger revenue performance in Q3. In addition, our clinical diagnostics and biosciences businesses continue to report strong growth. In our Laboratory Products and Services segment, sales of equipment and consumables were strong across academic and government, Biopharma and Industrial End Markets. I'll now turn to our 2nd EPS growth driver, which is operating excellence.
Let me start by saying how proud I am of our teams and how they delivered excellent operating performance in the quarter. Their sharp focus on successfully executing on their plans led to solid Q3 results and positions us well to achieve our goals for the full year. Our proven operating discipline also gives us the distinct advantage of being able to invest for the future. As we outlined at the beginning of the year, our plans for 20 new technologies. We also increased SG and A expense to continue to build our presence in emerging markets, particularly Asia.
One of the fruits of this investment is our new China Technology Center in Shanghai. This resource is focused on developing products technologies in China for China. In other words, specifically geared to the needs of our customers in that important marketplace. It's important for me to note, even with these significant investments, we achieved 30 basis points of adjusted operating margin expansion during the quarter. Our excellent operating results are tied largely to a culture of practical process improvement or PPI, which as you know is how Thermo Fisher increase productivity to better serve our customers around the world.
PPI and PPI lean will continue to be important contributors to our operating results. The R and D investment that I highlighted a moment ago demonstrates that Thermo Fisher is a company that is committed to innovation. Let me give you a couple of recent examples. As you saw in our press release, we introduced a substantially improved mass spectrometry based workflow for immunosuppressant analysis. This workflow, which includes our new test kits and new automated sampling handling technology is used in clinical research to closely In our specialty diagnostics business, we had 2 significant product milestones.
Infection that is often transmitted in hospitals. Basically, we developed one of the first color changing tests that allows healthcare workers to easily and therefore The second product milestone was that of developing our new cryostat technology. This is used by our customers in pathology laboratories to safely process tissues for cancer diagnosis. And it was selected to be R and D 100 Award winner. I'm also pleased to announce the formation of our Scientific Advisory Board.
This new Board consists of technology leaders within Thermo Fisher and representatives from some of the world's most premier centers of health, science The 3rd key contributor to our EPS growth is our ability to effectively deploy capital. As you've heard me say before, We take a disciplined approach to capital deployment. Since the beginning of the year, we deployed approximately $1,200,000,000 in total, Split almost equally on share repurchases and acquisitions. Specifically, we've invested $660,000,000 to repurchase our stock and approximately 5.50 On M and A, with the current valuation of Thermo Fisher stock, we believe that reinvesting in ourselves is very attractive. In September, our Board approved an additional $750,000,000 of share repurchases on top of our existing $475,000,000 to repurchase 10,100,000 of our shares.
At the end of the quarter, we had approximately $840,000,000 remaining under our buyback We also continue to deploy our capital on acquisitions. The most recent example is our acquisition of Fermentus for $260,000,000 which we In late July, to remind you, Fermentis provided a broad range of technologies for high quality molecular and cellular biology research To enhance Thermo Fisher's existing genomics portfolio, the Fermatis transaction combined with our earlier acquisition of Finzymes and The launch of our new qPCR assays also strengthens our depth of capabilities in the high growth market for PCR based testing. I'm pleased to report that the acquisitions we've made in the last 12 months are exceeding our expectations. Although not part of our organic growth calculation just yet, these businesses are growing faster than the company average and we expect them to be good contributors to our growth and profitability going forward. You'll see us to continue to create shareholder value in this way.
So we're focused on accelerating our long term growth and strengthening our industry leadership by deploying our cash flow and by putting our balance sheet to work. Now I'll switch gears a little to highlight through a couple of examples one of our key growth themes within the company. These themes are important Because they collectively drive our revenue growth, they underscore our unique depth of capabilities and they illustrate how we fulfill our company's mission To enable our customers to make the world healthier, cleaner and safer. Last quarter, I talked about the great progress we're making to expand in emerging markets, specifically China. Today, I want to talk about our capabilities in moving advanced technologies from the lab to the line and to the field.
Specifically, I'll give you three examples from our laboratory equipment and analytical instruments businesses. First, let's look at a part of our lab equipment business that you might not know much about, chillers and temperature controlled devices. We're a leader in this technology And our thermo scientific chillers are found in laboratories around the world. As background, our most advanced chillers can maintain temperature to within 1 1 of a degree. That's important because maintaining a constant temperature is a key factor in ensuring the reproducibility of certain experiments.
Through our ongoing technology developments, the applications for temperature control are increasingly moving out of the laboratory and into new applications. One example is a California based manufacturer who is working on developing a DNA sequencer. Precise temperature control is critical to Working closely with them to apply our temperature control expertise, we were able to not only meet this need, But also introduce a whole new line of chillers that are now sold throughout the world. This kind of partnering innovation is actually quite common for us and opens the doors to even greater opportunities. Another example that you're probably familiar with is our offering of thermoscientific handheld technologies within Such as Horace Scientific, we continue to translate lab proven analytical technologies into handheld instruments for a range of new applications You'll find our XRF, Raman spectroscopy and near infrared instruments used in a broad range of applications, including to name a few.
The 3rd example to carry out this theme is also from our analytical instruments business. Today, gas chromatography is a standard process control instrument, but we have often heard from our customers This need also extends to the biotech industry where these instruments are used in the fermentation process. Based on our industry leading mass spec We recently introduced a new product called Prima Pro, which is a next generation mass spec analyzer for industrial markets. The provides lower cost of ownership, lower capital cost, while improving process control for many applications that were traditionally based on GC To sum it all up, this important theme in our company, lab to line to field, covers many applications that allows us to drive incremental With industrial end markets clearly improving, we see this as a terrific opportunity well into the future. So this is One theme that illustrates for you how our company is positioned for growth.
I plan to highlight one top level message like this every quarter to give you a better The range of opportunities we are capitalizing on at Thermo Fisher. Before I conclude, let me spend a moment on our annual guidance, which you saw in our press release. Pete will go into more detail during his remarks, but at a high level, I can tell you that we're 16% EPS growth over 2,009. This will be driven by top line growth, Strong operating execution and productivity improvements as well as the benefits of our continued strategy of effectively deploying our capital. We are also raising our 20 10 revenue guidance to a new range of $10,720,000,000 to 10 This would result in 6% to 7% overall revenue growth over 2,009.
We have a strong 9 months behind us with higher top and bottom line expectations than when we started the year. Before I hand the call over to Pete, let me summarize by saying that we're on track to deliver a great 2010. I'm proud of how well our teams are executing on their plans. We expect good Top line growth, our markets are continuing to show improvement over 2,009
and we continue to effectively deploy capital to create shareholder value. In total, this positions us well to achieve our 20 10 financial goals. Now I'll turn the call over to our CFO, Pete Wilbur. Pete? Thanks, Mark.
Good morning, everyone. As Mark highlighted, we Good day, ladies and gentlemen. Delivered another strong quarter with 15% growth in our adjusted earnings per share to a 3rd quarter record of $0.90 compared to $0.78 last year. GAAP EPS in Q3 was $0.66 up 25% from $0.53 in the prior year's quarter, 2,680,000,000. Acquisitions contributed 3% to the growth and the unfavorable effect of currency translation lowered revenues by 1%, resulting in 4% organic growth.
In the quarter, the BioSight transition and unfavorable flu comps that we've previously discussed Negatively affected our organic growth by over 2 percentage points. Excluding these two items, our organic growth would have been above 6%. Our results in Q3 continued our trend of strong growth across our portfolio with instruments and equipment By segment, Analytical Technologies Q3 revenues grew 14% on a reported basis and 8% organically. This quarter, we saw especially strong growth in our mass spec, clinical diagnostics and biosciences businesses. And our instruments businesses serving industrial markets delivered strong year over year growth, reflecting the improvement we are seeing in those markets.
Our microbiology business, however, was dilutive to growth due to the tough year over year comparison with unusually high H1N1 In the Laboratory Products and Services segment, Q3 revenues grew 1% on a reported basis and 2% organically. In the quarter, we saw strong growth in laboratory equipment and consumables, partially offset by flu and BioSight. By geography, our 3 major regions, North America, Europe and Asia Pacific, all grew organically at about the company average. Bookings were much stronger than revenues in the Asia Pac region, particularly in China and India, where we had double digit growth. Rest of the world grew in the mid-20s from a relatively small base driven by South America and the Middle East.
We also had solid results at the bottom line with Q3 adjusted operating income increasing 8% year over year to 471,000,000 Adjusted operating margin was 17.6%, up 30 basis points from 17.3% in the year ago quarter. The year over year margin expansion was driven by pull through on organic volume growth at marginal rates and strong cost productivity, Driven by our global sourcing, practical process improvement and restructuring initiatives. We also saw nice accretion in the quarter from our recent acquisitions. These gains were partially offset by strategic growth investments, as Mark highlighted, in R and D and commercial resources to support growth, primarily in Asia. By segment, Q3 adjusted operating income in Analytical Technologies increased by 23% year over year.
Driven by strong pull through on organic volume growth. Q3 adjusted operating income in Laboratory Products and Services decreased by 6% year over year. Adjusted operating margin was 13.4%, down 100 basis points versus 14.4% in the 2,009 quarter. Moving on to the details of the P and L. Total company adjusted gross margin was 42.2 percent in Q3, up 100 basis points from the year ago quarter.
This increase was driven by pull through on organic revenue growth, cost productivity and accretion from our recent acquisitions. Adjusted SG and A was 22 percent of revenue in Q3, up 50 basis points from 21.5% in the year ago quarter, driven by strategic growth investments. R and D expense was 2.7 percent of revenue in Q3, up $11,000,000 30 basis points from last year, reflecting our commitment to increased investment in technology development to expand our new product pipeline for future growth. Moving below the line, our Q3 adjusted net interest expense decreased $11,000,000 year over year to 16,000,000 Driven by lower interest expense, mainly as a result of our debt refinancing initiatives. We also had higher year over year interest income Our adjusted tax rate for the quarter was 20.4%, up 40 basis points from Q3 2,009 Our new full year adjusted tax rate forecast is 21.2%, Which represents our previous estimate of 21.5 percent adjusted for the Q3 specific items.
With regard to the new U. S. Tax legislation that was approved earlier in the Q3, the detailed regulations have not yet been issued, so we don't know exactly how they will affect us. However, we're not forecasting any impact on our 2010 tax rate, and we don't expect our 2011 tax rate to be materially outside the assumption we gave you at our May Analyst Meeting, which was 22% to 23%. As Mark mentioned, we used $475,000,000 of our cash to buy back 10,100,000 shares during the quarter.
Year to date through the end of the quarter, we spent $663,000,000 on buybacks against our total authorization of 1,500,000,000 So we have $837,000,000 left to spend on our current authorizations through September 8, 2011. Average diluted shares were 404,000,000 in the quarter, down 16,000,000 from last year, reflecting the benefit of our 2010 share buyback program cash flow performance accelerated this quarter. Q3 year to date free cash flow from continuing operations was $891,000,000 After deducting net capital expenditures of $169,000,000 We ended the quarter with $939,000,000 in cash and investments, Down $377,000,000 from Q2, that's free cash flow in the quarter was more than offset by cash used for share buybacks and the Fermentas acquisition. Our total debt was $2,160,000,000 up slightly from Q2. With regard to working capital, We continue to have good year over year performance.
Accounts receivable days sales outstanding were 52 days, down one day from the prior year And inventory days of supply were 70 days, also down one day from 2,009. Moving on to our 20 10 guidance, we're raising our previous adjusted EPS guidance and tightening the range, resulting in a $0.05 increase to the midpoint. Specifically, we're increasing our adjusted EPS guidance to a new range of $3.47 $3.53 from our previous range of $3.40 to $3.50 This new range represents 14% to 16% growth compared to our 2 In terms of revenue, we're also raising our guidance to a new range of $10,720,000,000 to $10,801,000,000 from our previous range of 10 point represents growth of 6% to 7% compared to our 2,009 revenues of $10,110,000,000 The primary drivers of Our improved foreign currency translation and slightly better than expected organic growth in Q3. In terms of full organic revenues, our current guidance translates to growth of 4% to 5%. As I've mentioned before, We expect flu and BioSight to negatively impact our full year revenue growth by over 1%.
So excluding these two items, Our full year organic growth would be solidly in the range of 5% to 6%. As a reminder, Q1 had 4 more days than the prior year And Q4 will have 4 less days. So in terms of our Q4 organic growth, when you combine the calendar impact With the Flu and BioSight headwinds, our Q4 reported growth will take a hit of about 6 percentage points, resulting in reported organic growth of As usual, our guidance does not include any significant assumptions with regard to future uses of capital or Other than our previously announced share buyback authorizations, which we expect to utilize over the remaining months of the authorization. In interpreting our revenue and adjusted EPS guidance ranges, as I've said in the past, you should focus on the midpoint as our most likely view of how we see the rest of 2010 playing out. Results above or below the midpoint will depend primarily on the relative strength of our markets for the remainder of the year.
So to wrap it up, we delivered another strong quarter and are pleased to see continued positive momentum across the company. After consistently delivering 3 quarters of strong operating performance, we're well positioned to achieve our full year 2010 financial goals. With that, I'll turn the call over to the operator for Q and A.
And the first question comes from the line of Ross Muken from Deutsche Bank. Please proceed.
Good morning, guys, and congrats on a great quarter.
Good morning, Ross.
So, last quarter, we left off with A number of moving parts and from an end market perspective, we had a little bit of, I would say, noise in some of the specific Pieces, as we look at the numbers here, they're quite good across the board. I mean, as we look sequentially, where do you think like the biggest Deltas were in terms of either end market or product group, however way you want to cut it in terms of improvement Any sort of meaningful change from what we saw previously?
So Ross, maybe what I'll do here is just give you a recap of what we saw in the end markets, and And I'll provide some color what happened quarter over quarter. So let me start with pharma and biotech. From that set of customers, we continue to grow our share with the biopharma customers, And that's really driven by our compelling value proposition. In the quarter, we had really strong performance in our bioprocess production business where our single use Technologies and media are benefiting from the trend of more biologically based drugs. So that was in that customer set, really share gain continues for us.
Academic Government, really good momentum for us with our Biosciences business. Stimulus was good for us in the quarter. We captured about $15,000,000 of stimulus in the quarter. So we're getting good growth out of academic and government customers as well. In terms of industrial and applied markets, we're definitely seeing the positive impact of the improving economy across Businesses and in the quarter, really nice strength in our instrument businesses and in important applied markets such as food and water quality.
And these markets are really driving broad based strength, so continuing improving economy for us in industrial. And then healthcare for Great momentum in clinical diagnostics. We're delivering excellent results there We're a leading reagent supplier and that will get even better for us as the Brahms business is not yet in the organic growth calculation. So that's a business that's doing very well in health care. And then health care, the one thing is that a reminder, which Flu and BioSight affects those customer base.
And when you take that out, just to get a sense of what's happening, actually that business, healthcare as a customer set, is growing right The historical rates and right at the company average. So there's some specific headwinds that are temporary in healthcare, but all 4 of
our customer Good day, ladies and gentlemen. I appreciate the color there. And maybe just quickly on the capital deployment front, You guys have done a good job this year in terms of balancing between M and A and share repurchase. The stock continues to be inexpensive. So You spent quite a bit on the quarter on the repo side.
As you think about the M and A landscape now, financing is still relatively cheap. What kind of deal activity are we seeing or level of sort of availability both in sort of the public and private market or any commentary you can give on what you're seeing there?
It's a good pipeline of M and A that we're looking at. We always have a deep pipeline. And I think important thing is, I think it's pretty clear we're very disciplined. We're doing deals that we're excited about. We've built 3 platforms over the past in terms of in specialty diagnostics, biosciences and handhelds.
And when we see the right ones, we'll do them. And if we don't like the economics and shareholder value Obviously, we'll pass on those that we're not comfortable with, but a good pipeline of M and A.
Great. Thanks again and congrats. Thanks, Ross.
My next question comes from the line of Amit Bali from Citi. Please proceed.
Hi, good morning. Good morning. I wanted to ask you a couple of questions. There are 2 questions actually. First on lab products, is there a way for you to just talk about the impact from the weak flu season and In a weak patient or doctor visits, how that's impacting the lab products business right now?
Well, specifically the laboratory products and services segment was impacted by about 3% on the top line From the flu and BioSight comparisons in the prior year. So if you adjust the 2% organic growth by The 3% they would actually have been reporting 5% organic growth in the quarter.
But the flu season is
Still weak right now. So I'm taking BioSight and flu from last year out of
the way, but doc visits are also still down.
Are you seeing impacting your business right now also?
Our business has been quite strong and growing at historical levels. I think Part of it is that our clinical diagnostics business is really gaining share. We are a Very high market share provider of immunoassays and basically a number of the large OEM companies have been outsourcing more of their business to us And driving more of our products. So that business is doing well. We have great quality.
So we're not we haven't seen the effects of things That other companies have talked about, our end demand has been strong.
And then just a follow-up. In Looking at next year, can you just talk about your comfort with low to mid teens earnings guidance as we stand today? And what kind of impact The changing foreign exchange landscape would have on revenues and earnings for next year? Thanks.
If you think About 2011, at this point in the year, we continue to be comfortable with the 2011 operating assumptions That we outlined for you back in May at the analyst meeting. And we'll provide all the details on our next earnings call in the 1st week of February in terms of guidance. But assumptions that we operating assumptions we laid out, we feel good about.
Okay. Thanks.
And then in terms of FX, It's hard to predict obviously what the FX rates will be by the time we get to the end of the year. But versus the numbers that we talked about back in May, were probably in the range of something north of $100,000,000 on the top line in terms of incremental FX if we stay where we are today. And that pulls through at about our average margin, so about $20,000,000 of margin or 4% to 5% on the bottom line.
Perfect. Thanks.
Yes.
Next question comes from the line of John Goldberg from Macquarie. Please proceed.
Hi, thanks for taking the questions. Could you maybe dive in a little bit more into the lab products and services margin? I know you mentioned a number of strategic investments, I think particularly In Asia, but maybe just talk a little bit more about where you're investing the money and just kind of the margin that decline there?
Sure. So I'll to the where we're investing and Pete may cover a little more commentary. In terms of investments, We are investing significantly in emerging markets to expand out our presence. Obviously, with lab products being a little bit more Then half the company's revenue as we expand in these new markets, they're going to pick up about half of the cost because we have a company wide commercial So expansions in China, expansions in Brazil and so forth around the world are part of the expense. And we have some Investments that we're making on the IT front to strengthen our web capabilities for our customers that Is a good growth driver and ultimately an efficiency play down the road.
Those are probably the biggest costs that we're investing in. I think that covers it, John.
Okay. And then if you can Pete, just so I'm clear, when you're talking about BioSight, Is that pure BioSight when you do the adjustment? Or is that also reflecting the other supplier that you brought in to try and So that's a net number or is that just a gross number with Miocene, just so I'm clear?
No, that's the net number. So We're offsetting the incremental revenues that we picked up from the new supplier in those adjustments.
Okay, great. Thanks. Congratulations.
Thank
you. And our
next question comes from the line of Marshall Ernest from Morgan Stanley. Please proceed.
Yes. Hi, guys. Good morning. Thanks for taking the questions. First one, Mark, you just made a comment about the analytical instruments Business doing even better sequentially.
Would love to get a better sense of exactly what's driving that. What's doing better? And is that something that you see being sustainable over the next several quarters?
Marshall, thanks for the question. In terms of what's getting better, we're seeing the effects of the improving industrial economy. That's clear. And that covers that impacts A broad range of our instruments, in our process and environmental instruments, where they're more heavily biased towards customers, obviously, we're seeing accelerating growth. But in our largest business, which is scientific instruments in the lab, you're seeing great strength in spectroscopy tools, Great strength across mass spec that industrial customers are spending more money on instrumentation right now.
It's really very, very positive.
Great. Thanks. And then just one more follow-up on the LPS investments. Just as you think historically when you make these kind of Will we start to see leverage on these investments? Is that a 2011 dynamic?
What's the timeframe we should be thinking there?
Yes. I think and I've said this a number of times, we increased some expenditure rates in terms of taking a lower Overall margin expansion for this full year, but our expectation is not to ramp up on this level, but rather get leverage going forward. So 2010 was a put some more money into commercial, put some more money into R and D, and then we get the benefits as the company continues to drive strong revenue growth, Those investments get leveraged over that bigger base. So we're very clear on what the investment strategy is. And, Bob, there's just great opportunities in TEN that we're taking advantage of.
Great. Thanks.
The next question comes from the line of Doug Schenkel from Cowen and Company. Please proceed.
Hi, good morning.
Good morning, Doug.
You guys are the 2nd company this week To talk about strong media sales to biopharma, I think we've also heard from a couple of players that mass spec sales have been picking Up in Pharma, recognizing that you guys have been a share gainer in this market for a bit A while now. Separate from that, are you actually seeing that the demand dynamics in biopharma are actually improving?
Yes. When you look at the quarter for us, we had good performance in our biopharma And if I look at it, it's not dramatically different than what we've seen earlier in the year, but our performance is good. And Clearly, our bioprocessor production has done well. Obviously, we've had great momentum for long, long periods of time in mass spec. That's a customer base that is always kind of growing where we would expect it to grow.
Okay. And then the M and A in the quarter, I think you guys mentioned that that's tracking ahead of plan, certainly ahead of what I had in my model. I think you did about $80,000,000 in M and A related revenue in the quarter. I Is that a good I'm going to turn it to organic, but I guess essentially as we think about that number, Is that kind of a run rate number that we should be using, dollars 80 plus 1,000,000 per quarter growing at a rate that's The corporate average as we look ahead, is that the right way to think about the deals that you've done this year and how we think about those moving forward?
It's obviously hard for us to predict going forward what the acquisitions will be. But I would say this quarter we picked up 3% from acquisitions and divestitures, that's on the high end of what we would generally see in a quarter. So it's more in the range of 2%. Of course, we don't target that number. And again, it depends on what acquisitions we actually complete.
But I would say the 3% is more on the high end.
Yes. I guess I'm sorry. I actually meant given that these the acquisitions that you've actually done at this point seem to be tracking ahead of plan. Okay. I mean, is this the type of growth that we should expect from these businesses as they roll into the organic number next year?
You should assume on that base of business that those businesses are going to be growing faster than the company average. The 3 platforms, which is the absolute vast majority of the revenue are all very attractive end markets, and we've added a lot of value to those businesses in terms of To drive revenue synergies, so those are going to be good growers for us. So I think you've done the math right in terms of what the size of the businesses are and then you Just factor in above average growth rates for them.
Okay. Thank you.
The next question comes from the line of Dan Leonard from L. S. Please proceed.
Hi, thank you. A little bit on that last question. I know it's early days, but Mark, can you talk about early revenue synergies you've been able to drive from your new QPCR businesses?
Yes. I think when you think about what we've done in QPCR and you look at it, it's a business Because they buy enormous volumes of product from us, even not even just the company or the research lab, but actually the individuals that are using those products are our customers. What we decided is to develop some of our own products, and you've seen us actually launch Some specific reagents in the field. We bought Finzymes, which brought an interesting instrument technology. We We bought Fermentus, which expands out our offering.
So we have a clear view that leveraging our channel strength, we're able to put together both organically and inorganically A nice position to pick up share in that market. So it's not huge today, but we think it will be a nice growth opportunity for us down the road.
Okay. Thank you. And then my follow-up question. You mentioned you're gaining share in diagnostics based on some OEM What's the value proposition? And I guess what's really behind that share gain?
Is it a lower Costs or is there something special you guys could do that isn't as easy for other folks to do?
I think we have 2 aspects of those relationships. One is we have a lot of proprietary Meaning that it's our capability that is exclusively ours and we effectively if they want Have that product on their analyzers, they have to come to us. And we've built such a large business over time that way that they've
But we're leaving to give you
some of our own to manufacture for us. And we're just doing a great job with it. And it's this great customer service, great relationships. And It basically means that you find our reagents in every clinical diagnostic central lab because we have great share with all of the major OEM players.
Okay. Thank you.
The next question comes from the line of Quentin Live from Robert W. Baird. Please proceed.
Good morning, Quinn. Good
morning. Congratulations on a nice quarter. Mark, looking at the scientific Board that you just formed, it looks like a lot of emphasis on cell biologists, oncologists and pathologists. Is that kind of suggestive of your kind of long term R and D plans? And then Talk to a little bit about what you envision for that Board?
Yes. So when you look at the company, there isn't somebody In mass spec, that isn't interacting with us or knows about us or we have access to, right? I mean, the company has got this incredible aura And we also have incredibly strong businesses, one of the largest in cancer diagnostics with our Anatomical Pathology business. We have a huge presence in terms of dealing with our genomics customers with a broad range of capabilities. The company is a little less known for those two things and we put a heavier weighting in our Scientific Advisory Board getting the best minds in the field We'll learn from it, but it sends a signal to the broader customer base of our commitment to building out our capabilities there.
Super. And then, Pete, just as we look out to 20 11 and forecasting that, any days Any days issues that we need to be thinking about when modeling the quarters?
I'm very happy to say no.
All right. Thank you.
The next question comes from the line of John Wood from Jefferies. Please proceed.
Hey, thanks a lot. Mark, on the industrial market side, clearly, the later cycle franchises like yours are Still accelerating, but the rate of improvement in kind of the capacity utilization metrics has slowed quite a bit recently. So my question is, How much longer is there this catch up investment phase in the industrial markets? When does when do those markets So there are obviously macro economists that are probably better equipped to Get the best answer to that. Our read is just looking at the way bookings are shaping up in those parts of the business that We're going to continue to see acceleration of that business.
I mean, the trend is we're seeing order rates increasing there. So we're not seeing signs It's very hard to know when inflection point goes in the opposite direction. We're not seeing any leading indicators in that part of the business to see a slowdown. And our short businesses are continuing to strengthen. So things like handhelds, which are not big capital decisions for customers, those The benefits of an improving economy.
All right. Great. Good color. And then Pete, could you just provide some clarity around the top 20 trend in the quarter? Yes.
In terms of top 20, they continue to grow at above the average growth rate for us. So we continue to do well there. Okay. Thanks a lot. Welcome.
The next question comes from the line of Tycho Peterson from JPMorgan. Please proceed.
Hey, good morning. Good morning. First question with regards to kind of the incremental investments you're making here on the SG and A line. It looks like I guess you've now had about 4 quarters $580,000,000 $600,000,000 Is this kind of a good run rate to Mala going forward or should we assume that there's a period of investment here in Asia that will Maybe we're off a little bit in the next couple of years.
Yes. I would say we've been ramping up these investments throughout the year and investments will continue to ramp up in Q4 mostly because we've put people in as you know, this is mostly people. We put people in throughout The Q3, so we'll get the full impact of those investments in the Q4. But as Mark said earlier, we're not expecting to continue this ramp. It's more invest And then maintain that higher level of spending in 2011 and leverage that against higher revenues.
And then I guess with regards to Asia, I think in your comments, Pete, you talked about all geographies kind of growing at the corporate average. I think subsequently you said double digit growth in China and India. But As we think about Asia going forward, is there an opportunity to grow that above the corporate growth rate? Or are there areas that are kind of weighing down the overall average there?
So Tycho, when you look going forward with Asia, we see that as going to be the fastest growing geography for us. Obviously, you have very different dynamics by country, China and India versus Japan and so forth. But the whole region, we still above average growth for us. The bookings momentum there is obviously very strong and encouraging as a leading indicator for what the future holds.
Okay. And then just one last one on the stepped up R and D. You highlighted some of the diagnostic products that have come out of that effort. Can you talk to some of the investments you're making maybe in other areas or how we should think about new products emerging from the stepped up R and D investment outside of the Diagnostics business?
Yeah. I think what you got a sense with the call in my prepared remarks is I wanted to try to provide some clarity on businesses that are important growth drivers that we don't As much about because our instrument business is well understood, so I spend more time talking about lab to line and talk more about diagnostics. We have increased our R and
D in biosciences. We've increased our R
and D in We've increased our R and D in our scientific instruments as well. You'll see new applications and new technologies and mass spec coming out. You'll see more reagents on biosciences coming that we think are good growth opportunities for the company going forward. So it's not just in the ones I mentioned, but I think you'll see nice
The next question comes from the line of Isaac Ro
Just first, could you maybe comment a little bit on the pricing environment that you're seeing for equipment? And And maybe comment if you see any discernible differences between high end products like your mass spectrometers and then maybe the lower end products?
So in terms of the pricing environment, Isaac, at the beginning of the year, we said Typically in a year where you're coming in the beginning of a recovery that you get lower than average price increases, we handicap the year as an assumption of 1% to 1.5 When you look at it through the 1st 9 months, we're just under the 1%. So we're pretty much right where we thought it would play out. In terms of the various competitive dynamics, the highest end instrument pricing has been strong. There's In the areas that there's more competitors, obviously, there's more price intensity, but it's
And then just maybe secondly, understanding that it's an uncertain political environment, but just as we look at NIH funding growth, could you maybe share any thoughts you have on your assumptions for NIH funding over the next couple of years? And then maybe how that might contrast with your outlook for funding in the EU regions?
Yes. When we are thinking about NIH funding, holding aside that there'll be a little bit of That drops into falls into 11, probably not a lot, but a little bit. We're assuming pretty flat budgets where as opposed to some of the U. S. Government cutting budgets We look at NIH being relatively stable is our basic assumption.
And when you look at Obviously, UK is going to be relatively stable and probably see some growth in some of the other markets.
Got it. Great. Thanks very much.
Welcome.
The next question comes from the line of Paul Knight from CLSA. Please proceed.
Hi, Mark. Can you talk about pharmaceutical demand in Europe in the quarter? And then, Pete, the tax rate, what do you expect that to In the future, and is it trending down or where is the trend on that tax rate?
So in terms of the farmer demand by geography, I can answer the question more of what are we seeing in the geography of Europe than all of the In Europe, we had a good quarter in terms of growth. It grew at the company average. The strongest customer set in Europe was industrial for us. And I haven't said by each and every But as I
looked at it, we had growth of the rates the company average and industrial was a little bit faster than the average. And in terms of the tax rate, as I mentioned, back in May, we talked about a tax rate in the range of 22% to 3% for 2011. That's a slight increase from where we had previously forecast 2010 to be with the primary As we make more income, it tends to come in at marginal rates. So just the weighted average tends to go up as we make more money. The other nuance that has obviously happened since May is the new tax legislation.
At this point, we don't know specifically that how that's going to impact us, but we
We don't feel we're going to be outside the range of what
we talked about in May, which was that 22% to 23%. And if that legislation goes the tax credit, that would have benefit you through how long, all of next year? Well, it's actually a detriment To us, but we believe that we have some tax planning initiatives to help mitigate the impact of the change.
Okay. Thanks.
I'm sorry, were you talking about the R and D tax credit?
Yes.
Okay. Yes, the R and D tax credit, they basically tend it Depends on how they approve it, but generally they only do it for 1 year. So right now only impact us for 2010. If it gets extended in 2011, obviously we would see a similar benefit. Yes.
Okay, thanks. Yes.
And the next question comes from the line of Tony Butler from Barclays Capital. Please proceed.
Thanks very much. Staying with the topic of pricing, are there any shortages of components, Source components that you've witnessed and moreover, is there any inflation to price on any source components? And The second question to op margins in the LPS business, while I recognize they're down 100 basis points year over year, They're down sequentially by 80%. And while BioSight and perhaps flu could be components, the question is what might one think about A normalized run rate of op margins in that business and would you care to provide any aspirational goals for op margins in LPS? Thanks very much.
Yes. First of all, in terms of the shortages, no, we're not seeing any shortages from our suppliers. We have a
So when you look at laboratory products and services operating performance, it's really comparable to ATS. They are investing as a percentage of revenue at the same level essentially as analytical technologies. But obviously in the quarter they're getting hit Harder by the Flu and BioSight headwinds. And obviously, they don't get the same pull through on incremental revenues that the as it's compared to the incremental pull through on revenues between the two segments. In terms of going forward, Going into Q4, we certainly expect sequential margin improvement in both segments regardless of the investment level that we're going to have.
And I don't believe we've talked really going forward long term about margins by the segments, but certainly for the company, we're looking at 50 to 100 basis points of margin expansion a year and nothing has really changed in those assumptions since we talked about it back in May.
And thank you for that. Mark, just back on sourcing, are prices being added? Are you seeing inflation in pricing to you on
So on product on things that have value add, so components, the answer is no. We've had very stable pricing. So this has not been a negative fact, a very normal environment. Steel was up for a little bit. You read in the papers today, it's going back down.
So inflation has been pretty much We're pretty sophisticated on anybody who has any value add to what they supply to us in terms of being
Next question comes from the line of Sung Ji Nam from Glacier. Please proceed.
Hi. Thanks for taking the question. Just quickly for your mass spec business, I was just curious as to if you have a sense of what The baseline growth expectation might be for next year, is it mid single digits or high single digits?
We really don't give the expectations down at the product line level. But it gets blended into the company rates, but it's clearly going to grow at above the company's average rate. It's a great market. We have leading technology, leading position, Great suite of new introductions made coming out. We're doing well on mass spec, and I'm excited about our prospects.
Okay, great. And then going back to the stimulus, the impact you had this quarter of $15,000,000 was it largely U. S. Based?
And this quarter was U.
S. Sorry?
And this quarter was U. S. Based.
And just going forward, do you have any insight
So when we gave the original $100,000,000 to $200,000,000 of guidance On stimulus at the beginning of 2009, we're right in that range. We're at 140 something at this point in time, See some continuation. The only big unknown which would be a potential positive, but it's hard to tell is Japan has Just outlined a high level big stimulus program, but it hasn't yet got to what does it mean for our industry. So that's a potential positive out there, but too early to tell.
Okay, great. Thank you.
Operator, we have time for just one more.
And the final question comes from the line of Derik Steve Brown from UBS. Please proceed.
Hi, good morning. Good morning.
So I guess, when you just a little bit of clarity on Modeling, so when you kind of look at the Q4, I would assume that the extra days are going to have a bigger impact on the LPS business on the Analytical Technologies business, Modeling purposes, just given the consumable mix.
Yes, that's true.
Okay. So that's good. And I guess also on the AT, are you What are you guys getting any feeling in terms of potential for a budget flush this year? I mean, there wasn't much of one last year. Do you get any sense there might be a little bit of relief spending in the industry?
Derek, that one's Hard to call. So we're assuming a normal year end is the way to characterize it. We didn't bake into an assumption a budget flush. So if it doesn't happen, that's not going to an adverse and if customers loosen up at the end of the year that would obviously be an incremental positive. So I don't see a lot of Downside from that, we kind of looked at normal activity.
Great, great. So just I'll give you one softball throwaway question, but we'll do that. So you guys are a huge player in the air quality Monitoring market. And if I were to quickly, you had a good launch initially with your mercury monitoring and that got kind of stymied By the last administration, clearly, regulations around the world on monitoring and also So certainly for mercury and other things have picked up. And I guess clearly also some of the industrial rebound is also tied to air monitoring.
I guess, is
So we like new environmental regulations. I mean, that's Good news for our business. Every time China, the U. S, India puts another restriction on things from an emission standpoint, that's good given our very strong market position. So we had lots of growth that came out of Mercury.
We got high share regulation change that slowed it down. The technology is relevant. We're pretty confident that you'll actually see a reemergence of that technology in some other Over time, there are any time that we have greenhouse gas monitoring requirements, even if it's just regulated by the EPA, not even if it's driven by the Senate that would use our monitors to drive growth. And I think you'll start hearing from us. We've talked a little bit it.
But I think you'll hear from us in the next quarter or 2 talking about some minor safety applications of those technologies where we have some incredible In particular monitoring that we think is a very nice growth opportunity going into 2011 and 2012 for us. So there's a lot of good things on the air quality front and that's In a certain respect, a later cycle business and therefore, I think good news to come down the road.
And Just for some just want to finalize it. And if I recall quickly, you guys do have an overwhelming share in that general market?
We have a very, very high share in The U. S. A very, very high share in China and a good global presence, yes. Great. Thanks very much.
You're welcome. So let me close We're saying we had excellent results in Q3 on the heels of a very strong first half and that gives us an even more positive outlook for the full year. It's evidenced by our increased EPS and revenue guidance. So we feel that we're not only well positioned to achieve our 2010 goals, but we're also Confident in our ability to sustain growth into 2011. I look forward to reporting out the year end results in February as well as our guidance for the coming year.
Thanks for