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. Receivables 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 Q2 2010 earnings and future expectations and also in the Investors section of our website under the heading results. So with that, I'll now turn the call over to Mark.
Thanks, Ken. Good morning, everyone, and thank you for joining us for our review of the second quarter. The last time I spoke to most of you was at our analyst meeting back in May. If you recall, our theme for the meeting was leveraging leadership to drive earnings growth. It was a great opportunity to share with you how we are driving a combination of growth investment and operating performance to achieve our earnings goals.
I'm pleased to tell you that we're right on track with our strategy and that we delivered record EPS performance again in Q2 SMQ on solid top line results. I'm especially pleased with our performance because the business environment S. M. A. R.
S. Obviously still has its challenges. However, we have built a company that is the recognized industry leader. As such, we have 3 key strengths that gives us a market advantage and drive our performance. These strengths are our unique S.
Investment for growth, a combination of developing new technologies and making complementary acquisitions. Q2 financial highlights. We reported 2nd quarter revenues of $2,650,000,000 7 percent higher than 2,000 9. This translated to 5% organic growth, which was in line with our expectation for the quarter. Our revenue growth submission, which together lowered our organic growth by over a percentage point in the quarter.
We delivered solid adjusted operating margin expansion Q2 achieving 17.6% versus 16.8% in the year ago quarter. Through proven operating discipline, we are fully leveraging our top line revenue growth for pull through to the bottom line and S. And Global Sourcing. Estimates are not included in the Q2. We are pleased to report that adjusted EPS was a 2nd quarter record at $0.84 14% higher than 2 S-1,009.
We continue to build on our strong track record of delivering double digit EPS growth. So I'm proud of how our teams first half of the year for Thermo Fisher. I'll spend a couple of minutes now framing what we're seeing in our key end markets at this point in the year. Interestingly, despite everything we hear about in the news, as a company, we haven't seen any dramatic changes since Q1. In S.
EICON consolidations in a number of big pharma companies and we don't see this abating in Q3. While pharma is weak, we continue to SME strength in biotech as evidenced by strong performance in our biosciences business in Q2. Turning to academic and government markets, we benefited modestly from stimulus programs with some additional funding being released in the U. S. Stimulus related orders and revenue from U.
S. Programs in the second half. Looking at healthcare, as you from other companies, demand in this market is generally soft by fewer doctor and hospital visits along with the very weak flu season. From and A showed strong growth in the quarter. Finally, I'll cover industrial markets.
While we had an easy comparison with the 2,009 quarter, we are definitely seeing some improvement in the industrial economy across the globe. For example, our portable analyzers business, which serves a broad sector of the industrial market, showed very strong growth in the quarter. Let me now turn to some business estimates from Q2. At the beginning of my comments, I referred to our depth of capabilities and commitment to growth investment as key differentiators for us in marketplace. I'll give you a few examples of how this positions us to meet the changing needs of our customers.
First, we were the headliner began this year at ASMS, the leading mass spectrometry conference. One highlight was our new suite of informatics products. These software estimates such as proteome Discoverer virtually reinvent mass spec based workflows for life sciences, fully leveraging the power of our leading thermal scientific technologies, including the Orbitrap. For more routine applications such as water or pesticide analysis, our new SMEQUAD system, the TSQ Quantum XLS significantly raised the bar. It offers the flexibility, speed and sensitivity our customers need to S.
E. To improve productivities in their laboratories. In the clinical research and specialty diagnostics markets, we are highlighting our capabilities at the AACC and
C
analysis of immunosuppressant drugs. This comprehensive solution offers clinical researchers a workflow that is seamless and easy SMEs are ready to use. It leverages technologies across several of our businesses, including specialty diagnostics, instruments and laboratory consumables. Also on display at AACC are biomarker tests from our Brahms business, S. Which we acquired last fall.
This is the first time we showcase these products at a major trade show under the Thermo Scientific man's. We are extremely pleased with the performance of this business, which has continued to deliver strong double digit growth. Shifting are that we're playing a positive role here. During the quarter, we developed new analytical screening methods to rapidly detect estimate would have been better. We secured samples from the Gulf and our scientists at the center worked around the clock to develop step by testing procedures that can be implemented at food safety and environmental laboratories.
These new methods, which are based on our instruments, equipment consumables are available to any government agency, company or laboratory around the world. I'd also like to mention some of our notable accomplishments in China as well, which as you know is a key growth geography for us. We won a multimillion dollar project from China's major oil and coal company to design, construct and equip their new R and D center, which is being built from the ground up. The center will focus on is developing various clean coal technologies. We also continue to see strong demand for our environmental instruments across China.
And in fact, our air and radiation monitors are being used at the World Expo currently being held in Shanghai. In addition to these business highlights, let SME, we deployed approximately $0.75 billion of our capital. Our focus during the time has been on both acquisitions and stock buybacks. 1st on acquisition update. In Q2, we completed the acquisition of estimate is not a problem.
Just after quarter
end, we closed on the acquisition of Fermentis.
Proxion, as we mentioned last quarter, is a supplier of products creates simplified workflows for proteomics applications. These technologies complement our leading ion trap and hybrid systems by adding capabilities for Nano Flow Liquid Chromatography. Fermentis, which we closed just a couple of weeks ago, is a global provider of search and diagnostic tools. Fermentis also offers key technologies for PCR based testing. This along with our FinDymes acquisition in Q1 Hohr Scientific, which we acquired in Q1 is going very well.
To remind you, Hohr Scientific is the leading provider of portable spectroscopy analyzers. With these products, we now have an impressive lineup of portable analyzers that bring advanced technologies to our customers who need to perform estimate precise analysis in the field. Another way we have deployed capital is through stock buybacks. We spent $187,000,000 in Q2 under our $750,000,000 repurchase program, which was authorized in April. Pete will cover this in more detail in his remarks.
Moving on to estimates are subject to the impact of
our earnings. We're pleased
with our strong performance in the first half, which puts us solidly on track to meet our goals for the full year. We remain confident in our outlook for earnings growth in 2010 and are therefore maintaining our adjusted EPS guidance of is $3.50 per share. This would lead to 11% to 15% growth over 2,009. On the top estimate is below the range
of $1,000,000,000. We're adjusting our
guidance to reflect less favorable foreign exchange rates and the addition of our recent acquisitions. Estimates are not subject to generate from $10,060,000,000 to $10,750,000,000 in revenues for results led to a great first half of the year and position us well to achieve our objectives for 20 10. While we will face FX headwinds and SMA's comparable sales were up in the Q3 and Q4. We are confident in our ability to deliver on our financial goals for the second half of the year. With that, I'd like to turn the call to our CFO, Pete Wilbur.
Pete? Thanks, Mark. Good morning, everyone. As Mark said, we delivered another quarter of strong operating estimates with 14% growth in our adjusted earnings per share to a second quarter record of $0.84 compared to 0.74 estimates last year. Our results were even stronger if you take into account weakening foreign exchange rates, which as I mentioned at our May S and P and L meeting created a $0.01 per share headwind compared to our guidance assumptions at the beginning of the quarter.
GAAP EPS in Q2 was $0.57 up from $0.49 in the prior year's quarter, primarily as a result of our improved operating performance. Moving on to our SG and A. Organic revenue growth was 5% in the quarter, excluding foreign currency translation of negative 1% and a 3% benefit from acquisitions net of divestitures. As Mark said, flu and the BioSight transition negatively affected growth by over a percentage point in the quarter. Our results in Q2 continued our trend of solid growth across our portfolio with instruments and equipment and consumables both growing in the mid single digits and services growing in the low is single digits.
We also continue to strengthen our backlog with bookings exceeding revenues in the quarter by SG and A segment, Q2 revenues grew 10% on a reported basis and 5% SME business is a relatively strong growth in our mass spec, clinical diagnostics and biosciences businesses. SMG business was negatively affected by a tough year over year comparison with high H1N1 flu sales in the prior year and overall weakness in the healthcare estimates, as Mark mentioned. In the Laboratory Products and Services segment, Q2 revenues grew 5% on both the reported and organic basis. During estimate by geography, North America, Europe and Asia Pacific all grew in the mid single digits in Q3 Q2 this year versus mid single digit declines in each region last year. Rest of the world grew slower than the company average against a tougher comparison of high single is expected to grow in the prior year.
Q2 adjusted operating income increased 11% year over year to 4 S-266,000,000 Adjusted operating margin was 17.6%, up about 75 basis points from 16 8% in the year ago quarter. The year over year margin expansion resulted primarily from strong pull through on the organic volume growth and the benefits of global sourcing and practical process improvement. This was partially offset by strategic investments in R and D and commercial resources to drive future growth. Estimated revenue was $1,000,000,000 by segment, Analytical Technologies Q2 adjusted operating income increased by 13% year over estimated operating margin was 20.6%, up about 55 basis points versus 20.1% estimate last year. Q2 adjusted operating income in laboratory products and services increased by 10% estimate of the year and adjusted operating margin was 14.2%, up about 60 basis points versus 13.6% in the 2,009
estimate is not included in the Q2.
Moving on to the details of the P and L. Total company adjusted gross margin was 42.3 percent in Q2, up about 125 basis points from the year ago quarter. The increase was driven primarily by strong pull through on organic revenue growth and our global sourcing efforts along with PPI and the cost reduction initiatives that we implemented in 2,009. Adjusted SG and A was 22.0 percent of revenue in Q2, up about 10 basis points from 21 point SG and A expenses were up 9% in the year ago quarter, reflecting our continued investment in commercial expansion and slightly higher SG and A expense. R and D expense was 2.7 percent of revenue in Q2, up $12,000,000 or $21,000,000 driven by lower interest expense as a result of our debt refinancing initiatives, partially offset by lower interest income to lower interest rates earned on our cash balances.
Other income was a gain of $200,000 up 1,300,000 from last year, primarily as a result of currency transaction gains on foreign entity cash this year compared with transaction losses in the SG and A quarter. Our adjusted tax rate for the quarter was 21.5%, flat with Q1 and up 1.5 points from Q2 2 S. And 9, primarily as a result of higher income at marginal rates. As Mark mentioned, during the quarter, we used 180 of our current $750,000,000 stock buyback authorization to purchase 3,700,000 shares. Average diluted shares were 416,000,000 in the quarter, down 8,000,000 from last year, reflecting the benefit of our share buyback programs in 2,009 2010, as as well as the redemption of a significant portion of our convertible debt.
I'm pleased to report that we continue and P and L maintain a strong balance sheet and that our cash flow performance remains solid considering the working capital investment required to support our top line growth. Year to date, free cash flow from continuing ops was $520,000,000 after deducting net capital expenditures of of $107,000,000 We ended the quarter with $1,320,000,000 in cash and investments, down $123,000,000 from Q1 as free cash flow in the quarter was more than offset by cash used to repurchase our shares, pay down debt and make complementary acquisitions. Receivable days sales outstanding were 50 days, down 3 days from the prior year and inventory days of supply were 68 days, down 5 days from the prior year. Moving on to our 20 10 guidance, as you saw in the press release and heard remark, we are maintaining our previous adjusted EPS guidance range of $3.40 to $3.50 This represents 11% to 15% growth compared estimate is similar to our 2,009 adjusted EPS of $3.05 We're also confident in our previous outlook for 20 and organic revenue growth of 3% to 5% as a result of our solid first half results and our current outlook for the second our key foreign currencies has created about a 1% headwind in terms of our reported revenue growth for the year.
This is being estimate of these factors, we are adjusting our revenue guidance from our previous range of $10,650,000,000 to $10,800,000,000 to a new range of 10 point S. O. To $10,750,000,000 This revised range represents growth of 5% to 6% compared to our 2,009 revenues of 10 estimate is $11,000,000 As usual, our guidance does not include any significant assumptions with regard to future uses of capital other than our previously S. And A. We expect to continue to utilize over the remaining 9 months of the authorization.
And 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 second half and in Q4 we'll lose the 4 calendar days that we picked up in Q1. We also faced significant headwinds in the second half with of the Biocyte contract as of July 1 and a very strong flu season last year versus our outlook for a normal flu season this year. Both of these items will have impact Q3 comparisons more heavily than Q4. So in summary, we delivered another quarter of solid operating performance and strong financial results. With a great first half behind us, we're well positioned to achieve our 20 financial goals.
With that, I'll turn the call over to the operator for Q and A.
Your first question comes from the line of Marshall Uris from Morgan Stanley. Please proceed.
Hey, guys. Good morning. So first question, I just wasn't clear about your comments on the healthcare environment. I know Thermo is a little bit more diversified relative to some of the other tools players. So did you see an organic growth headwind from volumes in the quarter similar to a lot
of other healthcare companies? And can you
quantify that for us? To a lot of other healthcare companies and can you quantify that for us?
Sure, Marshall. Let me give you a context of what's going in health We clearly saw from a market perspective, which we serve represents about a quarter of our revenue. The U. S. Portion clearly saw headwinds in the market.
And that, as you read in the papers, as you see from other companies that are pure healthcare companies, it appears estimated hospital visits are down and we see that in some of our consumables businesses. When you look at Thermo Fisher specific, you have the beginning of the BioSight transition, which puts a little bit more headwind on us. But we SME assets had extraordinarily strong growth in the quarter. So I think we're actually executing well, but the market condition was are clearly tougher.
Okay, great. That's helpful. And then second one from me is just on Europe, I know you touched on this lightly, but there's been mixed signals sort of across the board. And maybe just give us estimate is that we're seeing there both on the consumable side and instrument side and maybe comment on some of the different end markets in Europe and what your thought is in in the quarter and what you're thinking for the rest of the year? Thanks.
So in terms of Europe, the performance regionally didn't vary is a lot around the globe in the quarter. Obviously, we all read the headlines about Europe, but we're not actually seeing that in our business performance. So the business performed well in Europe. We saw strength across our specialty diagnostic businesses, both Anatomical Pathology, Clinical Diagnostics did well, our industrial businesses did well in Europe. So while estimate we read things, when you look to the Thermo Fisher specific actions, we haven't seen really a change in trajectory in Europe estimate at the end of the quarter.
Your next question comes from the line Ross Muken from Deutsche Bank. Please proceed.
Thanks. So a lot of moving parts in terms of your business and I just want to sort follow-up with what Marshall was keying in on. And so relative to coming into the year, as we look to the various end markets estimates, whether it's in biopharma in terms of use side of the site consolidations or in the healthcare market or in the industrial SMEs that have either improved or deteriorated. As you look across the base piece of business, is there anything you're seeing trend estimate was a bit of a surprise to you versus the beginning of the year? And then relative to that, as we think about estimate, kind of the organic growth guidance for the back half of the year, does it sort of assume most of the things that we see today kind of stay as is, industrial pickup and kind of the weak hospital volumes kind of continuing into the back half?
So a few thoughts, Ross. One is, I think one of the things that associates appreciate is that the company is very predictable and has good visibility into the end market. So if I think about our organic growth outlook that we've had for the year, what we said at the beginning of the year, what we said at the end of the first what we say today is we still feel good about the organic growth outlook for the full year. So I think that's a positive. We serve 4 key S and P end markets and I think it's important to realize that there haven't been dramatic changes, but I think it's always helpful to say where the subtleties are.
So industrial is getting a little SMB or healthcare got slightly weaker, pharma got slightly weaker, biotech got slightly stronger, but these are all very, very fully recovering economy, which we're seeing the signs of in our performance, and not dramatic changes off of that. Spot right now we're not seeing really big deviations from our original guidance.
And do you feel like Mark that as we sort of see this gradual recovery and gets to a more normalized environment that the way the business is performing versus what you see in the market from your peers kind of affirms sort S. And
S. Strategy and our execution, if I think about where we are from building the company, we have clear advantages with our S and P capabilities, we're gaining share with our large customers. We continue to build out our biosciences and analytical instruments business, which have better growth prospects, we're accelerating R and D investments, all of those things allow us for a continued improving long growth profile for the company and continuing to capitalize on our position as the undisputed world leader in serving science.
Perfect. And Just sorry, one quick point for Pete. It looks like there
was a little bit of
a change to the amortizable intangibles. Could you just sort of walk through that and whether or not that has any sort of EPS impact or core earnings impact?
Well, we exclude intangibles from our adjusted earnings per share calculation, so it wouldn't impact our adjusted earnings per is there.
But there was a change in the assumption, correct?
Not in in terms of an assumption, I mean, we Kendra, we hit the end of the Kendra amortization, so the number went down slightly, but that was the only thing that SMM I'm aware of, I'm not sure exactly. Okay.
That's all in that. Thank you.
Okay. Yes.
Your next question comes from the line
Mark, in your comments, I think you talked a little bit about pharma maybe getting tougher. I just want to kind of parse that out a little bit. I've SME's. I've always kind of been of the view that you're able to gain traction among your pharma customers despite some of the consolidation. So can you talk to a little bit about what you're seeing from your top SME accounts the top 20 and then are you seeing more interest in strategic agreements like you have with Lilly?
If you could just talk about the dynamic on pharma, that would be helpful.
Sure. So Tycho, once SG and A. Again, this was another quarter where our top accounts grew faster than the company average. From everything that we read, we continue to gain share at those accounts. So I think clearly the strategy that we have is being executed well and our customers appreciate the value proposition.
So I feel very good about that. I put Additional context, which is I think with all the site closures, I just think you have pharmaceutical customers in general just tightening up on capital spend right now and I think that's going continue, at least through the Q3, do I think that's a permanent trend? No, I don't. But do I think it's a shorter term thing that companies in our space face in the market, sure. And I like our position better than anybody because we have a unique value proposition that helps our customers through more challenging times.
And is there a risk, I guess, in the near term There's a glut of kind of used equipment coming on the market with the site closures or I mean, how do we think about whether that's going to be disrupted?
There have been site exposures in the past, you see stuff in second hand, it really has never materially affected, I think, anybody in terms of performance, in terms SMO is really that much stuff coming out on market. So, I don't think that'll be a big issue.
Okay. Just a question on the M and A SME, with Fermentos and Finzymes, you've got some nice products in PCR. Can you talk a little bit about where you see your PCR franchise going and how you're looking to build that out?
Sure. So, first of all, PCR is a major product category and I think it's one that as a company historically we really didn't participate much and I think it's important that we do participate in the market. The 2 acquisitions that you mentioned, Finzymes and Fermentis, it really does help strengthen offering, it adds enzymes, reagents that obviously complement some of the existing products that we had, as well as FinZymes also adds instrumentation capabilities for us as well. So it's an area that other companies very large positions, we are an early participant. I think the patent landscape is changing over the next couple of years and I think we'll be positions accelerate organic growth in our biosciences business by making some moves now and get ourselves is set up for some good growth down the road in that market segment.
Okay. And then just one last quick one on food safety, you called that out and I think in conjunction with the issues Down in the Gulf, is that can you quantify that? And is that something we have to think about in terms of presenting comp next year? Or are we at kind of a steady state now where the food testing businesses is offer a reasonable growth rate and it's not really going to be impacted? I don't think you have
to worry about the comps. I think you're seeing steady growth there, particularly what's going on in the Gulf is not material to our business, but I think it shows you how what kind of huge impact we can have with our customers in terms of making a difference in society. But you're not going to hear us talk next quarter about next year about tough comparisons versus food safety as a headwind down in the future. Okay. Thank you very much.
You're welcome, Tycho.
Your next question comes from the line of Quentin Lai from Robert W. Baird. Please proceed.
Hi, good morning.
Good morning, Quintin.
Mark, could you give us a little color on how the demand was between your kind of high end consumables and instruments in your low end, I mean, did you see any difference? And then kind of adding as an addition to that, give us an update estimate on your vitality index
parameters? Yes. In terms
of the difference between the high end instruments and reagents and the basic equipment, you can essentially look at the 2 segments and the organic growth rates were essentially is the same. So I would say there's not a material difference between the two pieces of business. And as I said also you can look at the instruments and equipment and consumables growing at a mid single digit growth rate. So it's pretty much across the estimates are not in the
One of the questions that I think that also came around this quarter was SME China and China demand going forward. A lot of the stuff that you signed contracts like in oil and gas and the nuclear side environment, I guess, what's your long term view on the commitment to Chinese demand in these areas at ThermoSirs?
So Quintin, when you look at the situation in China, I highlighted a couple very different types of examples. Was one that you've heard a lot about, which is environmental monitoring, instrumentation for infrastructure, and that continues to be strong and we to believe that there are good prospects there. We are starting to do more new lab works. And what was particularly interesting about the new lab win that I highlighted in this particular quarter is that it is a Chinese organization. So we've done a lot of new lab establishments, but they've been traditionally for multinationals.
And this is a huge government entity that has toured the multinationals and basically said, I want Thermo Fisher to set up my lab. When I was over in China last, I met with their new CTO of this organization and he's excited about equipping those laboratories with our equipment. When I look forward to what's going on in China, I think it's always S. Helpful to know that the comparisons bounce around every quarter. So we don't expect smooth steady growth every single quarter, but we do expect China to be the fastest growing geography for a number of years to come, and we see a broad estimate is to growth prospects for the business.
Great. Thank you.
Your next question comes from the line of John
estimate From Jefferies. Please proceed.
Okay. Hey, thanks a lot. Pete, could you give us kind of the update on SME major margin drivers kind of quantify raw materials and sourcing and PPI and also talk about the net pricing contribution assumption you got or you realized both top and kind of direct margin, if you will, in the quarter?
Well, start with the pricing. Estimating as we said last quarter, the pricing environment is a little bit tougher today specifically on routine instrumentation than it has in the past. So we're not seeing a significant contribution from price. On a gross level, it's around 1%, where in the past we've seen more like 1.5% to 2%. So that contribution is not as strong.
We took last year, that's having a pretty significant positive impact on our gross or our EBITDA margin year over year to the estimate of, let's say, 1.5 to 2 percentage points, that's being offset obviously by inflation, which we start out the year every year in a whole, and also some our investments in R and D and commercial resources, which is diluting margins by around 50 basis points or so.
Meant the 50 basis points was inflation R and D and commercial or just R and D and commercial?
No, just R and D and commercial. The inflation estimate doesn't quite offset the productivity, but it's a pretty significant number.
Okay, great. And then just Coming on
the Asia, you commented that your Asia growth was mid single digits. Was that off a harder comparison? I'm surprised that growth rates not a bit higher and I'm just getting exactly what happened in this period last year in terms of the Asia comp, if you will?
The Asia comp was a little tougher last year. It wasn't a huge comp. The toughest comp we had was rest of the world, which is a high single digit positive number. I think in Asia, we're just looking at some timing. Obviously, in Q1, we had a huge order in Japan, so we don't have that particular volume in Q2.
So I think it's just timing of orders other than a comparison issue.
Okay. Thanks a lot.
Macquarie Capital. Please proceed.
Good morning, John. Good morning. Thanks for taking the question. So can you Mark, Can you maybe just talk a little bit more, you made a couple of acquisitions in the PCR area and you answered some questions surrounding those, but can you maybe broaden that out a little bit more, I guess, in terms of maybe your appetite for moving into some of the other areas of genetic analysis within the life sciences side of your end markets, maybe a faster growing one of the faster growing buckets. And I think previously there was a little bit more reluctance to move in there.
And I don't know if you're looking at PCR as a unique situation given some of the patent issues or if there is a bit more of an appetite to maybe move into some of those other markets?
So when you look at the acquisitions, John, let SME answer it, let's look at what we've done this year. We spent a little over $500,000,000 and what thing that's more industrially oriented, kind of field based, a horror scientific, while we have the best channel to market with our portable elemental analyzers, we have an incredible stable spectroscopy technologies. You put those two businesses together, it not only serves a more attractive market on average, but also we bring unique value to it. If you look at our bioscience acquisitions, both in Finxymes and Fermentis, the same thing. We have have a very strong biosciences presence, we didn't participate as much in PCR.
These two assets together plus our reach to the market estimate and some interesting changes to the IP landscape gives us an ability to accelerate growth from those estimate is. So that's how we think about it. Proxion, we obviously have great strengths in proteomics. We're adding to the workflow SMO there again attractive markets. When we think about genetic analysis, the way we participate today is really on the diagnostic we have a very strong presence in doing genetic analysis there.
We don't play in the sequencing market in any material fashion. It's not a space that we've spent a a lot of time or effort to think about in terms of trying to get into. So that's how we think about the various estimates and how we're deploying capital to leverage our unique depth of capabilities and ultimately continue to add to our organic is long term.
Okay, thanks. That's helpful. And then just one other question. Can you I think in your guidance, Pete, you said estimate that flu would be normal and a lot of people are talking about maybe not having any flu whatsoever, given a lot of flu channel from last year and also just not seeing much in the Southern Hemisphere. And so I'm just curious, if flu were to come in, If it weren't to be a normal season in the second half, it were to be more minimal, just kind of what kind of impact would you expect that to have on your All else equal, obviously.
Yes, that's a very difficult number to get at because our flu revenues are not just the actual flu kits, S. E. C. And the consumables that we sell. So it's a tough number to get at.
Just to give you an idea, we've already got baked into our numbers a 20 $1,000,000 decline year over year because of flu between kind of the H1N1 blip, it gives you a rough order of magnitude of what kind of revenue we're looking at there. So it's just possible to predict what that would be. Right. Sorry. So just
to clarify, dollars 20,000,000 reduction year over year for the second half?
Yes. That's what we have baked estimate Let's get back to a normal season.
Your next question
is that about 25 a quarter in the second half? No, for the second half, estimate is around $90,000,000 negative. So it's about $45,000,000 negative, then we do have an alternative supplier that we're bringing up to speed that's going to offset some of that. So it's net is down to around $55,000,000 I guess pretty close to your $25,000,000 a quarter. So in the second half Between H1N1 and BioSight, is that what about 200 basis points of impact on organic growth?
No, not quite 200. It's about 150 basis year guidance range, it's 3% to 5% to 5% to So the range, if you look at our full year guidance range, it's 3% to 5%. So for the second half of the year, it's basically negative 1% to plus 2% is what that range translates to. Why is that? In terms of the negative one percent to plus 2%?
Yes. So Yes, and I know it feels a little bit weak compared to what we've reported in the first half of the year. So again, as I said, if you SG and A expenses are 8.5% growth organically and the midpoint of that guidance range would basically be flat. So we've got 8.5% going to flat. SMEs, as we talked about, we have a calendar shift between the 1st and 4th quarters, as well as the flu and biocide headwinds would actually impact the second half more dramatically than the first half.
And we also have much different comparisons between the two halves estimates are not subject to the year. So if you basically adjust all the results to remove all the noise, the first half grew about 7% organically, that's adjusting for the calendar and S-sixteen and flu compared to minus 6, so you got plus 7 compared to minus 6 in the first half. At the midpoint of our guidance, the second half, again, adjusting for all that is around 4% growth compared to flat last year. So if estimate, you basically have flat in the first half and say positive 2 in the second half. So we're really looking at estimating growth into the second half of the year.
Okay. And then, Mark, Europe, mid single digit estimate seems to be a good bright spot geographically. What's going on there?
So in terms of estimates across the geographies, no particular geography within Europe was materially worse than another. And I was particularly pleased because SPSR Healthcare related diagnostics business did very well, our industrially related businesses also did quite well. My pharma comments are probably equally true in Europe and North America where there's a little bit more reticence to spend right now. But we estimate is a good second quarter. We're paying close attention to what's going on from everything we read about mental austerity programs.
But on the other side, there's been some early talk about increasing funding in Europe in 2011 for research estimation, which could be a positive next year as well. So we'll keep a close eye on it, but right now things continue to progress well in Europe.
Okay, thanks.
Your Your next question comes from the line of Amit Bali from Citi. Please proceed.
Hi, good morning. Just wanted to follow-up on that Europe estimate can you talk a little bit about pricing that you're seeing in Europe? I hear what you said earlier about the 1% pricing you've gotten But I'm curious about Europe specifically. And then can you also quantify the impact of stimulus in the quarter?
Sure. So in terms instruments are a little bit more competitive in terms of where pricing environment is globally versus consumables where pricing is sticking stimulus perspective, roughly in the quarter, dollars 15,000,000 of revenue, that
puts us in stimulus started
last year at about 125 stimulus started last year at about $125,000,000 we're well within the $100,000,000 to $200,000,000 range. We're well within the range we said this year, we continue to expect to see some stimulus funding in the back half of the year as well.
And then just a quick follow-up. You mentioned that the our You mentioned that the analytical instruments were strong in the applied markets. Just wondering if you could expand on analytical instrument performance in some of the other end markets, if there were also growth or were there any declines? Thanks.
Yes. So when you look at our analytical instruments businesses, applied markets were strong, portable analyzers, which serves broad based SME drill was strong, in general, mass spec did well. There was nothing that really had very significant S and minerals business, the very, very long cycle economically capital intensive business, those are late cycle business that still is weak, but there's some brighter spots starting to pick up there as well. So the things you'd expect to be picking up estimate in this stage of the economy did fine, the very late cycle stuff is still a few quarters out. But in general, I feel estimate I feel good about what's going on
in analytical instruments. Thanks.
Your next question comes from the line of Tony Butler SME's from Barclays Capital. Please proceed.
Thanks very much. Mark, you commented about the industrial markets having easy S and P and L are improving. But the question is, can you say that on a sequential basis such that even in the back SME passed that would be an improvement?
So the comparisons get, as Pete said, broadly tougher in the second half of the year, which will make the organic growth number on a reported basis a little bit lower. But I believe that the end markets will continue to improve slightly as the year progresses. So I think that the market assumptions are continuing to improve, the late cycle stuff will slowly improve as well. And that means that I'm feeling better about Industrial halfway through the year than they did at the beginning of the year, it just translates as we anticipated into a very, very strong organic first half and a slower organic growth in the second half. But that's exactly as we estimated in February, we articulated that again exactly in the same way in April and we're just reminding everybody today in July of how the calendarization works, but we feel that the markets are improving.
Thanks very much. And Pete, based upon that articulation for guidance in and A. There were comments made, I seem to recall, around the acquisitions contributing 2%. Obviously,
S and P expense at that time was
$1.22 and currently at $1.29 I'm actually curious if in fact Your projections for the rest of the year are for a weaker or stronger dollar and moreover is the acquisition pace going to decline based estimate is on May versus the second half? Thanks again.
So the comments back in May, so what's included in our guidance today is about a 3% tailwind from acquisitions, so that's including all acquisitions that we've completed to date. Our forward looking revenue guidance doesn't include any other assumptions for future acquisitions. So estimate in terms of our guidance, in terms of a headwind, that was versus our previous guidance that we gave in our Q1 earnings call. In May, estimate that was sort of a middle point, we chose not to change guidance. We did reference the fact that we had FX headwinds at point in time, we weren't changing guidance until it settled down a little bit.
At this point in time, the rates that we have included in our guidance at estimates are lower than they were in Q1, but they are slightly better than what was happening in the May timeframe. We just chose not to update guidance at that point in time.
Thanks very much.
Your next question comes from the line of Doug Schenkel from Cowen and Company, please proceed.
Hi, good morning.
Good morning, Doug.
So in your prepared remarks, you estimate that end markets are holding up at about levels you saw in the Q1. Just to be clear, were there any surprises related to, say, sales estimate became more pronounced, say, at the end of the quarter or in the early part of Q3 or is it really business as usual and that's the way it's been throughout the first half?
Pretty much business as usual, very much in line with what we expected, which is slowly improving economic situation. So we weren't surprised. Healthcare clearly got a little bit weaker, hospital visits, doctor visits were down. I don't think anybody had a crystal ball on that particular one, but SMM surprise is a strong word, I'd say that I tried to give you the nuances of each of the segments and what got a little better, what got a little worse, but nothing really surprises per se.
And nothing more pronounced at the end of the quarter? No, nothing
And nothing more pronounced at the end of the quarter?
No, nothing from a timing perspective that really changed.
Okay. You spent a lot of time talking about hospital weakness, particularly in the U. S. It doesn't sound like things really changed in pronounced way in other geographies. With that in mind, assuming that's correct, if there were to be a slowdown in Europe, should would be concerned about anything along the lines of the destocking dynamics that we saw last year, I believe, to some degree in
is not a huge portion of our business because in healthcare in particular within the company is more heavily weighted towards the SUS. So even if there were dramatic changes of which we're clearly not anticipating, I wouldn't expect that to have a very significant impact on our performance.
Okay. Japan was a bright spot for a lot of companies in the Q1. I'm not sure if you mentioned that in your prepared remarks. If you did, I missed it, but how did Japan fare relative to Q1?
So Japan was phenomenal in SG and A, we had incredible mass spec performance, which we're very proud of in terms of capturing stimulus funds. The first half was could, but the second quarter was clearly weaker than the first, not a surprise, which is why Asia Pacific growth was around the company average. Now clearly, China and India continue to perform well for us. So broadly, we feel fine about what's on an Asia.
Okay. And last one, if I could sneak in one more, and this is, I think, a follow-up or maybe a clarification of, I think, one of Tony's SMA and certain geographies. Just wondering if, Pete, that affects the way you guys think about things in a material way?
No, it really doesn't. Estimate is, obviously, you can't exactly time those kinds of things. Anyway, if you look at how quickly the euro changed over the last month or so, it takes allow to close deals. So there's it just doesn't enter into the equation when we're looking at acquisitions.
Estimate is higher than what I was expecting, it's like what's your target for that for the full year?
Well, the net interest expense probably estimate is higher than what you thought it would be is that we had to carry the kind of double debt until we could retire the 500,000,000 dollar note that didn't get retired until July 1. So the full year is basically consistent with what we were saying last quarter other than we did a couple of acquisitions. So is around $70,000,000 between $70,000,000 $75,000,000
Got you. And I know last year, I'm going Back to the question of BioSight contract, I know last year you had roughly $20,000,000 headwind in Q1, Q2, Q3. But I thought that was kind of annualized in Q4, there wasn't any problem in Q4. Was there another change in that contract that I completely missed?
There wasn't a well, other than the fact estimate, yes, totally transitioning away from us at the end as of July 1. But we did experience basically not as quick a transition away from us on the BNP product, which was the original contract modification. So we actually did have a little more revenue in Q4 last year, so we actually did have a little more revenue in Q4 last year than what we might have expected. So that still created a little bit of a tough comp for us again this year in Q4.
Okay. And estimate is the calendar day issues in Q4, that's by my calculation somewhere between
is about 4% to 5% in Q1, so we expect to lose 4% to 5% in Q4.
Okay. And I estimate is the you had about a Same type of impact next 2 quarters?
Well, the cent was just the change. Just
the change, got
Yes, change in guidance. So the full impact of FX, I don't have it off the top of my head, I mean that the change is basically $0.03 from our previous guidance. So yes, the change is about $0.01 a quarter from where were before. Right.
And so said another way, Derek, when you think about maintaining in the guidance effectively, what we're saying is that we're going to offset the FX headwinds that we saw about SME stands, we feel good about the organic growth prospects and the operating performance and feel like we can offset the FX headwinds. That's The only thing that changed when you look at last quarter to this quarter.
Okay, great. And then just one final comment, because I'm getting some questions from investors, I mean, you have any crystal balls in terms of looking at what happens to the NIH estimate funding as you kind of look at next year and going to the elections in 2011, what are your sources telling you?
We don't have a crystal But, Paul, more is always better. That's what we always prefer. There's probably going to be some increase in governmental spending in are up in that realm. And clearly, what we read and hear about the priorities is that NIH is an important priority. Exactly how that's going estimate
is
couple of quick closing remarks. First, we are pleased to deliver the record EPS results that we did in the quarter. Estimate we had a very strong first half of the year driven by our operating performance. That puts us on track of our financial goals for the year. Thanks as always for your continued support of the company.
And I certainly and Pete certainly look were to updating you next quarter. Thank you, everybody.
Ladies and gentlemen, thank you for your participation in today's conference call. You may now disconnect. Have a wonderful