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PerkinElmer Inc. (NYSE:PKI)

Q1 FY08 Earnings Call

April 24, 2008, 4:30 PM ET

Executives

Michael A. Lawless - VP, IR

Robert F. Friel - CEO and President

Jeffrey D. Capello - Sr. VP and CFO

Analysts

Peter Lawson - Thomas Weisel Partners

Quintin Lai - Robert W. Baird & Co., Inc.

Jonathan Groberg - Merrill Lynch

Vishal Saluja - Seligman

Operator

Good day, ladies and gentlemen, and welcome to the PerkinElmer First Quarter 2008 Conference Call. My name is Antoine, and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. [Operator Instructions].

I would now like to turn the call over to Mr. Mike Lawless, Vice President, Investor Relations. Please proceed, Mr. Lawless.

Michael A. Lawless - Vice President, Investor Relations

Thank you, Antoine. Good afternoon and welcome to the PerkinElmer First Quarter 2008 earnings conference call. If you have not received a copy of our earnings press release, you may get one from the Investor Section of our website at www.perkinelmer.com or from our toll-free investor hotline at 1-877-PKI-NYSE. Please note, this call is being webcast live and will be archived on our website until May 24the, 2008.

Before we begin, we need to remind everyone of the Safe Harbor statements that we have outlined in our earnings press release issued earlier this afternoon and also those in our SEC filings. Any forward-looking statements made today represent our views only as of today. We disclaim any obligation to update forward-looking statements in the future even if our estimates change. So, you should not rely on any of today's forward-looking statements as representing our views as of any date after today.

During this call, we will be referring to certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures we plan to use during this call to the most directly comparable GAAP measures is available as an attachment to our earnings press release. To the extent we use non-GAAP financial measures during this call that are not reconciled to GAAP in that attachment, we will provide reconciliations promptly.

I'm now pleased to introduce the President and Chief Executive Officer of PerkinElmer, Rob Friel.

Robert F. Friel - Chief Executive Officer and President

Thank you, Mike. Good afternoon, everyone, and thank you for joining us to discuss PerkinElmer's first quarter 2008 results. Also in the call is Jeff Capello, our Chief Financial Officer. During today's call, I'll walk through the drivers to our first quarter performance and discuss our priorities for the year. Jeff will then provide some details on our financial performance and then we will open the call up for your questions.

The first quarter was an excellent start for 2008 as both our revenue and earnings exceeded our expectations. In particular, our organic revenue growth at 10% is the best first quarter in over five years, which we feel especially good about given the uncertain economic outlook. Our strong performance in Q1 was attributed to the resiliency of many of our end markets and very good operational execution by our employees across the organization. In addition, we are benefiting from the investments we've made over the last several quarters in new products, facility expansions and bolt-on acquisitions. We are also quite pleased that our adjusted operating income was up 24%, driven by good growth in our gross margins. While the revenue growth was a big driver, it was also due to excellent performance out of our factories and the improving mix of our businesses as a result of our investment priorities over the last several years.

Turning to the major drivers of our performance in the quarter, in genetic screening, we had another strong quarter of growth. Our end markets in these areas are continuing to grow in the mid-teens, driven by the increasing awareness of the benefits of early and more accurate detection of disease. However, we are growing faster than the end markets in these areas due to the introduction of new products, the strong performance of our recent acquisitions, and our ability to leverage our global scale and drive increased geographic expansion.

In our core neonatal screening business, we either won new contracts or expanded existing screening levels in Mexico, Chile, Korea, Taiwan, Saudi Arabia and the Czech Republic. In the U.S., we are benefiting from the fact that the number of states offering the standard of care continues to increase, and we've introduced several new analytes to screen for cystic fibrosis that are starting to become part of the state's mandatory panel.

In the prenatal area, the preference to screen in the first trimester continues to grow, and within the next few months we will have completed a significant physical expansion of our NTD screening capabilities. We also continue to look for companies that expand our technology and market reach. We closed the acquisition of a metabolic screening lab, formerly owned by Pediatrix, which we have renamed PKI Genetics and will complement our previous acquisitions of NTD and ViaCell. Both of these acquisitions continue to perform [ph] well in Q1 and we are accretive to our organic growth rate.

In Medical Imaging, the market growth continued strong due to continued penetration of digital x-ray into the large analog x-ray market. Here too, we are growing in excess of the market because of our increased capacity, which has given us the ability to pursue new applications which were previously not possible due to our constrained supply. The fact that we are able to obtain this additional capacity is directly attributable to both our capital investments as well as the Santa Clara employees who drove first quarter panel yields from the fab to an all-time high.

In Analytical Sciences, we continue to benefit from the increased emphasis on the environment as well as growing awareness of elemental and organic contaminants in food and consumer products. Just to mention one area, last year alone over 25 million toys were recalled for safety concerns. As a result, toy manufacturers are aggressively pushing testing requirements upstream through their supply chains. We are quickly responding to the toy manufacturers’ need to address the safety of their products as well as their brand reputation with a development of PlaySafe Analyzer that are configured with the methodologies, applications and SOPs that may need to ensure that their products meet their standards for safety.

This analyzer approach is not limited to toys. We are employing our breadth of analytical technologies to develop new analyzers, which have been configured specifically for our customers' needs, whether they are measuring toxic metals, detecting pathogen contamination, analyzing hydrocarbons or detecting counterfeit drugs. We had a very successful PITTCON where we introduced several new analyzers, which were configured specifically for food manufacturers, environmental laboratories and bio-fuel startups as a part of our EcoAnalytix initiative.

Our reagent business, which serves the biopharma market is another, which benefited from recently introduced new products. In fact, due to the strength of these products our reagent business is now almost 60% of our biodiscovery revenue. However, the success of our reagent platforms is being offset by weakness in the instrument business as the biopharma companies are cutting capital budgets and deferring purchases on larger ticket instruments. Fortunately our biodiscovery instrument revenue is less than 7% of our total revenue. So we are not very exposed to pharma capital spending.

Our photonics business also is benefiting from our increased spending on new products as it too grew faster than the underlying markets. In particular, our Xenon Flash module for mobile phones had a very strong quarter as did our new thermal biosensors used to improve energy efficiency. We expect the adoption of Xenon Flash to continue as a growth innovation in mobile phones.

Our service business continued its strong growth trend through a combination of winning new business and increasing business with existing customers. The process [ph] pressures on a number of our customers are causing them to intensify their efforts to rationalize costs, which is resulting in more outsourcing. During the first quarter, we continued to further differentiate our service with the LabMetrix acquisition. LabMetrix brings patented technology involving multi-vendor validation and is a great complement to our OneSource offering.

Before I turn the call over to Jeff to discuss the financial results for the quarter, I would like to briefly touch on our three top priorities for the remainder of the year. First of all, we will continue to drive profitable growth by investing around the three macro trends that influence a large percentage of our businesses. These are the trend towards early and more accurate detection in treatment of disease, the need for solutions to address the growing challenges of pollution and contamination resulting from increasing global trade and industrialization, and finally the desire of our customers to outsource more of what they do in response to pressures to reduce cost and improve productivity. As has been the case over the last few years, these investments will be a mix of internal spending and bolt-on acquisitions.

The second priority is to continue to drive operational execution to both improve our cost and develop a more flexible cost base, which is particularly critical if we enter a difficult economic environment. And the third priority is to continue supporting up our global employees with the tools, training and leadership development they need to sustain the momentum of our excellent start in 2008.

I believe that PerkinElmer is well-positioned for strong performance ahead. Our unique position in several attractive markets, which is supported by macro growth trends and technology innovation, continues to position us very well to grow in the current economy.

Now, let me turn the call over to Jeff.

Jeffrey D. Capello - Senior Vice President and Chief Financial Officer

Thank you, Rob. Good afternoon. I will now provide some details on our financial performance for the first quarter of 2008. Then I will provide guidance on our outlook for Q2 before we open the call for questions.

To the extent that I use any non-GAAP measures, those have been reconciled to the comparable GAAP measures in the appendix to the press release on our website. As Rob noted, Q1 was an excellent quarter for financial performance. We generated strong topline growth, improved operating margins, and had excellent earnings per share growth, which gets us off to a strong start for 2008.

Starting first with revenue, we finished the quarter of 2008 with sales of $482 million, up 20% compared to $403 million in the first quarter of 2007. Changes in foreign exchange rates and acquisitions contributed 600 basis points and 400 basis points respectively to our consolidated sales growth in the quarter. By segment, sales growth was 19% in LAS and 22% in Optoelectronics. Of the LAS sales growth, approximately 600 basis points came from foreign exchange and approximately 600 basis points came from acquisitions. Optoelectronics increased approximately 300 basis points from the impact of foreign exchange. The remaining revenue comparisons are presented on a reported basis, which includes the impact of foreign exchange and acquisitions.

Revenue strength was delivered across the board in our LAS businesses. Genetic Screening business, which was 19% of LAS revenue, increased very strong double digits driven by excellent growth in our neonatal, prenatal and new cord blood banking platform. The Analytical Sciences business, which represented about 35% of LAS revenue, increased sales in the strong double-digits driven by robust performance in inorganics, which includes our IAA, ICP, ICP Mass Spec product lines, driven by environmental applications such as clean water and consumer product safety. Laboratory Service business, which represented about 24% of LAS revenue in the fourth quarter, increased double digits. Overall, service experienced broad-based growth across all product lines and all geographies, particularly in our OneSource business. Finally, our biodiscovery business, which represented 21% of our LAS revenue in the quarter, increased sales in the mid-single digits as compared to the same period in 2007, as reagent sales exceeded our expectations and instrument sales were soft.

Within Optoelectronics, we had very strong growth in both our Medical Imaging and Lighting businesses. Our Medical Imaging business, which represents 30% of Optoelectronics sales, grew strong double digits during the quarter, driven by broad-based demand for both diagnostic as well as therapeutic applications and very strong manufacturing yields, generating a record number of units for the quarter. The Specialty Lighting business, which represented 40% of Optoelectronics revenue in Q1, increased in the strong double-digits compared to Q1 of last year, driven primarily by the shipments of approximately $10 million of our flash modules for mobile phone cameras. The Optical Sensors business, which represented 30% of Optoelectronics revenue in the first quarter, increased in the low single-digits in the quarter, impacted somewhat by the slowing economy, particularly in applications for the housing and automotive markets.

Geographically, revenue increased in the high-teens to high-20s across all regions. In Q1, the sales mix was 43% in Americas, 38% in Europe, and the remaining 19% in Asia.

GAAP gross margins for the quarter… first quarter of 2008 was 41%, up 160 basis points compared to the first quarter of 2007. Adjusted gross margin increased 130 basis points year-over-year. The improvement in gross margin was driven by volume leverage, the favorable impact of ViaCell, favorable product mix and productivity initiatives, partially offset by inflation, freight costs and growth in our lower margin gross margin businesses, such as Laboratory Services and Specialty Lighting, which have lower gross margins but also lower SG&A expenses.

GAAP SG&A expenses were $132.1 million or 27.4% of sales in the first quarter of 2008, up from $101.8 million or 25.3% of sales in the first quarter of 2007. Adjusted SG&A expense as a percentage of sales increased 190 basis points. The increase in SG&A was primarily due to the impact of the ViaCell acquisition, which carries a higher SG&A level as a percentage of sales. This impact was partially offset by fixed cost leverage on higher volume sales and lower SG&A costs as a percentage of sales for Lab Services and Specialty Lighting.

GAAP operating income was $36.4 million compared to $23.1milllion in the first quarter of 2007. Adjusted operating income increased 24% to $53.3 million as compared to $43.1 million in the prior year. Adjusted operating margins increased 40 basis points year-over-year due to improved focus on profitability, which more than offset the 40 basis point dilutive impact to margins of ViaCell. We are on track and making good strides in improving the margins of ViaCell and expected to be solidly profitable in Q2. Based on these trends, we expect a greater degree of margin improvement in Q2 than we experienced in Q1.

Now looking at expenses below operating income, interest expense net of interest income was $5 million in Q1 '08 as compared to net interest expense of $1 million in Q1 '07. This increase was due to the increase in borrowings over the last 12 months to help fund our acquisitions and share repurchase initiatives.

In the first quarter of 2008, we had tax expenses of $7.6 million for an effective tax rate of 24.6%. This tax rate was in line with our prior expectations. GAAP net income from continued operation was $23.4 million in Q1 '08, up from $14.8 million in Q1 2007. During the first quarter of 2008, we had a net loss from discontinued operations of $2.9 million, from the operation of the therapeutic programs in the ViaCell business. We expect to conclude our divestiture process related to this program by the fourth quarter of this year.

GAAP EPS from continuing operations increased 57% [ph] to $0.20 in Q1 '08 from $0.12 in Q1 '07. Adjusted EPS was $0.29 in Q1 2008, an increase of 21% over the $0.24 in Q1 '07, exceeding both the First Call consensus estimate adjusted to stock option expense and our forecasted range of $0.26 to $0.27. The weighted average diluted shares outstanding for the quarter were $118 million.

Now turning to the balance sheet, we finished the quarter with $185 million of cash and $381 million of debt which we define a short and long-term debt minus cash. During the quarter, we increased the size of our existing credit facility to $650 million. The additional capacity under this facility was used to repay the $300 million bridge facility that was put in place to fund the ViaCell acquisition. In addition, we expect to close on an additional $150 million of long-term finance in the second quarter that we will use primarily to repay some of the borrowings under our existing credit facility and to provide us with dry powder for potential bolt-on acquisitions and other capital needs going forward.

Looking at the cash flow statement, during the first quarter of 2008 we generated operating cash flow from continuing operations of $18 million, which is an increase of 6% over the $17 million in Q1 '07. Our focus on working capital continues to pay dividends as we achieved working capital turns of five times in the first quarter. In particular, we made strong progress in inventory where we reduced days of inventory by four days on a year-over-year basis.

I would now like to turn to our guidance for second quarter. For the second quarter, we expect revenue growth in the mid-teens to high-teens, driven by a continuation of the trends from the first quarter. Of this growth, changes in foreign exchange rates and acquisitions will each contribute approximately 500 basis points. We expect to earn adjusted EPS… excuse me, we expect to earn GAAP EPS of $0.25 to $0.27 and on an adjusted basis, EPS of $0.33 to $0.35 excluding the cost of options.

In January, we issued annual guidance for revenue and EPS growth in the low double-digit to mid-teens. Based on our adjusted EPS, excluding the cost of stock options of $1.30 for 2007, this would translate into adjusted EPS range of $1.43 to $1.50 for 2008 excluding the cost of options.

Given the strength of our first quarter driven by strong execution and favorable end market trends, we feel very good about 2008. However, we think at this point in the year, given the uncertain economic outlook, it is prudent to be cautious in our outlook. As a result, we expect to deliver adjusted EPS, excluding stock options, at the higher end of the original range of $1.43 to $1.50.

We have now concluded our prepared comments, and would now like to open the call to your questions.

Question and Answer

Operator

[Operator Instructions]. Your first question comes from the line of Peter Lawson with Thomas Weisel Partners. Please proceed with your question.

Peter Lawson - Thomas Weisel Partners

Well, just wondering if you could talk through pharma, what it was likely for you for the quarter?

Robert F. Friel - Chief Executive Officer and President

Okay. This is Rob. So, I would say pharma was really almost a tale of two cities. I think on the reagent side, as we mentioned, we saw good growth. They seem to be continuing to invest in their experimentation and running screens. So, at least on the reagent side we saw strong growth. I think on the CapEx side, as I mentioned, it was negatively impacted by, I think, a slowdown in expenditures and deferral of, I would say, high-end instrumentation. Having said that, there was... I mentioned it's becoming a relatively small piece for us now and in fact in the first quarter it was less than 7% of our revenue.

Peter Lawson - Thomas Weisel Partners

And then…

Robert F. Friel - Chief Executive Officer and President

On the instrument, it was less than 7%.

Peter Lawson - Thomas Weisel Partners

Okay. And then on the revenue growth, the organic growth of something like 10%. What level of that is sustainable, was there anything unusual in the quarter?

Jeffrey D. Capello - Senior Vice President and Chief Financial Officer

So, Peter, this is Jeff. So, typically I think we've given rough guidance from a medium-term perspective of 6% to 8% organic growth in the company. I think we... obviously we exceeded that in this quarter and if you look at kind of the areas where we kind of exceeded the ranges, the problem is on the Opto side, because we achieved almost 7% organic growth on the OES, which is kind of on the midpoint of that range. In the two years of Opto that performed kind of, let's say, better than the average range going forward is the medical imaging business, which had just phenomenal yields and so that's difficult to predict on an ongoing basis. So, those were a little higher than we anticipated. And then the mobile phone, which is in a start-up phase, and we shipped kind of a large order. So, both of those factors were kind of probably the primary drivers that drove the organic growth above kind of the 6% to 8% range.

Peter Lawson - Thomas Weisel Partners

And then in the oil and gas market, was there any slowdown towards the end do you think in the quarter or heading into Q2?

Robert F. Friel - Chief Executive Officer and President

If anything... I think we're seeing increased demand for analyzers in the oil and gas area, particularly because we find as the price of gas goes up, the recycling increases significantly. And where we sell into it is mostly the people that are doing the recycling of the oil. And so, we are actually seeing a benefit from the higher price of gas.

Jeffrey D. Capello - Senior Vice President and Chief Financial Officer

And I think the other benefit we see, Peter, is one of the growth initiatives within EcoAnalytix is in the whole biofuel or alternative fuel area and given the price of oil, there is a lot of development work being done there and we are putting more and more instruments into those facilities.

Peter Lawson - Thomas Weisel Partners

Okay. Congratulations on the quarter and thank you for taking my question.

Robert F. Friel - Chief Executive Officer and President

Thank you.

Jeffrey D. Capello - Senior Vice President and Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Quintin Lai with Robert W. Baird. Please proceed with your question.

Quintin Lai - Robert W. Baird & Co., Inc.

Hi. Thank you. Good afternoon and congratulations on a nice quarter.

Robert F. Friel - Chief Executive Officer and President

Thank you.

Quintin Lai - Robert W. Baird & Co., Inc.

With the current environment that’s out there, excluding the pharmaceutical issues, I think that most people have talked about this earnings season, has there been any change in the visibility for your customer demand? And in particular on your medical imaging, it sounds like that you are still in a situation where you sell as much as you can make. What are you hearing from your customers with respect to their hospital customers?

Robert F. Friel - Chief Executive Officer and President

So, I would say in the medical imaging area, we still see strong bookings, strong demand. So, we have not seen any tail off in the demand for our panels in the first quarter at all.

Quintin Lai - Robert W. Baird & Co., Inc.

And then…

Robert F. Friel - Chief Executive Officer and President

And I think one of the reasons for that is because you’ve got this converging going on from digital to analog and I think it's still relatively early days. And so... so I think that's going to continue to drive the growth on the... for our panels.

Quintin Lai - Robert W. Baird & Co., Inc.

Great. And then with respect to the environmental testing side, historically that hasn't been linked to kind of macroeconomic conditions, but more to the regulated market. Has that changed any in your opinion?

Robert F. Friel - Chief Executive Officer and President

Yes, I think it is, because I think it's becoming less driven by regulation and more driven by really the consumer to a large extent. It's almost impossible to go through a couple of days without seeing something in the paper that is raising some concerns around contamination. So, whether it's counterfeit drugs or whether it's melamine or whether it's toys, it just continues to increase the awareness across the globe. And I think that, to a large extent, is what’s fueling the demand.

Quintin Lai - Robert W. Baird & Co., Inc.

And then last question, I will jump back into the queue. With the ViaCell acquisition, I know it's still early, but are you seeing any out-of-the-box synergies with branding, especially with the PerkinElmer now as the parent company? Any pick up in either OB/GYNs taking up the cards or... and passing them down.

Robert F. Friel - Chief Executive Officer and President

So, ViaCell had a good quarter. I would say it's probably a little early to tell whether the PerkinElmer synergy is having any impact on that. I would say we're... we're progressing well into the integration and I would expect probably the back half of '08 is before we would see any of the benefits from the integration with the NTD and the ViaCell sales force, which is really using the channel into the OB/GYN.

Quintin Lai - Robert W. Baird & Co., Inc.

All right. Thank you. Congratulations again.

Robert F. Friel - Chief Executive Officer and President

Thanks.

Operator

Your next question comes from the line of Mike Cherney [ph] with Deutsche Bank. Please proceed with your question.

Unidentified Analyst

Hey guys, good quarter, as I think Quintin said before.

Robert F. Friel - Chief Executive Officer and President

Thank you.

Unidentified Analyst

I just want to talk a little about the Optoelectronics business, obviously [inaudible] in the past, last few quarters have definitely shown nice rebound acceleration of growth. You talked about within different spaces where you guys think you are in the overall product cycles in that environment?

Robert F. Friel - Chief Executive Officer and President

So, I would say starting first with the mobile phone, Jeff talked about, I would say very early days. We shipped a fair amount in the first quarter, but we think the adoption of Xenon Flash will be… continue to gain ground in mobile phone. So, I would say that’s relatively early. I would say digital imaging, as I mentioned before, I think our estimation is probably 30% penetration into the analog conversions. So, I think you still have a lot of room to run there. And I think the one area that is being, obviously, slightly impacted by the economic environment is the sensors, but I think we've got some opportunities there to take some of our sensor technology into exciting applications. But I would say that's the one area where I think it is being impacted a little bit by the economic environment, but both lighting and digital imaging, I would say is, fairly early in the life cycle.

Unidentified Analyst

Great. And then, Rob, you've been with the business obviously for a while, but as you kind of grow into the role of President and CEO and take a bigger look at the overall business, are there any holes or areas that you want to beef up on the acquisition or investment front, specifically within any of the... either life science or Opto side of the business?

Robert F. Friel - Chief Executive Officer and President

No, I think it's fairly consistent with what we have been doing in the past. I would like to do more in the Analytical Sciences area from an acquisition perspective and we have done a couple of things in genetic screening in the last sort of 18 months. We are fairly active in the BioDiscovery area. And I would say periodically, we’ve done some things in service, nothing big, but relatively small. I would say Analytical Science is an area and then also in Optoelectronics, I think we’re looking for some opportunity to fill some holes, as I mentioned particularly in the sensors area, it's something that we would like to do. But I don't... I wouldn't say anything different than what you’ve seen over the last couple of years and consistently sort of both-on acquisitions that add either product technologies or market reach.

Unidentified Analyst

Great. And then just one more quick housekeeping question, I might have missed this, but what was your activity on the share buyback program during the quarter and what are your plans going forward?

Jeffrey D. Capello - Senior Vice President and Chief Financial Officer

This is Jeff, so we did not buy any shares back in the first quarter and we have 1.9 million shares remaining under the 10 million program we had approved by the Board. And I would expect that we would execute against that within the next couple of quarters.

Unidentified Analyst

Okay, great. Thanks guys. Congratulations again.

Robert F. Friel - Chief Executive Officer and President

Thank you.

Operator

Your next question comes from the line Derik De Bruin with UBS. Please proceed with your question.

Unidentified Analyst

Hi, guy. This is Dan in for Derik.

Robert F. Friel - Chief Executive Officer and President

How are you doing?

Jeffrey D. Capello - Senior Vice President and Chief Financial Officer

Hi, Dan.

Unidentified Analyst

Good. Just a question about the genetic screening opportunity, I know during the Analyst Day, one of more salient opportunities that you had talked about was the global opportunity. And I was just wondering whether there are any differences in the reimbursement or managed care landscape, looking at some of the global markets that perhaps we’re unaccounted for and maybe just surprise you guys as you try to move the tests at the international market?

Robert F. Friel - Chief Executive Officer and President

Is this in newborn area?

Unidentified Analyst

Yeah.

Robert F. Friel - Chief Executive Officer and President

Yes. So, we've been operating in the newborn area internationally for quite some time. So, we have a large presence there in Europe and I would say the only area that is relatively new probably in more some of the Pac Rim areas. And I would say at this point we're not seeing anything different from a reimbursement perspective, as we’ve seen in other areas. But keep in mind we’ve been global in the newborn screening for a long period of time. That business is based in Europe, as you probably know.

Unidentified Analyst

Right. Okay. And then, I have to ask… [inaudible] my phone cut out. For full-year guidance on the organic revenues, you reiterated what you would have said in fourth quarter, is that correct?

Jeffrey D. Capello - Senior Vice President and Chief Financial Officer

We're going to be at the higher end of that range.

Unidentified Analyst

Okay. Great. Thank you.

Robert F. Friel - Chief Executive Officer and President

You are welcome.

Operator

Your next question comes from the line of Jonathan Groberg with Merrill Lynch. Please proceed with your question.

Jonathan Groberg - Merrill Lynch

Hi guys. Congratulations on a good quarter.

Robert F. Friel - Chief Executive Officer and President

Thank you.

Jonathan Groberg - Merrill Lynch

Just a couple of quick questions. One, can you may be… Rob, can you talk about the Rad [ph] business, I know that someone had left that business, I’m just curious if you are actually seeing that stabilize as you maybe thought you would, is it clear?

Robert F. Friel - Chief Executive Officer and President

Yes. I think it is stabilizing and I think because of the less competition we’re actually seeing a little bit growth there. And one of the other areas is we're looking to develop other opportunities in the broad reagent area. So, I think you will see for 2008 that will actually be a positive contributor to our organic growth.

Jonathan Groberg - Merrill Lynch

So, it did grow in the first quarter organically?

Robert F. Friel - Chief Executive Officer and President

It did.

Jonathan Groberg - Merrill Lynch

Okay. And then back to the… kind of just touching again on ViaCell, you said it's maybe too early to see if there are going to be any synergies. But just from a sales force standpoint, has there been any attrition there or have to pull a staid, has the thing that you bought, is it still there?

Robert F. Friel - Chief Executive Officer and President

Yes, it is. We've had very little attrition there and let me just sort of correct your comment, we will see synergies, I don't think, there's any question, I'm just saying it was too early to see anything in Q1.

Jonathan Groberg - Merrill Lynch

Right.

Robert F. Friel - Chief Executive Officer and President

So, I think we are fairly confident, we're going to get some synergies in the back part of the year.

Jonathan Groberg - Merrill Lynch

The major reason then you bought…

Robert F. Friel - Chief Executive Officer and President

No, we've have been able to hold, I would say almost all of the employees there.

Jonathan Groberg - Merrill Lynch

Okay. I mean the major reason you bought it was the sales channel and the ability to sell [inaudible].

Robert F. Friel - Chief Executive Officer and President

Correct.

Jonathan Groberg - Merrill Lynch

And they are still there and is there a level of excitement, they sort of look forward to having more tools in their tool bag there?

Robert F. Friel - Chief Executive Officer and President

Yes. I think they do. I think they are quite excited about the NTD products. And we're in the phase right now we're starting to train them on these products.

Jeffrey D. Capello - Senior Vice President and Chief Financial Officer

Jonathan, this is Jeff, I think another reason why we bought it because this is an 83% gross margin business, which we think we can grow 15% to 20%. So, that's a very important factor to remember.

Jonathan Groberg - Merrill Lynch

Sure. And you said... I mean some people have questioned the... whether or not they would be economically sensitive, as well the people would see this as more discretionary spend, but that business grew in the first quarter as well from year-over-year?

Robert F. Friel - Chief Executive Officer and President

It is, yes. It showed good growth in the first quarter. So, at this point, we haven't seen any impact as a result of sort of, let's say, deteriorating economic conditions.

Jonathan Groberg - Merrill Lynch

Okay. Great. And then last kind of housekeeping question for you again Jeff on the full-year EPS and FAS 123 expense, I don't know if that, do you still kind of expense for us, expect… I think it around $0.04 for the year or is that… and other companies have kind have been changing that around a little?

Jeffrey D. Capello - Senior Vice President and Chief Financial Officer

Yes. John, I think, it will be $0.05 for us for this year.

Jonathan Groberg - Merrill Lynch

$0.05, okay. Thanks a lot.

Robert F. Friel - Chief Executive Officer and President

Thanks.

Jeffrey D. Capello - Senior Vice President and Chief Financial Officer

Thank you.

Operator

[Operator Instructions]. Your next question comes from the line of Ana James [ph] with Seligman. Please proceed with your question.

Vishal Saluja - Seligman

Hi, this is Vishal Saluja. Thanks for taking my question. Good quarter. Jeff, just on the gross margin improvement going forward, obviously a good start there, actually good operating margin improvement. Are you counting on mix to improve margins further here or are there specific actions that you can point to that will make us feel comfortable that you would get there? And then I have a separate question.

Jeffrey D. Capello - Senior Vice President and Chief Financial Officer

Yes. So, Vishal, I think it's going to be both. I'm certainly… ViaCell is very helpful at 83% gross margin and the growth we are getting of that, that's a positive contributor to the gross margin. Each of our businesses have specific initiatives, they kind of improve their gross margins whether they would be improving the mix in terms of products we sell or driving down the cost of the goods or for pricing initiatives. So, I think it’s a combination of a number of things that we’re successful in the first quarter that I think it will be equally, if not more successful to work away through the year.

Vishal Saluja - Seligman

So, the way we should think about operating margins really is stepping up from 40% to maybe... sorry 40 basis points to maybe a percent by year-end?

Jeffrey D. Capello - Senior Vice President and Chief Financial Officer

Yes, I think we’ve said 50% to 75% for the first half because of the ViaCell impact and then getting up to kind of 75% to 100% by the back half.

Vishal Saluja - Seligman

Okay. That's great. And then just on a mobile phone opportunity, are you currently shipping primarily to one customer or are these multiple customers that you now have orders from, just trying to understand the level of sustainability of that business? Thanks.

Robert F. Friel - Chief Executive Officer and President

So, in the flash too, that's going to multiple customers in the case of flash modules. It’s at this point largely going to one customer, but I would say that that will change here relatively shortly.

Jeffrey D. Capello - Senior Vice President and Chief Financial Officer

And that's one customer and one phone model.

Vishal Saluja - Seligman

Okay. How much visibility do you get into the order pipeline of your customers? Can you give a sense of how much lag there is between sort of when they give you the order to when you actually have to ship these things?

Robert F. Friel - Chief Executive Officer and President

Is it specific to mobile phone or across PerkinElmer?

Vishal Saluja – Seligman

Mobile phones, the flash modules specifically.

Robert F. Friel - Chief Executive Officer and President

Well, I would say we probably have a couple of weeks visibility into those orders.

Vishal Saluja - Seligman

Okay. And then just for Jeff, a last one on Easter falling in Q1, did you see any impact of that at all or was that not significant enough on the runway type of businesses to really call it out?

Jeffrey D. Capello - Senior Vice President and Chief Financial Officer

Yes. We saw a bit of an impact, but not a measurable impact and I think the calendar was set well before the year started, so…

Vishal Saluja - Seligman

Okay great. Thanks, Great quarter.

Robert F. Friel - Chief Executive Officer and President

Thank you.

Operator

There are no further questions at this time. I would now like to turn the call back over to management.

Robert F. Friel - Chief Executive Officer and President

Okay, thank you. So, we are off to a great start here in 2008. I think we see good momentum across most of our businesses. And I look forward to continuing to share with you our progress against our priorities in the coming months ahead. Thank you for participation in today's call and interest in PerkinElmer. Operator, this call is now adjourned.

Operator

Thank you for your participation in today's conference. This concludes the presentation, you may now disconnect.

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Source: PerkinElmer, Inc. Q1 2008 Earnings Call Transcript
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