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Perkinelmer Inc. (NYSE:PKI)

Q2 FY08 Earnings Call

July 24, 2008, 05:00 PM ET

Executives

Michael A. Lawless - VP of IR

Robert F. Friel - President and CEO

Michael L. Battles - VP and Chief Accounting Office

Analysts

David Chung - Lehman Brothers

Isaac Ro - Leerink Swann

Quintin Lai - Robert W. Baird

Peter Lawson - Thomas Weisel Partners

Jonathan Groberg - Merrill Lynch

Operator

Good day ladies and gentlemen, and welcome to the PerkinElmer Second Quarter 2008 Earnings Conference Call. My name is Eric and I'll be your coordinator for today. [Operator Instructions].

I would now like to turn your presentation over to your host, Mr. Mike Lawless. Please proceed.

Michael A. Lawless - Vice President of Investor Relations

Thank you. Good afternoon and welcome to the PerkinElmer second quarter 2008 earnings conference call. I am Mike Lawless, VP Investor Relations for PerkinElmer. With me on the call are Rob Friel, President and CEO; and Mike Battles, VP and interim CFO.

If you have not received a copy of the earnings press release, you may get one from the investor section of our website at www.perkinelmer.com or from our toll-free investor hot line, 1-877-PKI-NYSE.

Please note this call is being webcast live and will be archived on our website until August 24, 2008. Before we begin, we need to remind everyone of the Safe Harbor statement that is 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 am now pleased to introduce the President and Chief Executive Officer of PerkinElmer, Rob Friel.

Robert F. Friel - President and Chief Executive Officer

Thank you, Mike. Good afternoon and I appreciate you joining us this afternoon for our second quarter earnings call. We are very pleased with our Q2 results. Revenue growth, earnings per share and cash flow all exceeded our expectations. Strong growth across our entire portfolio of businesses, as well as good operating execution drove the strong financial performance.

As Mike will discuss the growth of our individual businesses, I will briefly discuss the trends in several of our key markets. In our diagnostic businesses, which for us includes genetic screening and medical imaging, our growth exceeded 20% driven by two fundamental trends. The first is the trend toward earlier detection of disease. For PerkinElmer we benefit from this trend through the move towards first trimester risk assessment and increased newborn testing both in the US and increasingly throughout the world.

During the second quarter we saw particularly strong growth for prenatal and neonatal screening internationally with especially strong growth from emerging territories such as China, Russia, and Mexico. The second trend is more accurate detection and treatment of disease which is increasing the need for more accurate X-ray equipment. This is in turn driving the transition from film based to digital X-ray, which enables better diagnosis and better medical outcomes.

During the quarter, we continued to increase our output of digital panels through expanded capacity and higher production yields resulting in a record level of shipments in Q2. As our capacity increases, we are now able to look to expand the application of our digital X-ray technology beyond the traditional diagnostic and therapeutic applications.

In the biopharma, the market appears to be stabilizing but at relatively modest growth rates. The biopharma end market for us includes instruments and reagents for research, analytical tools for production, and several different service offerings. In Q2, we experienced growth in the high single digits. In the biopharma end markets through the strong growth in our reagents as a result of several new product introductions and good market receptivity to our recently introduced customer custom assay services.

Our One Source offering also experienced strong growth benefiting from large pharma's increasing desire to outsource laboratory assets and thereby reduce costs and improve productivity of their lab assets.

Other markets that are relevant for us include environmental which continue to benefit from a focus on clean air and air and water, food and consumer product safety and alternative energy where our breadth of technology differentiates our offering in these critical areas.

In the basic industrial markets the pressure to control energy costs and conserve fuel is driving demand for improved analysis, monitoring and sensing capabilities all of which we provide. During Q2 as a result of these trends we saw particularly strong growth in the areas of chromatography and materials characterization as well as sensors for environmental applications.

By geographic region, our end market growth was strongest outside the US with particular strength in emerging markets such as China, Eastern Europe and South America. During the quarter we announced several initiatives to increase our global capabilities and resources.

First in Mumbai, India, we opened a new eco analytics applications and technical center dedicated to application development and methods for environmental testing, food safety, and sustainable energy.

Second, we appointed Dan Marshak our Chief Scientific Officer as President of greater China operations, where he will focus on expanding our resources in the region to drive innovation and new product introductions.

Third, we introduced a major new agreement with the Mexican Ministry of Health to expand its newborn screening program across Mexico to increase coverage to 1.9 million of Mexico's 2.5 million births per year. These investments should position us well for future growth in these emerging growth areas.

Looking forward, we feel good about our business and the global trends driving our growth. We have had a strong first half and we expect to continue this momentum in the back half. We are clearly benefiting from our strategy of pursuing a balance between targeted internal R&D and bolt-on acquisitions. This approach has allowed to us accelerate our revenue growth rates over the last several quarters and we are now experiencing good margin expansion. While we'll continue to closely monitor global business trends, we believe the diversity of our end markets and the strength of our businesses should position us for a strong 2008.

Now I will turn the call over to Mike, to discuss the financial results in more detail. Mike.

Michael L. Battles - Vice President and Chief Accounting Officer

Thank you, Rob and good afternoon, everyone. I am going to go over our financial performance in more detail and discuss some of the key drivers of performance in the quarter, then I will provide updated guidance on our outlook for Q3 and the full year before we open up the call to questions.

Before I get into specifics, I want to clarify that whenever I talk about a particular (inaudible) up or down, I am referring to an increase or decrease in that measure during the second quarter of 2008 compared to the second quarter of 2007. To the extent that I use a non-GAAP measures, those numbers have been reconciled to the comparable GAAP measure in the financial tables of the press release or posted on our website.

As Rob discussed earlier, Q2 was an excellent quarter of financial performance. We continue to deliver on our goal of sustaining our revenue growth momentum while improving our operating margins and general generating strong cash flows.

By segment sales growth was 22% for LAS and 19% for Optoelectronics. Of the LAS sales growth, approximately 6% came from foreign exchange and approximately 6% came from acquisitions. Optoelectronics increased approximately 4% from the impact of foreign exchange. The remaining revenue comparisons are presented on a reported basis which includes the impact of foreign exchange in acquisitions.

Starting with life and local sciences, each one of our businesses grew double-digits in the second quarter. Genetic screening and laboratory service grew over 20% due to growth in our neonatal, prenatal and core blood banking business in genetic screening. Laboratory sales service grew in our traditional business as well as continued success in growing our OneSource business.

In analytical sciences sales increased due to good performance in chromatography and material characterization driven by environmental applications such as clean water and consumer product safety as well as continued solid industrial applications growth. Within Bio-Discovery, performance strengthened in Q2 as revenue increased due to the improved instrument sales and continued strong growth in reagents.

In Optoelectronics, medical imaging and lighting grew over 20% and sensors in mid-single digits. In medical imaging, we again achieved record output at our fab during Q2. This was driven by broad based demand for both diagnostic and therapeutic applications and our effort to increase production levels to address our customer needs.

Especially lighting growth of the primarily in demand four our ZION flash modules for the mobile phone cameras. In sensors, sales were driven by growth in environmental and energy management applications partially offset by a weak market in defense and aerospace applications.

Turning to gross profit, we generated good gross margin expansion in Q2. This was driven primarily by volume leverage, the favorable impact of the ViaCell acquisition and productivity initiatives. These factors were partially offset by inflation.

Selling, general and administrative expenses increased as a percentage of revenue primarily due to the impact of the ViaCell acquisition as that business carried higher SG&A expense as a percentage of sales. We also grew our investment in research and development during the quarter as we funded our new product pipeline.

GAAP operating profit was 9% in Q2 2008 versus 11% in Q2 2007. On a non-GAAP basis adjusted operating profit increased 50 basis points year-on-year which was largely due to higher volume. In the quarter, we had an effective tax rate of 24.6% on a reported basis which was consistent with our prior guidance. For adjusted EPS we have calculated the tax rate increase without the effects of amortization and stock option expense which increases the rate by approximately 300 basis points.

GAAP EPS from continuing operations was $0.27 compared to $0.28 in Q2 '07. Adjusted EPS was $0.36 in Q2 '08, an increase of 20% over the prior year. Exceeding our prior guidance of $0.33 to $0.35 and consensus estimates of $0.35 which excludes $0.01 of stock-based compensation.

Now, turning to the balance sheet. We finished the quarter with good liquidity and $328 million of net debt which we defined as short and long-term debt minus cash. During the second quarter, we closed on $150 million long-term debt instrument. The proceeds of that placement were used to repay a portion of our existing $650 million revolving credit facility and will provide us with more liquidity for our capital needs going forward. This placement of debt translates into higher interest expense which we expect to be about $7 million per quarter in the second half of 2008.

Looking at the cash flow statement, during the second quarter of 2008, we generated operating cash flows from continuing operations of $79 million which is an increase of 14% over $69 million in Q2 '07. Our focus on working capital continues to pay dividends as we achieve working capital terms of 5.6 times in the quarter primarily due to improved inventory management. We are quite pleased with our performance for the first half and believe this performance positions us well to achieve our goals for the rest of 2008.

Let me now outline our guidance for Q3 and the full year of 2008. For the third quarter we expect revenue growth in the mid-to high teens with changes in foreign exchange and acquisitions contributing approximately 4 and 5% respectively. For Q3, we expect to earn GAAP EPS from continuing operations of $0.27 to $0.28 and adjusted EPS of $0.36 to $0.37. Keep in mind that the way we report adjusted EPS, we exclude the effects of stock-based compensation which is expected to be $0.01 for the quarter. So, our guidance on an equivalent basis for First Call is $0.35 to $0.36.

Turning to the full year, our new GAAP guidance is $1.13 to $1.16. On an adjusted basis let me remind you that in January, we effectively forecast cash EPS for the full year 2008 of $1.43 to $1.50. Given the performance in Q1, in April we stated that our adjusted EPS would be at the high-end that far previous range.

As a result of our good performance in the first half, we are now increasing our adjusted EPS guidance for the full year 2008 from the range of $1.50 to $1.53. For the full year our adjusted EPS excludes stock-based compensation of approximately $0.05 through our guidance on a basis equivalent with First Call translates into a range of $1.45 to $1.48 which increases the top end of our range by $0.03.

I would now like to open the call to your questions.

QUESTION AND ANSWER

Operator

[Operator Instructions]. Your first question comes from the line of Jonathan Groberg with Merrill Lynch. Please proceed. Mr. Groberg, your line is open.

Your next question comes from the line of David Chung with Lehman Brothers. Please proceed.

David Chung - Lehman Brothers

Thanks very much. Just wondering if you could talk a little bit about the expanded opportunity in Mexico? What do you think is the revenue opportunity and how do you see that ramping up?

Robert F. Friel - President and Chief Executive Officer

We've been in Mexico for a little bit now. This is really an expanded opportunity that increases both the number of tests we're doing and also the access to the children. I think from a revenue perspective, it will start out to be relatively small but the opportunity I think could be a you mean couple million dollars over the period of time that the contract lasts, and I think, the other important aspect of it, it continues to expand our reach into the Latin America and South American areas.

David Chung - Lehman Brothers

Thanks. Also another question that I had was in terms of your OPTO operating margins. In general, were they in line with your expectations?

Robert F. Friel - President and Chief Executive Officer

I think the OPTO business continues to do very well and if anything, is probably a little better than our expectations. I think the combination of the higher revenue growth and the improved yields in our fab in Santa Clara actually our margin is probably a little better than what we expected.

David Chung - Lehman Brothers

So would you expect more significant expansion in the back half of this year?

Robert F. Friel - President and Chief Executive Officer

A lot of it is going to depend on the revenue growth in the back half, and I think one of the things is particularly in OPTO when we get to the back half, when we start to cycle up a little bit more difficult comparisons, particularly in Q4 because if you recall in the fourth quarter we were shipping some of the mobile phone modules in Q4, so we will cycle up to a little bit more difficult comparisons from a revenue growth perspective, so I am not sure that we'll see as significant a revenue growth, but we continue to expect good margin expansion in the back half in OPTO.

David Chung - Lehman Brothers

Okay. Thanks very much.

Operator

Your next question comes from the line of Ross Muken with Deutsche Bank. Please proceed.

Unidentified Analyst

It is actually, Mike in for Ross. He is stuck on another call. Nice job on the quarter.

Robert F. Friel - President and Chief Executive Officer

Thank you.

Unidentified Analyst

I wanted to get to one point you mentioned briefly about the excess capacity on the lighting panels and you're going to start to look for other applications outside diagnostics. Can you talk a little bit more about this and what kind of--?

Robert F. Friel - President and Chief Executive Officer

You mean, on the digital imaging panels?

Unidentified Analyst

Yes.

Robert F. Friel - President and Chief Executive Officer

I think that's right. As we build capacity and our yields go up, I think if you look over the last couple of quarters because we were constrained from the standpoint of capacity and we're now starting to get to the point where we're sort of meeting our customer demand, it opens up an opportunity to sort of pursue some opportunities outside the sort of therapeutic and the medical diagnostic applications, so these would be things like dental, veterinarian, non-destructive testing. So we've now increased our sales force in this area to go out and pursue some of these opportunities that previously we were not pursuing because we didn't have the capacity to fill the orders.

Unidentified Analyst

Okay. Thanks. That's helpful. One thing, I may have missed or didn't seem like you addressed it is the ever present mobile phone lighting and some of the camera stuff. Can you give a little update there? I know you said last quarter were expecting it to stabilize and start to grow. What trends are you seeing in that market?

Robert F. Friel - President and Chief Executive Officer

I think that continues to do well for us. As I mentioned previously, we started shipping that in Q4, and then I would say from Q1 there was some growth and in Q2 and I think we still feel good about that's going to continue to grow throughout the year there and we continue to still feel bullish about the opportunities in that market and in that business.

Unidentified Analyst

Great. Thanks, guys. I will let someone else get to their questions.

Operator

Your next question comes from the line of Isaac Ro with Leerink Swann. Please proceed.

Isaac Ro - Leerink Swann

Hey, guys, thanks for taking the question. First up, just to follow-up with the digital X-ray question, specifically in dental, are you actively seeking partners there or have you already signed up partners for dental and they're just waiting for your capacity to free up?

Robert F. Friel - President and Chief Executive Officer

So, I would say we're actively pursuing partners, as compared to that they're signed up and waiting for the capacity.

Isaac Ro - Leerink Swann

Okay. And then on the camera flash business have you talked about what percentage of camera phones currently incorporate a flash and what percentage of those phones would you expect to employ a base flash over a period of time?

Robert F. Friel - President and Chief Executive Officer

I would say the percentage is in the low single digits and I think over time depending on the adoption rate, I think depending when you talk to the phone manufacturers, they believe that could be in the sort of 10% to 15% rate of adoption.

Isaac Ro - Leerink Swann

Okay. And then when I kind of think about phone manufacturers, I kind of think of the market being like I think it's like three or four of them have the lion's share of the market. Are you guys working with all of the top three or four players in the market?

Robert F. Friel - President and Chief Executive Officer

We are working with all of the large producers of the handsets.

Isaac Ro - Leerink Swann

Okay. Great and then lastly, just not sure if you have mentioned this in recent quarters, but for Luminex and your partnership in neonatal testing there for next generation, do you have update on us for what plans are for that?

Robert F. Friel - President and Chief Executive Officer

For Luminex?

Isaac Ro - Leerink Swann

Yes.

Robert F. Friel - President and Chief Executive Officer

Well, I think we continue to work with them. It is one of the technologies we pursue relative to the newborn screening and I think it continues to work well, but it is one of many that many different technologies we're pursuing within the newborn screening area.

Isaac Ro - Leerink Swann

Okay. Great. And then lastly, just on FX, can you break out how the impact differed between the two units during the quarter?

Robert F. Friel - President and Chief Executive Officer

Can you repeat the question, please?

Isaac Ro - Leerink Swann

How foreign exchange tail winds, how they might have, I think it was 5% overall to the business, wondering how that might have differed between the two reporting units?

Robert F. Friel - President and Chief Executive Officer

I think it was 6% within LAS and 4% within OPTO.

Isaac Ro - Leerink Swann

Thank you.

Operator

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

Quintin Lai - Robert W. Baird

Hi, congratulations on a nice quarter.

Robert F. Friel - President and Chief Executive Officer

Thank you.

Quintin Lai - Robert W. Baird

Sorry, unfortunately I came to this conference call late. Did you talk a little bit about, how some of your prenatal testing is going on and apologize if I am already asking a question that has already been asked, but I am just curious to find out how prenatal is doing and then what are you seeing on the competitive landscape with respect to new tests on the horizon?

Robert F. Friel - President and Chief Executive Officer

So the answer to the question is we didn't break out and normally we don't break out into that level of detail as regards to prenatal. What we did say was genetic screening was very strong, again a quarter where we exceeded 20% growth in genetic screening. I would say across all the businesses we saw very good volume growth. So whether it was newborn, prenatal, as well as the ViaCord business and so they were all very strong.

And I would say across the markets there is probably some increased competitive pressure, but not significantly, but I would say there is some increased competition, but so far as I mentioned we continue to see strong growth in volume across all our businesses.

Quintin Lai - Robert W. Baird

Okay. And then with respect to the forward guidance you just gave here, how do you put into perspective kind of what we're hearing about big pharmaceutical and I know it is it is not a big part of your business, but the spyness that we've heard so far this quarter and then with respect to inflationary costs?

Robert F. Friel - President and Chief Executive Officer

Let me talk about pharma first. So, I would say our view of pharma is it is stabilizing, probably to a point where it won't be robust growth, but it is probably okay. As we mentioned on calls before, the instrument fees or at least in the Bio-discovery piece is relatively small for us, but as I said that's sort of stabilizing and probably saw something in the low single-digit growth there.

But we still see good growth in the reagent and I mentioned the fact that we've introduced recently some custom synthesis and some additional assay development services that is sort of getting good traction, so we seem to be getting a little bit of a benefit of their desire to do some outsourcing because of the cost pressures that they're under.

So I would say in our guidance we're not assuming any significant increase in growth within the biopharma area, but as I said probably fairly stable. From a commodity inflation perspective, it doesn't have a significant impact on our business. The only area where we really see it is probably the impact that fuel has on transportation costs, so clearly we're seeing increases in freight and so what we're trying to do is take some actions within the company to try and reduce the impact of that as well as to as best we can try and pass some of that onto the customers and so the assumption in the back half is fuel costs don't get any better and we built that into the guidance that Mike gave.

Quintin Lai - Robert W. Baird

Thank you.

Operator

Next question comes from the line of Peter Lawson with Thomas Weisel Partners. Please proceed.

Peter Lawson - Thomas Weisel Partners

I wonder if you can talk about, also sorry that I arrived late on the call as well, so sorry if I am repeating questions, but?

Robert F. Friel - President and Chief Executive Officer

Peter, could you speak up a little bit?

Peter Lawson - Thomas Weisel Partners

Yes. Have you seen any slowdown in end markets at all?

Robert F. Friel - President and Chief Executive Officer

I think if you look across all of PerkinElmer, there is a number of end markets, and I would say there are some areas where clearly the overall slowing of the global economy is having some impact, so I would say there is some areas where we are seeing some slowing there is, but I think because of the diversity and particularly the areas where I think we have got some real strength, that's being more than offset by strong growth, so whether it is on the imaging or the genetic screening side or the environmental marketing, or the environmental monitoring, that's more than offsetting some slowing we're seeing probably in the what you would classify as the more industrial type markets.

Peter Lawson - Thomas Weisel Partners

What are the products that are suffering in that industrial type markets?

Robert F. Friel - President and Chief Executive Officer

It would be some of our lighting, specialty lighting applications as well as some of our sensors, or probably the ones that are seeing the impact of the overall industrial slowdown.

Peter Lawson - Thomas Weisel Partners

What would you say the exposure is to those kinds of businesses?

Robert F. Friel - President and Chief Executive Officer

I would say it probably 15% of our revenue, it varies from 15% and maybe as high as 20%, but it's in that type of range.

Peter Lawson - Thomas Weisel Partners

And I wonder if you can talk through the ViaCell acquisition, how that's proceeding. Are you seeing cross-selling benefits yet?

Robert F. Friel - President and Chief Executive Officer

So, ViaCell had a very strong Q2. They continue to see strong growth and profitability, and so we continue to be excited about the opportunity there, and we are in the process of combining the sales force to try and get the benefit of the cross-selling opportunities with our NTD product into the OBGYN channel. So we're very pleased with ViaCells performance in Q2 and expect it to continue to do well in the back half.

Peter Lawson - Thomas Weisel Partners

And then what's the current thought on some of the more industrial businesses, some of the assets that probably don't fit within that kind of biopharma business about spinning those off at some point?

Robert F. Friel - President and Chief Executive Officer

Well, I would say when we look across PerkinElmer, it is more than just sort of a biopharma end market. You have sort of diagnostics. You've got the biopharma, you've got the environmental monitoring and a number of other applications and a number of those products while they have some applications that go into industrial end markets, the products also serve the markets that I talked about previously, so in a lot of cases the industrial applications are the same products that are going into environmental applications or biopharma or in some cases diagnostic.

So it is a way of being able to sell more products into different markets but fundamentally they're going into either human health or environmental health end markets. So, there may be some, but probably relatively small that we don't feel fit strategically but overall I think the majority of the portfolio, I think we feel pretty good about.

Peter Lawson - Thomas Weisel Partners

And then just finally on the radio chemical business, are you seeing growth of that from the GE pulling from that market?

Robert F. Friel - President and Chief Executive Officer

We are seeing some growth in that business as a result of GE dropping out, yes, we did experience growth in that business.

Peter Lawson - Thomas Weisel Partners

Okay. Thank you so much.

Operator

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

Jonathan Groberg - Merrill Lynch

Thanks for taking the call and congratulations on a phenomenal top line at least and a phenomenal quarter.

Robert F. Friel - President and Chief Executive Officer

Thank you.

Jonathan Groberg - Merrill Lynch

Can you maybe just, I think what's most impressive about this quarter as I look at it anyway is LAS which has been solid but this time it looks like it is growing close to 10% organically. Can you maybe talk about outside of the ones you typically talk about, what's going on in some of those businesses that drove that 10%, whether it was the radioactive was picking up a little bit or just kind of can you talk about some of the other things outside of the genetic neonatal screening and some of the other ones?

Robert F. Friel - President and Chief Executive Officer

So, I would say, as I alluded to before, it was fairly broad based, so genetic screening did well, service continues to do a very good job. I think if there was two areas that maybe were a little bit better than previously was we continue to see very good traction in the analytical sciences area, particularly around our push into more application focused solutions as compared to technologies, and so whether it is the eco analytics that's going into sort of food, air and consumer products, or a number of other applications that we're working on, material characterization that is seeing some up lift because of the pressure on fuel and energy costs.

So, I think that was one area, and then I would say the other area is within the Bio-discovery, we are seeing strong growth in the reagent side and I think that's a function of a number of new products that we've come out fairly recently and you can even go back to maybe twelve or eighteen months ago where we stepped up the R&D in that area and I think we're starting to see some good traction, and some good growth. So, I would sort of spike out those two but also the point that I think across the entire LAS we saw some good growth this last quarter.

Jonathan Groberg - Merrill Lynch

Okay. Great. And then on the SG&A can you maybe talk about your plans, looks like in order it hit some of the targets you made for the year, margins are going to have to expand a little bit more in the second half and maybe what your plans are to get that to happen?

Robert F. Friel - President and Chief Executive Officer

The increase i SG&A is largely a function of the ViaCell business, and as you may recall, Jon, we said in the beginning that in the first quarter it would be sort of dilutive to margins and in the second quarter it would sort of get closer to the corporate average and in the back it would be accretive to margins. I think we feel good we're on track to that. ViaCell is a business that has very high SG&A but has very high gross margins so north of 80%.

As the volume ramps in ViaCell, I think that will take care of itself from an accretion perspective and operating margin. So, I think that really sort of addresses what the issue with the SG&A is. There is a little bit of FX in our SG&A as well that's driving it up a little bit, but I think the real opportunity to expand operating margins in the back half is going to come from the growth, so you're going to get leverage on the volume growth and then of course we get good mix from the standpoint of the businesses that are growing faster, notably the imaging and genetic screening and service, have higher than the corporate average operating margins.

Jonathan Groberg - Merrill Lynch

Okay. And just to get that leverage that you're talking about with the ViaCell infrastructure that's in place, can you get that with just the ViaCell sales themselves continuing to grow or do you need to get more sales through some of your other to get them selling more of your other products as well?

Robert F. Friel - President and Chief Executive Officer

I think with ViaCell specifically, we believe we can grow revenue faster than we need to grow SG&A, so that in and of itself will provide leverage and expand our operating margins. Then of course you have the rest of the business which I think we do get good volume leverage across all of the businesses, so I think the recipe for the second half is just to continue to get good revenue growth and not increase the operating expenses at the same level.

Jonathan Groberg - Merrill Lynch

Okay. And then last question, a number of the companies here that are at least well run companies have this quarter actually reported pretty strong growth including yourselves here. Given the portfolio of businesses that you have, it is not like you've necessarily been through a recession, so I am just, how confident or comfortable are you that this isn't kind of just a late cycle last gasp before things kind of slow down and this is sustainable over say the next twelve months?

Robert F. Friel - President and Chief Executive Officer

I think it is something we always are concerned about and question ourselves. One of the things we try and do is not only look at sort of our customers' demands and growth but also try and understand even sort of their customers' or what's really driving their end markets and make sure we have a good appreciation for the sustainability of the growth. I think it is something you always want to challenge yourself on so the growth prospects out there and make sure that you're being responsive from the cost side as well.

So, I don't know that our crystal ball is better than anybody else's, but I think when we look out at least for the back half of the year we feel fairly confident that we can continue to see pretty good revenue growth and be able to deliver the EPS and the margin expansion that we've sort of reported.

Jonathan Groberg - Merrill Lynch

Okay. Thanks a million.

Robert F. Friel - President and Chief Executive Officer

Thank you.

Operator

[Operator Instructions]. It appears we have no more audio questions at this time.

Robert F. Friel - President and Chief Executive Officer

Thank you. So, thank you all for your questions and your interest in PerkinElmer. We feel like we had a great quarter and good momentum into the back half. And we look forward to reporting our continued progress on our third quarter call. This call is adjourned, and have a great evening.

Operator

Thank you for your participation in today's conference. This concludes our presentation. You may now disconnect. And have a good day.

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Source: PerkinElmer, Inc. Q2 2008 Earnings Call Transcript

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