Revvity Inc (RVTY) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2008 PerkinElmer earnings conference call.

At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Mr. Dave Francisco. You may proceed, sir.

Mr. Francisco, you may proceed.

Great. Thank you very much. Good afternoon and welcome to the PerkinElmer fourth quarter 2008 earnings conference call.

I am Dave Francisco, Vice-president of Investor Relations and Treasurer for PerkinElmer. With me on the call are Rob Friel, President and Chief Executive Officer; and Michael Battles, Vice President and interim-Chief Financial Officer. 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-PKINYSE. Please note this call is being webcast live and will be archived on our website until February 12, 2009.

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

Thank you, Dave.

Good afternoon, I appreciate you joining us this afternoon for our fourth quarter earnings call. During today's call, Mike and I will provide an overview of our Q4 results, provide commentary on some of our key end markets with our outlook for 2009 and then open up for your questions. Mike will get into details on our fourth quarter, but overall we were very pleased with our performance in virtually every financial metric. In particular, I would like to highlight the strong operating margin improvement in Q4 of over 300 basis points. This was due to our productivity actions, lower operating expenses, and good volume leverage.

The results we released today closes out a very strong year for PerkinElmer. In 2008, we grew the business by 14% on a reported basis, and 7% excluding the impact of foreign exchange and acquisitions. We expanded adjusted operating margins by 80 basis points, grew adjusted earnings per share by 15% after absorbing $0.05 dilution to the ViaCell acquisition, and free cash flow exceeded net income continuing to strengthen our financial position.

In addition, we continued to focus a portfolio in several key end markets that have attractive long term growth characteristics. This strategy was further strengthened by our business realignment announced this quarter to focus our efforts on human and environmental health. As previously announced, effective January 1st this year, we aligned the Company's operating structure under these two end markets.

PerkinElmer's human health business represents 40% of our revenue and is comprised of the genetic screening, medical imaging, and Biodiscovery businesses. This primarily focused on developing screening and diagnostic tools and applications to fight disease earlier, and provide medical insight more accurately as well as create critical new therapies more quickly. The environmental health business represents 60% of our revenue and includes our analytical sciences, laboratory services, and illumination and detection business. It is focussed on improving and protecting the surroundings of our environment in which we live. Through detection, lighting, and analysis solutions, the environmental health business helps ensure our safety and security from the food we eat to consumer products we use to the security of our surroundings.

Turning now to 2009, the outlook for macroeconomic conditions continues to be very challenging. As such, I will provide some commentary on key end markets and our expectations for 2009 as of today; however, please recognize that our visibility beyond the next several weeks is limited. Within human health, we serve two end markets: diagnostics, which represents 25% of our revenue, and research which represents 15% of our revenue. Our diagnostic business provides early detection for genetic disorders from preconception to early childhood as well as medical imaging. We believe this market has very attractive long term attributes as it provides vastly improved outcomes and a compelling economic payback.

During 2008, our diagnostic business grew in the mid-teens despite a very challenging Q4. However, in 2009, our diagnostic business are cycling up against some difficult comparisons as both medical imaging and genetic screening had significant growth in the first half of 2008. For example, our medical imaging business, with increased capacity coming on early in 2008 was able to work off outstanding backlog thereby growing well in excess of market rates. Additionally, the impact of credit market dislocation on hospital budgets has limited near-term demand for high-end medical imaging systems.

Lastly, state funding constraints has limited near-term growth opportunities for our neonatal screening business in the U.S. as state labs defer the expansion of the number of tests supplied to each newborn as well as reduce safety stock levels of our reagents and consumables. Consequently, we anticipate that our diagnostic business will be flat, plus or minus a couple percent in 2009 with the first quarter being down mid to high single digits.

Turning to the research area. Here we provide a broad suite of products including reagents, cellular analysis, lab automation and detection capabilities that are used to improve the drug discovery process. Our research business grew in mid-single digits in 2008. Our offering into the research market continues to benefit from recent new product introductions in the reagent area, as well as the increased adoption of cellular imaging and analysis products with enhanced imaging software allowing this business to grow faster than the underlying market.

Regarding the 2009 outlook, large pharmaceutical companies are expected to hold spending flat as screening projects continue, whereas we believe academic and large biotech will be a source of some growth in instruments and reagents despite pressure on funding sources. As such, we expect the research market for us to continue to grow into low to mid-single digits throughout 2009 with Q1 being at the high end of the range due to some weakness we experienced in Q1 of last year.

As I mentioned earlier, in the environmental health area, we provide a number of applications and technologies that improve and protect the surroundings in the environment in which we live. This business includes environmental, safety and security, as well as laboratory services markets. In environmental and safety and security markets, which represent 20% and 10% of our revenue respectively, we grew in the mid-single digits in 2008.

We believe that the impact of current economic conditions on these businesses will be highly dependent on the specific application and end markets, although we are clearly seeing the impact from the tight credit markets and currency movements negatively impacting demand. However our focus on clear air and water, food and consumer product safety, and alternative energy, should offset some of this softness based on the criticality of these solutions. Overall, we believe the environmental and safety and security markets will be down in the low single digits throughout 2009 with the first quarter down a little more due to a strong growth in Q1, 2008. The industrial market will be severely impacted by our recession as it has experienced both capital and cost pressures. Fortunately, it only represents about 10% of our revenue, while we believe that this market will be down from the high single digits to the low double digits in 2009.

Lastly, our lab services business represents about 20% of our revenue, and grew in the high single digits in 2008. This business continues to experience strong growth and outsourcing from our customers. In addition, we are beginning to penetrate beyond our traditional customer base proof that our OneSource service business strategy is well aligned with customer needs to consolidate laboratory services was further demonstrated by the continued growth of several OneSource programs including the expansion of our relationship with Merck.

Although we have experienced some maintenance deferrals, this should be offset by the increased drive toward further outsourcing. At this time we do not believe the growth of the laboratory services business will be significantly impacted from current economic conditions, and should therefore, continue to perform well, growing in the mid-single digits in 2009. So to summarize, we believe the human health business will be about flat, plus or minus a couple of percentage points, with the environmental health businesses being down low single digits for 2009.

Before I turn the call over to Mike, I wanted to briefly touch on our key priorities for 2009. They will be to drive productivity as much and as hard as we can holding cost and increasing efficiency in everything we do. In addition, we will also continue to invest in key growth areas that we believe create long-term value. This balanced approach to investing in innovation, regional infrastructure and bolt on acquisitions, coupled with our continued strive for operational excellence across all of our businesses and territories will be the key to us continuing to play a critical role in actively creating better outcomes that help improve the health and safety of people in the environment.

I would now like to turn the call over to Mike to talk in a little bit more detail about our Q4 financial results and our guidance for 2009.

Thank you, Rob, and good afternoon, everyone.

I'm going to review our Q4 financial performance in more detail and discuss some of the key drivers of the performance. The I will expand on Rob's comments and provide guidance on our full year 2009 and our outlook for Q1 before we open the call for questions. Before I get into the details, I want to clarify that whenever I talk about a particular measure being up or down, I am referring to an increase or decrease in that measure during the fourth quarter of 2008 compared to the fourth quarter of 2007. The extent I use any 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, Q4 was a solid quarter of financial performance to close out a very strong year for us. In the fourth quarter and for the year, we had growth in sales, earnings per share, and cash flow that were all at or ahead of our original guidance despite the rapidly deteriorating economic conditions that we experienced late in the year. We ended the year for adjusted EPS at $1.45, which is up 15% from the prior year.

Let me review the Q4 financials in greater detail. By segment, reported sales growth was 3% for LAS and 3% for optical electronics. Of the LAS sales growth, foreign exchange had an unfavorable impact of approximately 4% and acquisitions added approximately 3%. Of the optical electronic sales growth, foreign exchange had an unfavorable impact of approximately 1% and acquisitions added less than a percent. The remaining sales analysis is presented excluding the unfavorable impact of foreign exchange and the favorable impact of acquisitions.

Starting with Life & Analytical Science, our Biodiscovery business continued its strong momentum in Q4, growing high single digits. Growth in this business was broad based with continued strength from our cellular imaging and lab automation products as well as new great traction from our new products and services in our reagent portfolio which has allowed us to gain share. Laboratory Services grew mid-single digits in the quester. Consistent with our expectations, this business continues to perform well as the impact of customers deferring contract renewals is more than offset by increasing demand for outsourcing including an increase in level of demand for customers outside our traditional segments.

In Analytical Sciences, sales grew low single digits. This business executed well despite the strong headwind experienced in the quarter as industrial customers deferred purchases, emerging territories experienced currency devaluation, and this business had cycled up against a strong Q4 in the prior year. By end market demand, we continue to see great opportunity for continued growth in food safety, consumer product safety, renewable energy and hydrocarbon processing.

Finally, genetic screening was up low single digits in the quarter. We continue to see good growth in ViaCell and prenatal screening with offsetting pressure from the neonatal business. As Rob mentioned, growth in neonatal screenings has been impacted by funding constraints and improved inventory management at state labs, which has had an unfavorable impact to the quarter.

In Optoelectronics, medical imaging grew low single digits. This business has been impacted by a pullback in hospital capital expenditures for high end systems, due primarily to budget constraints and a lack of access to required liquidity.

In Illumination, growth was in the mid-single digits primarily due to strong demand for high-performance Cermax and LED lighting applications. In Sensors, sales was up mid-single digits driven by strong growth derived from a last time buy related to an expiring long-term optical sensors contract, partially offset by applications in more economically sensitive areas.

Turning to gross margin. We saw about 90 basis points of gross margin expansion in Q4. This was driven primarily by the favorable impact of the ViaCell acquisition, favorable mix, and productivity gains. Research and development expenses were down by $1.8 million versus last year. Excluding the favorable impact of foreign exchange, research and development expenses as a percentage of sales were essentially flat as we continued to derive a strong pipeline of innovative products, applications, and solutions.

Selling, general, and administrative expenses decreased by $5.2 million versus prior year. Excluding the favorable impact of foreign exchange, SG&A expenses as a percentage of sales were essentially flat year on year. This was driven by a decrease in variable compensation and very tight cost controls offset by the impact of the ViaCell acquisition as that business carries a higher SG&A expense as a percentage of sales than the rest of our businesses. GAAP operating profit was 14.5% of sales in Q4 of 2008 versus 10.3% in Q4 of 2007. On a non-GAAP basis, adjusted operating profit increased 320 basis points quarter-over-quarter to 18.1% of sales.

Looking at expenses below operating income, interest expense net of interest income in Q4 of 2008 was 23.5 million as compared to net interest expense of 4.1 million in Q4 of 2007. In the fourth quarter, we incurred an expense of $17.7 million related to the discontinuance of an interest rate hedge that was put in place in conjunction with the ViaCell acquisition. The combination of the reduced need of capital and tight credit markets led us to not enter into the long term debt obligation. Consequently, the hedge was discontinued and expensed in the quarter. Excluding this expense, net interest expense for Q4 2007 was up slightly from the prior year due to increased debt.

Other income and expense was $5.8 million in Q4 2008 as compared to $1.3 million in Q4 2007 primarily related to increased foreign exchange costs due to high volatility in the quarter. GAAP EPS from continuing operations in Q4 2008 was $0.29 compared to $0.44 in Q4 2007. Adjusted EPS from continuing operations was $0.48 in Q4 2008, an increase of 15% over the prior year and within the range of our guidance for the quarter of $0.45 to $0.50.

In November 2008, the Company announced that a portion of its Optoelectronics business was placed under strategic review. As a result of this review, we intended to divest these businesses; therefore, the results of the operations of these businesses have been reported as discontinued operations. Additionally, we have decided to exit certain product lines within the Biodiscovery business and reallocate resources to higher growth businesses. In Q4 2008, the impact of these discontinued operations noted above was an after tax expense of approximately $0.03 primarily related to the write-off of inventory in the exited Biodiscovery product lines.

Turning to our balance sheet. We continue to maintain a very strong financial position. We finished Q4 with $330 million of net debt, which we define as short and long term debt minus cash. We have excellent liquidity with $179 million of cash on our balance sheet and approximately $290 million of undrawn availability under our revolving line of credit. We also have no mandatory maturities of debt until 2012. This leaves us in a strong financial position as we head into 2009.

Looking at the cash flow statement. During the fourth quarter of 2008, we generated operating cash flow from continuing operations of $93.8 million, which is an increase of 9% over the prior year. Our focus on working capital continues to yield results as we held our working capital turned flat year-over-year at 5.6 times in the quarter despite external pressures to extend terms due to current economic conditions.

In summary, we are very pleased with our financial performance for the quarter and the year particularly in light of the slowing global economy in turmoil in the credit markets. Now let me outline our updated guidance for the full year 2009, and Q1 2009. As Rob mentioned, given the macroeconomic condition and strong performance in 2008, we have faced difficult headwinds in all of our businesses in 2009, in particular medical imaging, genetic screening, and analytical sciences will be under pressure to grow revenue in the first half of 2009 given the superior performance in 2008 and the tough market conditions in 2009.

Consequently, we believe that in 2009, revenue, excluding the impact of foreign exchange and acquisitions, will be flat to down mid-single digits. In the second half of 2008, our pension obligation increased as market forces substantially lowered our pension assets. This increased obligation will result in approximately $5 million in additional pension expense in 2009 versus 2008. In addition in 2009, due to the mix of debt instruments carrying a higher rate of interest, we expect interest expense to be approximately $3 million higher in 2008--than 2008.

As it relates to 2009 EPS guidance, we believe productivity initiatives and tight cost controls will offset any volume shortfall and potential mix issues; but will not offset the incremental pension and interest expense mentioned above, nor the current impact of the strong dollar. As a result, we believe that our earnings will be down mid-single to mid-teens for 2009 as compared to 2008 including the impact of stock option expense in both periods.

As Rob mentioned above--as Rob mentioned, the first quarter will be particularly challenging for revenue growth, and we currently believe we could be down mid-single digits. This will result in non-GAAP earnings per share to be down low to high teens as compared to Q1 2008, due to the higher pension expense and interest costs as well as foreign exchange. Before I open the call to your questions, I would like to note that in 2009 we will be including stock option expense into our adjusted earnings per share share calculations.

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

(Operator Instructions)

Your first question comes from the line of Quintin Lai of Robert W. Baird. You may proceed.

Good afternoon.

As you were looking through the performance in the fourth quarter, was it a steady deterioration, and could you give us a little color about now, that we are a few weeks into January what you're seeing now; and is that what is giving you the few weeks of visibility that you have right now?

Quintin, this is Rob.

I would say it really varies by business because we operate in a couple different end markets, it would be tough to characterize everything about the same. I would say probably in the Analytical Sciences end market, it was probably more gradual as the quarter went along. I would say in, probably medical imaging it was more dramatic of a drop off. As we mentioned, service has not really seen much of an impact from this. Biodiscovery, as Mike mentioned, had a good quarter. I would say probably on the Illumination and Detection side, that was probably more gradual. It depends a little bit on what end market and business you are talking about.

As you look at the range of expectations for--that you've set for organic revenue growth, Rob, do you think that you have captured some of a bad case scenario--I know you can't say worst case scenario, but--?

I would say right now we think it is realistic, and I would say we are not assuming any recovery in the back half of the year. I would say we've assumed in this forecast that economic conditions don't change, meaning they don't get any better, but I would say they don't get significantly worse. And of course, we've provided ourselves, I think, enough range around that, that gives us some latitude that things could maybe deteriorate a little bit, but not, I would say, a significant downturn. So I think it is fairly realistic and we've tried to put some ranges around that that it gives us latitude to see a little bit of softness, but not, I would say, a significant change from where we are right now.

With respect to your operating expenses, you kind of mentioned the cost controls. Are there any other levers that you have at your disposal in the event that things get a little tougher; or how should we think about--?

Well, I would say, first of all, clearly when we look at what is happening from a volume perspective, we are going to take cost out that are volume related. I think that's something, and we have done that. We've done some actions, for example, in the medical imaging area because of--that is going to be a lower volume. So first of all, I think from a volume perspective, those costs are--those come out and we've done those and we'll continue to do those.

On the overhead side, we continue to look at areas on the administrative side to just improve efficiencies and drive the productivity and then we continue to push those as well. And we've got some plans as we look forward here in 2009. The area that we have been a little reluctant on and I think we'll continue to be reluctant on is the areas of research and selling and marketing. And what I'd like to do is try and preserve those as best as possible; and I would say if conditions stay about where they are now, or maybe even get a little bit lighter than that, I would like to hold onto those. Of course, if we see a significant drop-off we'd have to take a look at that. I would say, this plan that we've got for 2009 still assumes that our spending in R&D and our salesforce is fairly flat year-over-year.

And then with respect to the discontinued ops, what was the revenue contribution in the fourth quarter; and then as we look forward, I know that you had a $0.03 drag because of an inventory issue, but the revenues that are being discontinued do they have a positive margin?

So first of all, as you probably know, in the reported revenue we showed, the discontinued revenue is out. So none of the discontinued revenue is in the quarter number, those businesses do make money so they do have positive margin. Mike talked about the fact that because of the discontinuing, mostly in the Biodiscovery product lines, we had an inventory write-off, and that's what generated the loss, not the operations from the business.

Okay.

So could you give us a--kind of a ballpark of how much is being discontinued and then kind of the rough margins?

So what we'ver said previously is that the businesses that are being discontinued on an annual basis is about $90 million. I would say Q4 was down a little bit from the annual run rate, but that would give you a rough idea of what the revenue was in 2008, and operating margins, Mike, I don't know, what would you say? Sort of low double digits?

I would say so, yes.

All right. Thank you very much.

And your next question comes from the line of Derik De Bruin with UBS. You may proceed.

Hi. Good afternoon.

Are you planning on giving us like a fully restated 2008 income statement balance sheet for the business ex the discontinued options to make it a little bit easier since--otherwise, people's numbers are going to be all over the place in terms of trying to figure out what the comps are?

Yes, we are planning on doing that.

Great. Tonight? Was there anything that really, I mean, you guys were pretty conservative when you were kind of giving your third quarter guidance--when you were on the 3Q conference call going into 4Q you were kind of conservative. Clearly, the markets slowed dramatically there, what was the one thing that really kind of was the biggest surprise to you in the--during the fourth quarter and what you've seen so far? I mean, was there one particular market that you just saw decelerate more rapidly than the others? Just a little bit more color on that.

It depends on the time frame. I would say relative to October, no, because when I looked at the Q4 results it came in pretty much what we had thought, maybe even a little bit better. So I would say by the time we were in October, I would say, we weren't really surprised of anything we saw in Q4. If you go back a couple months, I would say, the area that I've been somewhat surprised in is the drop in the medical imaging end market. Because I think if you would have went back over the summer while we realized that there could be softness in there, I think we've been a little surprised at how quickly that has dropped.

Okay. And, I guess, what would be your type of first signs of falling in that market? Follow the credit markets, for example, and just start to see when things are moving there? How do you judge when demand like from there might pick up again?

So in most cases, it's in discussions with our customers and in that business we're really a component supplier to sort of the GE's and the Seiman's and the Electra's of the world. So we're in fairly constant discussion with them because there's a fairly significant lead time to make these panels. So we have a fairly ongoing dialogue with regard to what they're seeing from their end market. Now, of course, they can be surprised as well, but basically, that's what we're looking is for some information from our end market, from our OEM customers.

And I guess that when you start looking at the cash flow in 2009, do you still expect to be--do you expect to still see free cash flow above net income, and I guess can you give us some CapEx guidance?

Yes. I think we would still expect to see free cash flow above net income. CapEx, Mike, what would you say for 2009?

$40 million, maybe.

Yes, probably $40 million, maybe a little lower.

Okay.

And you guys were presenting down at the maternal fetal medicine meeting and I've gotten a number of questions from clients just wanting to know what you think about some of the new non-invasive diagnostics that are out there. Any opinion on those and as those relate to your genetic screening business?

I think in the prenatal area, our view is that it's really not competitive with what we do, I think it's more of a diagnostic test as compared to a screening test, which is what we do. Our view is it is more complementary of what we do, not competitive.

Okay.

And I guess so, have you also seen a slowing in terms of the international markets in terms of adoption of new screens?

We have not. Actually, we talked a little bit about the slowdown in the US. We have not experienced that outside the US. And I think fundamentally because it's generally outside the US it's more federally government funded. And we're not seeing the pull back in those areas as much as we're seeing in the US, where it's more state funded. So we continue to see good growth outside the US and we still see interest from countries adopting--either adopting testing or increasing the number of tests their doing.

Okay.

And final question. Any--how exposed are you to the Pfizer-Wyatt acquisition? Just a question. I'm (inaudible) right there.

I don't think it's a big exposure for us. Either one of those customers are not huge. So I don't think that's going to have a major impact on our '09 guidance or results.

Okay.

Thanks a lot, guys. I will get back in the queue.

And your next question comes from the line of Isaac Ro with Leerink Swann. You may proceed.

Hi, guys. Thanks for taking the questions.

First question just on the genetic screening, could you maybe give us a sense of where you are in the revenues there US versus international at this point?

If you look at the new--if you look at newborn or genetic screening?

Oh, I'm sorry, newborn.

Newborn is about 65% in the US, about 35% outside.

Okay.

And I guess while I'm at it how about the other half, the genetics?

When you look at genetic screening, of course, ViaCell is exclusively US, so that's why I sort of asked the question. You really almost got to pull ViaCell out because that's 100% US. And then the remainder of the business still sort of follows that pretty closely, it's sort of--maybe 60/40 or two-thirds/one-third.

Okay.

And then, on the ViaCell, it sounded like you guys were still pretty positive, but am I right in assuming that this is typically an out-of-pocket expense for customers that want this service?

It is--you are right in assuming--it is an out-of-pocket expense. And it has continued to do quite well in the fourth quarter; and in fact, if you look at all of 2008, it was--it grew double digits on the top line.

Okay.

And then just switching over to medical imaging, I think GE said they saw a 30% decline in new orders in the fourth quarter. I think you mentioned the longer lead times and so forth. So I am just trying to get a little color here. Can you maybe give us a sense of customer concentration that you have in the business? Do you have anyone that's more than 20% or 25% of sales? And secondly, how long do you think those order slowdowns among your customers kind of trickle-down over to you guys on the supplier side?

So keep in mind, when GE says that they're 30% in their imaging business, it's a much broader portfolio of products than what we serve into so it would be MRI and CRT and other types of things and we're just really focusing on the, for them, the radiology end market, which is really sort of a morphous or X-ray based and also their vascular area. But generally, when you think about our medical imaging business, it is less than half going to GE. And then in that, there's a split between radiology. Actually radiology is still doing quite well because that has its end to be a lower price point. It's really the higher end instrumentation and systems that go into oncology and vascular that are really having the--that we're seeing the slowdown.

Okay, and then just on the buyback, I know you guys had announced a buyback last quarter that was pretty significant; and I'm wondering how we should think about pacing throughout the year for that buyback.

So in the fourth quarter, we bought a million shares back. And then I think, as we've said, both buybacks and acquisitions are appropriate uses of the cash. I would say slight preference to do acquisitions, but I think we look at both. So we had a 10 million authorization, we used 1 million of that.

Okay, got it.

And then just, lastly, on the sort of dynamics you are seeing big picture in the Health Sciences business. You mentioned services are still pretty good, but you're seeing some pressure on the actual product side, so how should we think about margins going forward? Is there a potential that you get a little bit of negative leverage on the margins when you net out the growth and services versus pressure on the products?

That is right, particularly on the imaging side which is not only profitable business, there's some pressure on gross margins. Yes, I think that's right. Particularly on the imaging side, which is a not only a profitable business, but a high fixed cost business. So I think we will see a little pressure on gross margins because even if revenue was flat, the mix with medical imaging and genetic screening being a little soft particularly in the first half of the year, and some of the other businesses offsetting that, I think there is a natural sort of poor mix there. But I would say as you sort of look through 2009, we believe that the productivity actions we are taking can offset most of the volume and the mix issues from an operational perspective.

The fundamental reason that our EPS is down, let's say, greater than our revenue is, I would say, non-operating things. Mike alluded to them a little bit. We have a little higher interest expense, we have a little higher pension costs. As you can imagine, the pension assets did not perform well in 2008, and so we're seeing a little bit of a higher charge there and then, of course, assuming the FX rate stays where it is, we do have a little bit of a FX headwind going into 2009. And the combination of those is really what's driving the EPS growth down greater than the revenue.

Got it. Last one just to follow up on Derik's question on the restructured units. When might we see those numbers? Would that be like in the Q or maybe when you report first quarter?

Well, I think Derik's question on the sort of before and after with stock options, I think that we can do tonight, or quickly. I think the question of the numbers without the discontinued details behind that will probably be in the Q.

Okay. Thank you.

And your next question comes from the line of Ross Muken of Deutsche Bank. You may proceed.

Good afternoon, guys.

Good afternoon.

Could you remind me the average cost for a consumer in the ViaCell business for the storage of core blood?

It's about $1,800.

So how do you think of that? I know you saw sort of stability in the fourth quarter, but how do you think of that relative to kind of unemployment around 10%, and pressures across the consumer from what we are seeing and obviously the equity market and just general macro weakness?

So, Ross, I think this is a question that we've sort of thought about for the last couple of quarters because I think when we think about the impact or what sort of a recessionary environment would have on PerkinElmer, we've gone through and most of the businesses we can characterize pretty well either because we can look at a prior recession. Of course with ViaCell we can because it's a relatively new business, and I think that the question is always sort of one argument is what you're suggesting, which is when there is more pressure on consumers either because of unemployment or just general economics, does this become one of those discretionary expenses that they don't do?

The flip side of that argument is this is a business that is not very well penetrated. And where it is penetrated, it has a tendency to be at sort of the higher income families. So generally when we look at the family's that are participating in core blood storage, combined salaries are normally six figures and above. So I belive what is happening is those people are less impacted by what we're seeing. Now over time it may creep into that strata as well, but I think that's what we're seeing right now is because it's not that significantly penetrated say across the consumer base; and it's really sort of at the higher income levels. I believe that's why we're still continuing to see decent growth.

I appreciate it.

And then on the research business, you're looking for sort of flat growth in screening. Can you talk a bit-when you talk about that, is that inclusive of the automation business as well; and then sort of as you think about that piece, given sort of the retrenchment particularly at pharma, and kind of the facility closures we are seeing; is it a mix of kind of some of your newer cellular applications offsetting some of the old traditional high throughput screenings so on a net basis it's flat?

I think that's exactly what's happening. I think the shift into cellular, I think the shift--both from a reagent as well as instrumentation side. I think the other thing is we have been able to sort of take some of our screening instruments that classically went into pharmaceutical and biotech and take them down into the academic markets where we are seeing some growth; and believe will see some growth potentially with some NIH funding. And so it's a combination of moving into the cellular imaging side or cellular analysis side, and better penetration in the academic markets. It is offsetting sort of flat to down in large pharma.

Okay.

And then lastly, on the safety piece, particularly the commentary around the industrial end markets. I think you said sort of down mid to high single digits. Remind me again of the core end customer base there because that sort of seems relative to some of the capital equipment guidance numbers we have gotten from a lot of the traditional industrial customers, a bit optimistic. So I just want to kind of get a sense for the mix there, and how you came to that.

So let me sort of straighten out this sort of classification. So the food safety is in, what we would call safety and security. I think that is going to be down sort of like mid-single. When I go in the pure industrial, I think what I said there was sort of high single, low double. So I think on the what I'll call the pure industrial side, they are going into some pretty tough headwinds, because they're getting both the credit and the cost reduction. So I think that's going to be, like I said, high single, low double. And those are the end markets that are sort of semiconductor, General Industrial sort of. Like oil analysis, oil and gas, those types of things; and I think they will have a difficult time.

This is only sub-10% of the business?

It's about 10% of our revenue.

And that's with food or without food?

That's without food.

Okay. That's what I thought. All right. Appreciate it, guys. Thanks very much.

And your next question comes from the line of Peter Lawson with Thomas Weisel Partners. You may proceed.

Just continuing on the theme of the industrial business, are there any plans to divest that? And what's the rationale for keeping it within the franchise?

The answer is no because it's not really a separate business. It really is where we have existing products that are going into let's say, either food or environmental and we can, in addition, sell them into the industrial end markets. So there's really no core products that are sort of going necessarily into industrial. It's sort of--for example, it might be an ICMMS that's being sold into an environmental lab that we can also sell into a semiconductor for analysis of incoming raw materials.

And it's easy to transfer the salesforce to a different end market?

Yes, because it's really sold on the technology. Now I think as we move more and more to sort of application based, we'll sort of sort that out a little bit; but fundamentally what they're doing is selling the product features and the technology.

And then, Rob, I may have missed it. The divestitures in the Biodiscovery, what were those businesses, the sizes, and the potential contribution in EPS?

Yes. They were fundamentally around proteomics and genomics. There were some scanners and sort of the rayscan and those types of things, which is a market that we've sort of moved away from; and as I mentioned before, we are really trying to focus in probably three key areas in the Biodiscovery area, which is on the cellular analysis side on the really sort of the biochemical screening, and then the detection and automation. There's only about $6 million or $7 million of revenue for the year for those divested product lines.

Yes. It's a relatively small piece.

But it's a corporate average margins?

I'd say a little less than that.

And then just finally, what's driving the expectation of growth in that biotech and NIH market for you?

In the Biodiscovery area or specifically biotech?

In biotech and NIH market you kind of said that--

Well, I think on the biotech side, we are seeing some good opportunities there to continue to get our reagents and our imaging equipment into that. And I would make a distinction between large biotech and small biotech. I think, clearly, the small biotechs are having problems from a funding perspective. But I think on the larger biotech side we're seeing opportunities to grow there. And I think in the academics areas, we are starting to see some increased discussions, maybe driven by the anticipation of getting some funding from the government stimulus package.

Okay. Thank you so much.

(Operator Instructions)

We do have a follow-up question from Quintin Lai with Robert W. Baird. You may proceed.

Thanks for taking my follow-up.

Kind of going back to the ViaCell. Considering that you can only harvest the core blood at the birth of a child, it is not really discretionary because there's no chance to go back and do it again; is it?

Well, that's true, you only have one shot to do it. I just meant from a discretionary, from a spending perspective, from a decision making perspective. But you're right, if you don't do it at the birth, you sort of lose that opportunity.

With respect to the sales of--the sell of your discontinued operations, I mean, given the macro economic backdrop; do you think that maybe the window of opportunity is kind of closed now, and if so, I guess, if you could do it all over again, that $90 million by my rough calculations is about $0.06 of EPS that went away.

So you mean, would we have put it into discontinued? So first of all, I would say is this is a great time to be selling assets? No. But I think it probably would have been a better time maybe 12 or 18 months ago. Having said that, the important thing we wanted to do was get focused on this environmental and human health, because I think that was an important initiative we wanted to get across the Company and reorganize the Company. Quite frankly, those businesses didn't fit, and I still think it is saleable, I still think it's a fairly attractive asset, or are attractive assets; and I think we have people interested in them. Will we maximize the value for them in this environment? Probably not.

Thank you.

And you have an additional follow-up question from Derik De Bruin with UBS. You may proceed.

Hi. Just a follow-up.

If you do manage to sell the assets, what's your--when you sold the food sciences business, you went in and paid down debt and you bought back shares. Is that similar uses of cash if you do manage to sell these assets?

Yes. I think that is right. And just for clarification, we have not assumed any proceeds in the 2009 forecast, not that it would be that significant, but we assume in our 2009 plan that we don't get those proceeds.

And what is your assumption for buybacks in the year, share buybacks?

From what perspective?

In 2009. Is your EPS guidance, is that kind of your lever for the wiggle room in terms of--?

Our 2009 guidance assumes shares are flat. And as you know, we always have some leakage on stock programs so we assume that we would keep those flat.

We ended the year about 117--115.8 million shares outstanding.

Okay. Great.

The proforma EPS number, all in including options, the proforma number but including options is $1.39 for 2008; correct?

Yes.

Okay. Just making sure. All right. Thanks.

There are no additional questions at this time.

I would now like to turn the call back over to Mr. Dave Francisco for closing remarks. You may proceed, sir.

So we are pleased with our performance in 2008 as we talked about, but clearly it is a much more difficult global economic environment. Where I believe strong operational execution and a relentless focus on our customers will be the key to doing well. We believe we have the operating disciplines, the technical competencies, the financial strength; and probably most importantly, the organization to exit the current environment much stronger than how we entered. We look forward to updating you in April on our progress in the first quarter. This call is now adjourned and have a great evening.

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