Revvity Inc (RVTY) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2010 PerkinElmer earnings conference call. My name is Yvette, and I will be your operator for today. (Operator Instructions). I would now like to turn the call over to Mr. Dave Francisco, Vice President of Investor Relations. Please proceed, sir.

Thank you very much. Good afternoon and welcome to the PerkinElmer fourth-quarter 2010 earnings conference call. With me on the call are Rob Friel, Chairman and Chief Executive Officer, and Andy Wilson, Senior Vice President and 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 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 February 17, 2011.

Before we begin, we need to remind everyone of the Safe Harbor statements 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 strictly comparable GAAP measures is available as an attachment to our earnings press release. To the extent that 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 Chairman and Chief Executive Officer of PerkinElmer, Rob Friel.

Thanks, Dave. Good afternoon, and thank you for joining us for the PerkinElmer fourth-quarter 2010 earnings call.

We are pleased with our performance in the fourth quarter, delivering another solid quarter of both top- and bottom-line growth. Organic revenue grew 9%, adjusted operating profit margins expanded 60 basis points, and adjusted earnings per share grew 19%.

In addition to exceeding our financial commitments, we continued to make great strides on our strategic priorities. Touching briefly on our end markets, both the human and environmental businesses performed well in the quarter. In Human Health, organic revenue grew 9% with our diagnostic businesses growing mid-teens, led by medical imaging and maternal and newborn health. In the Research market, we grew mid-single digits, led by the academic market and strong growth in our cellular imaging offerings. In Environmental Health, we experienced 10% organic growth, driven by strong demand related to new and more stringent regulations for environmental and food safety.

Andy will provide additional color around our end markets and our financial results in more detail later on in this call. I will focus my remarks on the continued progress we made this quarter on two of our strategic priorities -- increasing the growth profile of the Company and expanding our operating margins.

In the fourth quarter, we significantly improved our topline through continued expansion in emerging territories, leveraging our capabilities into adjacent markets, new product innovations, and key customer wins. Revenues from emerging territories now exceed 25% of our total revenue and are growing overall at a mid-teens rate. Within each of the BRIC countries, we're experiencing growth greater than 20%.

In addition, we had several important customer wins in these regions and we continue to invest in the infrastructure for future growth. During the quarter, we placed a number of our recently introduced newborn screening systems in emerging markets to facilitate growth there, and while it put some pressure on our gross margins, it will accelerate our growth and help provide critical neonatal screening technology to those who need it.

We also partnered with key health officials in Russia as they expand their newborn screening efforts through the country's first dried blood spot test.

Our recent investments in Asia included a new software center of excellence in Shanghai, which will build upon our software capabilities and improve our time to market. We also established a center in Bangkok that will enable us to leverage our local expertise and capabilities and drive deeper penetration into the growing southeast Asia market.

This quarter, we continued to expand in adjacent markets. Our medical imaging business broadened its offerings to include new applications, including securing our first veterinarian customer, as well as adding five new non-medical OEMs. Our market-leading OneSource service franchise also reached new heights this quarter, as it continues to experience strong geographic expansion and has doubled its revenue over the past five years.

During the quarter, we also introduced a series of innovations targeted to advancing human and environmental health, including last week's announcement of the launch of our next-generation DNA sequencing and data analysis services. Additionally, we increased our investments in providing epigenetic solutions with the introduction of new epigenetic space detection reagents to facilitate high throughput screening for researching diseases such as neurodegeneration and cancer.

We also launched the first placental growth factor assay kit outside of the United States, designed to help clinicians screen pregnant women during the first trimester of pregnancy. And lastly, we expanded our digital imaging technology outside of the medical applications with the launch of two new digital X-ray flat-panel detectors for nondestructive testing. These are just a few examples of the great headway we are making to meet the evolving needs of our customers.

Turning now to adjusted operating profit margins, our focused approach on increasing productivity and simplification is gaining substantial traction. Adjusted operating profits for the Company grew by 60 basis points to 15.8%. For the full year, our adjusted operating profit increased by 100 basis points, representing the top end of our guidance of 50 to 100 basis points. As a result, we believe that we remain on track to achieve our goal of high teens adjusted operating profit margins by 2014.

During the fourth quarter, we completed the divestiture of our Illumination & Detection Solutions business. Our strong balance sheet will fuel the accelerated execution against our strategic priorities.

I am pleased to note that we have a solid and expanding pipeline of potential acquisition targets that we're actively engage in reviewing. Our acquisition priorities are to build out the breadth and footprint of our key end markets with particular emphasis in broadening our offerings in services, reagents, consumables, and software.

As I look back at the past year, I'm proud of the progress we made. We improved our financial strength and exceeded our financial commitments, successfully growing organic revenue by 8%, expanding our adjusted earnings per share by 24%, and generating adjusted operating cash flow of approximately $200 million, an increase of 17% over the prior year. We also increased the growth profile of the Company through a number of new market-driven innovations, augmented our portfolio with several key acquisitions, expanded into adjacent markets, and grew our global footprint in developing regions.

Finally, and most importantly, we believe our efforts continue to help improve the quality of life across the globe, from earlier detection of disease and combating infectious disease to ensure a cleaner drinking water and safer food.

Moving from 2010 to 2011, our strategic priorities will remain focused on propelling our growth and employing a dedicated approach to improving our operating margins, while investing in new technologies, software, and services.

I would now like to turn the call over to Andy to walk you through our end market and financial performance in greater detail.

Thanks, Rob, and good afternoon, everyone. I'll now provide some additional details on our fourth-quarter results, and after my prepared remarks, we'll open it up for questions.

Before moving into the financial details, I'd like to clarify that whenever I talk about a particular measure being up or down, I'm referring to an increase or decrease in that measure during the fourth quarter of 2010 compared to the fourth quarter of 2009.

As Rob mentioned previously, we had another solid quarter of revenue and earnings growth over the prior-year period. Reported revenue and organic revenue for the Company in the fourth quarter increased 10% and 9%, respectively, as compared to the same period last year.

By segment, organic revenue increased by 10% in Human Health and 9% in Environmental Health. By product category, a recurring revenue which includes our reagents, consumables, and services represented approximately 54% of total revenue in the quarter, and organic revenue grew at a high single-digit rate. Instruments and components represented approximately 46% of total revenue in the fourth quarter, and organic revenue grew at a low double-digit rate.

We experienced organic revenue growth across all major geographies, with particular strength in the Americas and Asia, while emerging markets remained strong in the quarter, wrapping up a terrific performance for the year.

From an end-market perspective, PerkinElmer's Human Health segment represented approximately 46% of total revenue in the quarter. Within Human Health, we serve two end markets, diagnostics, which represented 26% of total revenue, and research, which represented 20% of total revenue.

Organic revenue from our diagnostics business grew mid-teens in the fourth quarter with strong contributions from our screening and medical imaging businesses. In our screening business, we experienced growth across all major geographies and all major product offerings. We were particularly pleased by the strong neonatal growth that we experienced in the U.S., given the backdrop of historically low birthrates experienced earlier in the year.

We also posted broad-based growth outside of the U.S., driven in part by continued success from our efforts to expand our reach in emerging territories.

Organic growth -- revenue growth in our medical imaging business grew over 20% in the quarter as we continue to see strong growth from diagnostics, oncology, and nonmedical applications. We continue to benefit from the rebound of capital equipment investments in major hospitals and the last of our easier comparables from the prior year. Additionally, as Rob mentioned, we are continuing to expand into attractive adjacencies, including nondestructive industrial testing and veterinary applications.

We are pleased with the significant growth in the number of new OEM customers added in 2010 in these adjacencies, affording us a strong and diversified customer base for our imaging technology.

Organic revenue in our research business grew at a mid single-digit rate in the fourth quarter. We were encouraged by robust demand in the academic sector as our customers continue to focus on critical disease, therapeutic research, and efficiencies in the lab. In particular, we saw strong demand for our high-end Opera cellular imaging systems, EnSpire plate readers, and proprietary Alpha detection reagents, which are all specifically developed to address the growing needs of our academic customers.

Offsetting this growth was the continuation of soft capital spending at our large pharmaceutical accounts, particularly in the area of high throughput screening. As a result, we are refocusing resources to meet our pharmaceutical customers' evolving needs. As these customers focus their spending on downstream technologies and preclinical research, we are well positioned with our in vivo imaging offering available through our VisEn business.

Additionally, as scientists strive to accelerate cancer and neurobiological research, our newly-released epigenetic-based detection reagents enable high throughput screening for new drug candidates.

The Environmental Health business represented 54% of our total revenue in the fourth quarter. Within Environmental Health, we serve three end markets -- laboratory services, which represented 24% of revenue; environmental and safety, which represents 21% of total revenue; and industrial, which represented 9% of total revenue. Organic revenue in our lab services business grew low double digits in the fourth quarter. Revenue from OneSource, our unique comprehensive service offering, as well as relocation and qualification services, drew strong topline growth as customers continue to turn to PerkinElmer for their laboratory asset management needs.

Also in the quarter, we expanded our OneSource relationship with Boehringer Ingelheim as they outsourced lab management, asset management for their Ontario site, allowing them to better focus their resources on core pharmaceutical development competencies.

Organic revenue in our environmental and safety markets grew high single digit in the fourth quarter, as new and more stringent regulations for environmental and food safety continued to drive the need for analytical technologies to detect contaminants globally. As a result, we saw continued strong demand for our inorganic analysis solutions used in both the food and environmental applications for the detection of metal contaminants such as lead, arsenic, and cadmium.

We continue to see strong market penetration and adoption of our market-leading ICP-MS, the NexION 300, in these markets.

In addition, in China as the government continues to drive tighter food safety regulations, our chromatography, UV fluorescent, and inorganic solutions were chosen by key manufacturers of infant milk and dairy products for detection of heavy metals, melamine, and residual pesticides, ensuring compliance with these tighter requirements.

Organic revenue in our industrial markets grew mid single digit in the fourth quarter. We continue to see healthy demand, due in part to the cyclical recovery, as well as to demand for our chemical and petrochemical offerings.

Turning to our financial performance, adjusted operating margins were up 60 basis points in the fourth quarter to 15.8%. We continue to successfully execute on our margin expansion goals across the Company, which afforded us the opportunity to fund additional growth investments during the quarter while absorbing the impact of new product launches and an unfavorable product mix. For the full year, our adjusted operating margins expanded 100 basis points.

In our Human Health segment, adjusted operating margins were 19.1%, representing a decline of 10 basis points as compared to the same period a year ago. This year-over-year decline was consistent with our expectations, and primarily related to the start-up costs on key growth initiatives and the early stage of dilution from our recent acquisitions, specifically Signature Genomics and VisEn. We expect these acquisitions to be accretive in 2011.

For the full year, adjusted operating margins in our Human Health segment were 19.1%, an improvement of 80 basis points compared to the full year 2009.

In our Environmental Health segment, adjusted operating margins were 15.4%, flat as compared to the fourth quarter of 2009. Within this segment, we experienced an unfavorable product mix, as well as incremental costs from the transfer of manufacturing activities related to the Sciex integration, both of which we expect to normalize in 2011. For the full year, adjusted operating margins in our Environmental Health segment were 12.8%, a 90 basis-point improvement as compared to the full year 2009.

For the fourth quarter, we had a GAAP tax rate of 5.1%, the result of several favorable tax items realized in the period. On a non-GAAP basis, our fourth-quarter adjusted tax rate was 27.1%.

GAAP EPS from continuing operations in the fourth quarter of 2010 was $0.36, compared to $0.28 in the fourth quarter of 2009. Adjusted EPS was $0.44 in the fourth quarter of 2010, up 19% from the prior year, and our weighted average diluted share count was approximately 117.5 million shares. For the full-year 2010, adjusted EPS was $1.33, representing an increase of 24% over the prior year.

Turning to the balance sheet, we finished the fourth quarter with approximately $6 million of net debt, which we define as short- and long-term debt, minus cash. This reflects a decrease in net debt of approximately $413 million as compared to the third quarter of 2010, as divestiture proceeds were partially offset by open-market repurchases of 3 million shares in the period. At the end of the quarter, we had approximately $420 million of cash.

Looking at our cash flow performance for the quarter, operating cash flow from continuing operations was $46.3 million, as compared to $55.7 million in the fourth quarter of 2009. This year-over-year decline on the quarter was primarily the result of the timing of cash payments, as well as a temporary inventory build related to new products.

On a full-year basis, adjusted operating cash flow was $197 million, as compared to $168 million in the fourth quarter of 2009, representing an increase of 17%.

In summary, we were pleased with our financial performance for the quarter and for the year as we continued to drive strong revenue and earnings growth.

Now let me discuss our 2011 guidance and provide some further detail. We expect business conditions in 2011 to remain solid, forecasting a continuation of the strong demand profile that we've seen in environmental, food, and consumer safety testing, lab services, and our academic research customers. We expect our screening business to return to more normalized growth patterns as we progress through the year, as birthrates begin to recover, as we penetrate diagnostic testing deeper into developing regions and expand our menu of tests in the developed world.

As for the businesses that benefited the most from the economic recovery in 2010, we are forecasting organic growth rates to moderate as we cycle up against more difficult comparisons throughout the year.

So to reiterate what Rob shared earlier, we expect organic revenue to grow in the mid single-digit range for the full year, as well as the first quarter. Regarding adjusted operating margins, with leverage from our forecasted revenue growth and continued focus on our multiyear productivity initiatives, we expect adjusted operating margins to expand 75 to 100 basis points in 2011. Given this adjusted operating margin expansion, we expect adjusted earnings per share from our base business to grow in the range of 12% to 15%.

Additionally, we expect to redeploy the proceeds of our IDS divestiture through a combination of acquisitions and open-market stock repurchases, adding $0.07 to $0.11 to our adjusted EPS for the year.

Bringing these factors together, we estimate our full-year adjusted earnings per share for 2011 to be in the range of $1.56 to $1.64, representing growth of 17% to 23% over the prior year. Additionally, we expect adjusted earnings per share for the first quarter to be in the range of $0.29 to $0.31, representing growth of 16% to 24% as compared to the first quarter of 2010.

This concludes my prepared remarks. I'd now like to turn the call back over to Dave.

Thanks, Andy. Operator, at this time, we'd like to open up the call to questions, please.

(Operator Instructions). Isaac Ro, Goldman Sachs.

This is actually Jeff in for Isaac. Thanks for taking the question. Looking at the guidance for mid single-digit organic revenue growth for 2011, and the comments you made about 25% of your business now coming from emerging markets and that growing mid-teens, if my math is correct, it means you're implying the other 75% of the market is only growing 2% for the year.

I would say the mid-teens growth for the emerging markets was a fourth-quarter number. I would say as we look at 2011, we have that moderating a little bit, sort of 12-ish, and then the rest of the business is in the 4% range. And that's how we get to something around, call it, 6%.

Fair enough. And then, just quick clarifying question, so the guidance of $1.56 to $1.64, that includes the redeployment of all the capital from the IDS divestiture?

It essentially does. We basically are saying it will generate $0.07 to $0.11 on top of the base business. And so, the answer is -- for the most part, it is.

Okay, switching gears a little bit. Looking at genetic screening, what are your assumptions for patient volume testing going into 2011, and if you've seen any improvement in the trends there?

As Andy mentioned, we are seeing some improving trends with regard to growth in birth rates.

As you recall, 2010, we were probably down 5%, at least in the U.S. from births. So we are seeing some increasing trends toward the end of last year and actually as we begin 2011. So I think we feel a little bit better about the growth prospects for the newborn screening business.

With regard to the other aspects of that business, I think we continue to see good adoption of maternal testing, so I think we would sort of put that growth in the high single to low double digits from a maternal perspective, and I think the ViaCord business is probably mid single digits. It's where it's been through most of 2010.

Quintin Lai, Robert W. Baird & Company, Inc..

This is actually Matt in for Quintin. Congratulations on the quarter. Real quick, one of the things we've heard kind of throughout the season, and it would be nice to get an update on given the strength of the food safety side of the business, is just kind of how you're thinking about the impact of this new bill in the U.S. potentially driving growth for you here.

The Food Safety Modernization Act, I think we're quite excited about the prospects of that driving increased testing. I think the issue is going to be, there's probably going to be a one- to 1.5-year lag before you see significant, I would say, purchases relative to that.

I think the good news about it is it's raised the awareness, and so it's increased -- sort of shined a brighter spotlight on the issue. But I think with regard to actual increased shipment of products, in our case it's probably a little bit delayed.

But it's having an impact globally as well. You may know that the China government recently issued some recent food regulations around infant milk, and that's driving growth as well. We actually won some fairly big tender there to provide some analytical instruments around that.

So, I think it's -- in the short term, it's raising the visibility, and I think, like I said, probably in 2012 it will start to have an impact on actually people purchasing our products and doing more testing.

Thank you for that color. And then, I might have missed it, but Europe, how did that do in the quarter and does that kind of dovetail with pharma not being quite as strong as the rest of the business? Any color there would be great. Thanks.

Europe was a little lighter than the other regions of the world. We saw U.S. and Asia grow double digits, and Europe was in sort of the mid to low single digits.

I think some of that, quite frankly, was some weather issues, particularly around December, and probably some timing of orders. But I think clearly we are seeing a European economy not as strong as we are seeing in Asia, and quite frankly in the U.S. as well. Some of that is pharma, as you pointed out, but I think it's even a little bit broader-based in some of the other markets as well.

Derik De Bruin, UBS.

This is Raphael in for Derik. Just a couple more questions on guidance. I was wondering if you could give us a little more detail on your assumptions behind your organic growth for the different end markets, and also for consumables and instruments.

Let me go through the markets. I think if you step back from 2011 overall, we're seeing fairly consistent -- or we're forecasting fairly consistent growth across the portfolio, and I think that's one of the nice things about the portfolio now. It's fairly balanced, and I think we see good growth opportunities really in all our businesses and end markets.

But I would say, when you think about the Environmental side, both the service and applied markets are probably mid single digits, so probably in the 5% to 7% range. I think when you go over on the Human Health side, we would have the diagnostic markets a little higher, probably more in the high single digits, and the research business is probably more in the low single, probably 3% to 5%.

Some of that is the issues -- you've heard recently about the pharma spending being somewhat offset by growth in academia, but I think also it speaks a little bit to where our portfolio is positioned with high throughput screening and radio chemicals, and as Andy mentioned, we're working hard to improve that portfolio in places like preclinical and the cellular imaging area. But I still think the research area for us is going to be probably in the 3% to 5% range.

So, at the end of the day, Human Health and Environmental Health we predict will be very similar, with diagnostics sort of increasing the research growth, and the applied markets and the service being in the 5% to 7% range.

Great. Thank you for that. And I guess just one follow-up on the pharma side. I think in the past you've spoken about trying to grow out your academic -- I guess have greater exposure from the academic markets. I think right now you were saying that you have a 50-50 split (multiple speakers)

It's actually -- we're actually making a little bit of progress there. I would say for the quarter, academia was actually a little higher, and a couple of products we just launched recently are specifically targeted to the academic market, and we are seeing good traction there. The EnSpire was one that Andy pointed out, and a couple of others that we are seeing good traction.

So we're fairly optimistic that as you look to 2011, you'll see increasingly higher proportion of our revenue coming from the academic end markets.

One more, if I may, and I will jump back in the queue. Earlier this year, you launched that next-generation sequencing analysis service. I was just wondering if you've had any early discussions with customers, and I guess I just wanted to get your thoughts on how you see that business unfolding in 2011 and beyond.

We actually have some customers now, and so we are generating revenue in that business. It's obviously small, and we see that business from a couple of perspectives.

First of all, it's very complementary with what we do in some of our other areas, for example, obviously, the sample prep and liquid handling applications, and it uses some of our readers, so it uses both PerkinElmer products as well as other companies'.

But I think, more importantly, as we think about being in Human Health, and of course historically, we're much more focused on the protein analysis side of things, but I think it's going to be increasingly critical to have analysis capabilities around DNA or genes. And so, I think it works very complementary with what we do, both in the diagnostic area and I think increasingly on the research side as well.

As our customers increasingly want to focus on -- whether you call it pharmacogenomics or the protein analysis and DNA biomarkers for disease research. So I think it's very complementary with what we do. We didn't want to get necessarily into the equipment side of things because it's a fairly crowded market. So we felt (technical difficulty) going through the service offering.

Ross Muken, Deutsche Bank.

So, can we talk a little bit about the kind of contribution margin in the Environmental Health business? The pullthrough there has been a little less than what I would've thought. I mean, I think you've talked about some investments you've made. I just want to sort of understand, at least in the quarter relative to what we've seen in the other quarters, what caused the pullthrough to be a little bit lower than we would've expected.

I think, as Andy mentioned, there was really two things that drove that. One is we were in the process in the fourth quarter of moving the Sciex production from Canada down into Shelton, Connecticut, and so for a portion of time we actually had duplicative manufacturing capabilities to make sure that that went smoothly. That obviously drove up some of the costs.

The other thing was, we're seeing very strong growth on the instrument side as compared to the consumables side, and of course from a mix perspective, particularly on the gross margin side, that's not as strong. So I think it was really the combination of those two things.

But of course, the nice thing about getting the instruments out there, that drives a lot of our service revenue down the road. So we think that bodes well for good service growth in the future.

And you know, Rob, you talked about sort of the intent to do some M&A, and you certainly made it known that you'd like to be active. In terms of the types of assets you're looking at in the pipeline, I think we have a reasonable understanding on the strategic side where you'd like to add. The financial profile of these assets broadly, what are the sort of parameters you'd look at, and when thinking about it, how do you size up the potential to do something that's maybe less accretive in the near term, but maybe strategically sound longer term.

I think historically, Ross, we've focused on a couple of things, as you said, from a strategic perspective, which was really sort of building out the most attractive end markets with a real bias toward recurring revenues. So whether it's service, [read], the consumables, software, from that perspective.

Financially, I don't think you should expect where we would do something significantly dilutive. I think if you look historically, we've done some minor dilutions in a short period of time, but generally beyond 12 months it becomes accretive. So we're not looking to do something that would be significantly dilutive.

I think the financial metrics we're looking at is, obviously, return on cash and return on invested capital. So we're looking at IRR and return on invested capital, and trying to obviously be smart with the capital deployment.

That's certainly music to our ears, and again, congrats on a good quarter.

Paul Knight, CLSA.

Could you run through your share repurchase for me, Rob, or what your plan or what you're willing to do here in 2011?

Well, in the fourth quarter, we repurchased, as we mentioned, 3 million shares, which leaves 10 million shares in our buyback authorization that's currently in place.

And so, we factored in that capability to buy back those shares, along with some acquisition opportunities that we had, to come up with the $0.07 to $0.11 of incremental to the base business. I think -- we don't have a formalized program in place. We are buying in the open market, and I think at least at this stage that's the plan. We want to give ourselves some flexibility because there are some other opportunities out there as well.

And then, on the announcement regarding your genetic sequencing service business, can you run through the rationale on that? That new business?

I mentioned a little bit previously. It's fundamentally two things. One is it's complementary for what we do in some of our businesses from the perspective of some of the front end.

We're using our JANUS liquid handling. We're using some of our readers in that service. We also have some expertise around the software side, so that's one aspect of it. I think probably more importantly, strategically we realize to be sort of increasingly relevant to our customers, particularly on the Human Health side, it's important for us to have not only capability in protein analysis, but we also have capability in DNA biomarker analysis. So we're really trying to increase our capabilities in that area to be sort of helpful to our customers.

When do you think that's a meaningful revenue contributor, Rob?

I think it will ramp up pretty nicely in 2011, but it probably won't be significant until probably 2012 or 2013, I think, in that timeframe.

Jon Groberg, Macquarie Research Equities.

This is actually Dane in for Jon. Congrats on the quarter. I just have a quick -- a few quick questions here. Just on -- sorry if I missed this, on the operating margin expansion expectations for 2011, is this more volume driven or is there a kind of rationalization program that's driving that?

I think it's a combination of the -- initially, as we've been talking about over the last four quarters, as well as obviously some leverage from the mid single-digit volume -- I would say if you had to handicap it, too, it's probably slightly more from the initiatives that we have in place. Our plan would be to try to drive higher than the 75 to 100, and then use that to reinvest in growth initiatives, but I think if you were to split the two, it's just around 50-50 volume leverage and maybe slightly more on the initiatives.

For 2011 growth, are there -- should we be thinking of any wild card, potentially late-cycle businesses that could kick in maybe on the industrial side?

No. I don't think so. I think we're expecting industrial growth in sort of the mid single digits. It's sort of what we've experienced here, clearly, in the fourth quarter. So I think it'll be solid growth, but we're not expecting any significant rebound in any of our end markets.

Great. And just out of curiosity, for the first quarter here, the month of January was particularly brutal, weatherwise. Are you factoring in any type of impact from the weather in your first-quarter assumptions?

No, because I think it's early enough in the quarter that, to the extent that shipments were delayed, we should be able to catch up during the quarter. So I would say at this point, I wouldn't anticipate any issues with the weather.

Jon Wood, Jefferies & Company.

This is [Brandon Cooley] in for Jon. Andy, can you give us a view on cash flow and CapEx expectations for next year? And what opportunity exists to rationalize excess working capital, and how should we think about those metrics trending in 2011?

I think -- a couple of questions here, but I think on the first, on CapEx, we're looking at CapEx at around $40 million.

It typically runs around 2% of sales, maybe slightly less. We typically spend slightly under our expectations, so I think that's probably a pretty good number.

As far as working capital, we initiated working capital targets in 2010. We started to make some progress, some systemic progress around really driving out inventory and accelerating our receivables. I think -- as we exited the year, we had a little bit of an inventory build related to new products and we had a pretty big push of revenue in the fourth quarter, which impacted receivables, but I think it puts us in a position where we definitely feel strongly about our ability to bring down days, both inventory days and receivable days.

It is a part of the compensation structure of the management, and it's something that Rob and I review on a monthly basis and I think we are shooting for, I would say, a half a turn of working capital as a goal, and hopefully we can do better than that.

Thanks. And what are you assuming for M&A revenue contribution, and have you run the numbers based on the most recent FX rates? And then, just to be clear, Andy, the $0.07 to $0.11 of EPS contribution from capital deployment factors a contribution from M&A deals that have not been completed yet (multiple speakers)

There is an assumption in there that is kind of a bit of a hybrid of share repurchase and acquisition contribution. I think we feel pretty comfortable at this point that it will be a combination of the two. We're not, at this point, prepared to say it's going to be more of one than the other because we -- the wildcard is our ability to consummate the acquisitions. What was the first part of the question?

The impact of acquisitions. Is this acquisitions that were completed?

Acquisitions already completed? Because it's fairly small.

Yes.

But as far as impact of acquisitions that we have not consummated, we have nothing at the top line in the forecast.

Peter Lawson, [Missawho].

I just wonder if you could bring through the news from Pfizer about the cut in R&D, and how that's kind of built into the model, and how you are insulated, potentially, from these steep cuts in R&D from Pharma.

As you know, Peter, this has been going on for a number of years now, so I don't think this has much of a dramatic impact on our thinking for 2011.

I would say we assumed in 2011 a pretty soft pharma R&D growth with regard to the impact on our businesses, anyway. And as I mentioned before, our approach has been, probably for the last year or two, to focus more and more on the academic market. And so, I think we've been fairly conservative on our assumptions relative to pharma R&D growth and I don't really see this having a dramatic impact on the forecast that we currently have.

You touched upon Europe -- or academia. How are you -- what's your outlook on the academic NIH spend?

My sense is NIH has been fairly insulated from the budget pressures, and so our expectation is it will continue to be funded fairly well, maybe not significant growth, but I think it'll be sort of low single-digit growth in NIH funding. And not only are we -- feel good about the academic growth in the U.S., but I think also outside the U.S., particularly when you go in the emerging areas. I think there is some real significant growth opportunity there.

Right, so we should think about it more as that kind of emerging market growth than old (multiple speakers)

Than developed. Yes, I think the emerging markets' growth will clearly be greater than the developed market growth.

And then, operating margins in the next couple of years, is there any reason why you couldn't get to that kind of 16%, 17% operating margin?

No, I think we feel fairly confident that when we look at the opportunities within the businesses, both from a cost standpoint as well as the growth opportunity, that there isn't any reason why we shouldn't be able to get to those types of numbers here. I think we've set a target of sort of close to 18% by 2014, and based on the progress we made in 2010 and looking at the plans in 2011, I think we feel good about getting there.

With no further questions in the queue, I would now like to turn the call back over to Mr. Rob Friel for closing remarks. (Multiple speakers).

Thank you all for your questions. I feel great about the shape of the Company as we enter 2011. We serve growing markets with leading market positions. We're stronger financially than we've been in many years, and we have talented, innovative people who are passionate about advancing the mission of the Company, which is to improve human and environmental health.

I look forward to discussing our first-quarter performance and how we are advancing against our strategic priorities during our next earnings call. Thank you again for your participation in today's call and continued interest in PerkinElmer. This call is now adjourned.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.