Revvity Inc (RVTY) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2011 PerkinElmer earnings conference call. My name is Kathy and I will be your operator for today. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today's call, Mr. David Francisco, Vice President of Investor Relations. Please proceed.

Thank you. Good afternoon and welcome to PerkinElmer second-quarter 2011 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've 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 hot line at 1-877-PKI-NYSE. Please note, this call is being webcast live and will be archived on our website until August 18, 2011.

Before we begin, we need to remind everybody of the Safe Harbor statements that we've 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 with the use of 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 Chairman and Chief Executive Officer of PerkinElmer, Rob Friel.

Thanks, Dave. Good afternoon and thank you for joining us. I'm pleased to report another very good quarter for PerkinElmer. From a financial perspective, we continued to deliver strong results, exceeding our guidance on both the top and bottom line. Revenue grew 14%, our fifth consecutive quarter of double-digit growth, and adjusted EPS grew 27%. We are particularly pleased with the growth year-over-year, as we had some difficult comparisons given the very strong quarter we had in Q2 last year.

In addition to the strong financial results, in the second quarter, we continued to expand the capabilities of the Company, and invest to improve our growth profile through acquisitions, as well as internal investments in R&D. In the second quarter, we further expanded our presence in emerging markets such as China, the Middle East, and Africa, with targeted applications. In particular, we made good progress with the launch of our new, high sensitivity kits for hepatitis and sexually transmitted diseases in China, and experienced strong demand in the Middle East to meet the rising need for better, newborn screening capabilities, including a large installation in Saudi Arabia, which follows our major installation in Cairo, earlier this year.

In addition, we obtained our first sickle cell anemia screening orders in Africa, a region with high incidence levels, to provide earlier diagnosis for management of this disease. We also launched a series of innovations within our market-leading inorganic analysis portfolio, targeted at helping customers ensure safer water, food and pharmaceuticals. The label-free EnSpire plate reader, which we introduced last quarter, continues to experience strong receptivity as scientists look to improve their discovery of potential, new therapeutic targets. Our OneSource laboratory service business continues to experience good growth and is gaining traction, expanding outside of its traditional pharmaceutical base, evidenced by the recent addition of a significant new account in environmental testing.

During the quarter, we were able to further expand PerkinElmer's current medical imaging portfolio with the acquisition of Dexela, providing customers with high-speed, high-resolution CMOS technology. This technology is complementary to our amorphous silicon-based technology in key areas such as surgery, dental, cardiology and mammography. And as the only provider of both amorphous silicon and CMOS capabilities, we can now provide the technology that best fits our customers' specific applications. As I mentioned last quarter, a growing challenge for customers is managing and interpreting large amounts of data. A key area of focus for us is helping customers overcome these data challenges by providing enterprise-wide knowledge solutions.

During the second quarter, we continued to expand our capabilities in the area of informatics with the addition of Labtronics, which uniquely positions us to deploy an electronic laboratory notebook solution across the global customer's entire value chain, from research to manufacturing. Combined with our service and instrument capabilities, we are increasing our ability to closely collaborate and partner with our customers across a broad set of laboratory needs in order to generate higher value solutions.

Before I turn the call over to Andy, who will discuss our financial results in more detail, I wanted to give you a perspective on what we are experiencing in our end markets in the second quarter, and the environment we are basing our second-half forecast on. Starting first with the environmental health end markets, we again experienced broad-based growth during the second quarter, driven by continued focus on food safety and investments in environmental testing, particularly in developing countries. In addition, the materials and chemical markets were strong.

As we look to the second half of 2011, the recently-released macro economic statistics are concerning and suggest we may continue to experience uneven economic growth. However, we believe that the environmental and food safety and markets will continue to grow, despite the challenging economic conditions, due to the high priority been placed on these critical needs, particularly in emerging markets. In addition, given recently-introduced new products and strong traction in service, we expect our demand profile to remain similar to the first half. But, organic growth will moderate a bit, due to more difficult comparisons, resulting in mid-single digit organic growth. In human health, the businesses are much less impacted by overall GDP growth, and more tied to specific factors like birth rates and pharma R&D spending.

During the first half of this year, birth rates in the US continued to decline slightly, putting pressure on our screening business. Medical imaging experienced good growth in both diagnostics and our newer applications. Our research business grew in the second quarter, largely from new products introduced, and good traction in academia where we have historically been underrepresented. For the second half, we expect growth to gradually improve in diagnostics, as US birthrates stabilize and we continue to expand programs outside the US. Within our medical imaging business, we expect growth from newer applications and markets to offset the impact of more modest growth in our traditional diagnostic applications, which are cycling up against difficult comparables in the prior year.

Lastly, in our research business, we believe our organic growth will be in the mid-single digits as we continue to migrate our portfolio to higher-growth areas and benefit from the increasing expenditures in emerging territories. Accordingly, we are forecasting for organic revenue growth to be in the mid-single-digit range for the second half, as well as the third quarter, and expect growth to be more consistent across our human and environmental health segment as we progress through the back half. While we are maintaining a cautious outlook recorded the global economic recovery and the corresponding impact to our served markets, we remain confident in our ability to grow the top line and continue to drive operating margin improvement.

As a result, we are raising our estimate for full-year adjusted earnings per share for 2011 to the range of a $1.64 to $1.68, representing growth of 23% to 26% over the prior year. Additionally, we expect adjusted earnings per share for the third quarter to be in the range of $0.37 to $0.39, representing growth of 19% to 26%, as compared to the third quarter of 2010. I will now turn the call over to Andy who will discuss our end market and financial performance in greater detail.

Thanks, Rob, and good afternoon, everyone. I will now provide some additional details on our second-quarter results, and following my prepared remarks, we will open it up for questions. Before moving into the financial details, I would 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 second quarter of 2011, compared to the second quarter of 2010. As Rob just discussed, we were pleased to deliver another strong quarter of revenue and adjusted EPS growth, particularly considering the difficult comparisons from the second quarter of 2010.

Revenue for the second quarter increased by 14%, and organic revenue increased by 6%, as compared to the same period last year. By segment, organic revenue increased by 2% and 9%, and human health and environmental health segments respectively. All major geographies contributed to our organic revenue growth with the Americas and Europe growing at a low single-digit rate, and Asia growing high teens. We also continued to successfully leverage our investments in emerging markets, enabling us to generate another strong quarter of double digit growth in these key regions.

From an end market perspective, PerkinElmer's human health segment represented 46% of total revenue in the quarter. Within human health, we served two end markets, diagnostics, which represented 28% of total revenue, and research, representing 18% total revenue. Organic revenue from our diagnostics business grew at a low single-digit rate in the second quarter, with solid growth generated to our medical imaging business, offset by a modest decline in our screening business. Organic revenue in our medical imaging business grew at a high single-digit rate in the quarter, despite cycling up against a difficult comparison from the prior year. Solid demand generated from our base medical diagnostics offering, coupled with our continued momentum from industrial, and veterinary applications, drove outperformance in the period. Additionally, as Rob mentioned, the acquisition of Dexela brings complementary imaging technology that further expands our addressable market and diversifies our customer base.

In our screening business, demand remains strong within the emerging territories including China, India and South America, as we further broaden our penetration into these key regions, with our neonatal and infectious disease screening solutions. This growth was offset by revenue softness within North America, driven primarily by the continued impact of declines in US birthrates, and the favorable timing on certain instrument placements in the first quarter. Organic revenue for our screening business grew in the low single digits for the first half of 2010, consistent with our expectations.

Organic revenue in our research business grew at a mid-single-digit rate in the second quarter, as we continued to experience strong demand from the academic sector across a broad set of technologies, within our research portfolio. We saw good growth for our Operetta cellular imaging systems, JANUS automation tools, as well as our EnVision and EnSpire multi-mode plate readers. This broad-based demand illustrates the increasing value that we are able to bring to our academic customers with our highly efficient and integrated instruments, as well as reagents to help them solve their most critical research needs.

We are encouraged by some early indicators of positive trends in the pharmaceutical sector, specifically we are experiencing strong growth in Asia as we capture demand from internal pharmaceutical research, migrating to lower cost regions or being outsourced to CROs. Additionally, we are seeing initial benefits from our customers' investments in pre-clinical research, with solid demand for our in vivo imaging technology to better understand deep disease mechanisms and therapeutic responses. We expect these trends to persist, providing opportunity to offset ongoing challenges in our legacy product offerings, particularly our radioactive isotope portfolio.

Let's turn now to environmental health, which represented 54% of our total revenue in the second quarter. Within environment health, we served three end markets, laboratory services, which represented 25% of total revenue, environmental and safety, which represented 20% of total revenue, and industrial, which represented 9% of total revenue. Organic revenue in our lab services business grew in the low single digit range, in the second quarter. Within service, our OneSource business posted strong top line growth that moderated from prior quarters as we cycled up against a large contract win from the second quarter of 2010. Organic revenue in our environmental and safety markets grew mid-teens in the second quarter, as investments in critical environmental and food safety applications drove strong demand for our analytical instrumentation.

As Rob mentioned, we have a full suite of new products across our inorganic analysis portfolio, to detect trace metal contaminants such as lead, cadmium, arsenic and mercury, primarily in water, soil and food. The launch of the Pinnacle AA, the Optima ICP 8,000 and the Nexion ICP-MS have further expanded our leadership position in these key technologies with highly efficient, easy-to-use instrumentation for detecting some of the most widespread contaminants globally. Lastly, organic growth in our industrial markets grew low double digits in the second quarter. The strong demand from the industrial segment continues to be mostly related to the characterization of materials, chemical processing and energy applications supported by our molecular spectroscopy and chromatography platforms.

Looking at our financial performance, adjusted operating profit margins expanded 80 basis points in the second quarter, to 14.1%. In the quarter, we benefited from solid incremental flow-through on higher sales, strong gains on productivity initiatives, as well as a minor benefit from the flow through from foreign exchange given the significant fluctuation, year-over-year. For the first half of 2011 adjusted operating profit margins expanded 120 basis points, as compared to the first half of 2010. In our human health segment, adjusted operating profit margins for the quarter were 19.8%, representing a decrease of 70 basis points as compared to the same period a year ago. Productivity gains in human health were offset by unfavorable product mix, due to a high percentage of instrument placements, as well as growth investments deployed in the quarter.

In our environmental health segment, adjusted operating profit margins were 13.4%, representing an increase of 240 basis points, as compared to the second quarter of 2010. Within the segment, we experienced healthy volume leverage, the benefit of new products and solid productivity gains. GAAP operating income from continuing operations was $37.5 million in the second quarter of 2011, versus $33.2 million in the second quarter of 2010. During the second quarter, we had a GAAP tax rate of 16% and on a non-GAAP basis, our adjusted tax rate was 25%, which is favorable to our guidance communicated in April. This favorability is due primarily to a favorable distribution of income in the period, and for the full-year, we expect the adjusted tax rate to be approximately 26%.

GAAP EPS from continuing operations in the second quarter of 2011 was $0.25 compared to $0.40 in the second quarter of 2010, and in the second quarter of 2010, as a reminder, other income included a pre-tax gain of $25.6 million, or $0.21 per share, related to the purchase of these remaining interest in the Sciex joint venture. Our adjusted EPS was $0.42 in the second quarter of 2011, up 27% from the prior year. Our weighted average diluted share count for the second quarter of 2011 was approximately 113.6 million shares, and our ending share count was approximately 112.7 million.

Turning to the balance sheet, we finished the second quarter with approximately $276 million of net debt, which we define as short and long-term debt minus cash. This reflects an increase in net debt of approximately $176 million as compared to the first quarter of 2011, resulted primarily from payment for acquisitions completed during the period. At the end of the quarter, we had approximately $395 million in cash. Looking at our cash flow performance for the quarter, operating cash flow from continuing operations was $54.9 million, as compared to $62.8 million in the second quarter of 2010. For the first half of 2011, adjusted operating cash flow, adjusted for the tax impact associated with the sale of IDS was $110.8 million, free cash flow, which we define as adjusted operating cash flow less capital expenditures, was $94.8 million, representing 108% of adjusted net income.

In summary, we are pleased with our financial performance for the quarter as we continue to drive strong revenue and adjusted EPS growth. Now, I would like to discuss our third-quarter and full-year 2011 guidance. As Rob mentioned earlier, we are maintaining our full-year forecast for organic revenue growth to be in the mid-single-digit range, and mid-single digits for the third quarter as well. We expect adjusted operating profit margin expansion to be at the high end of the range, of our annual objective of 75 to 100 basis points for 2011, driven predominately by volume leverage and our multi-year productivity initiatives.

Regarding full-year adjusted earnings per share for 2011, we are raising our estimate to the range of $1.64 to $1.68, representing growth of 23% to 26% over the prior year, and regarding the third quarter, we expect adjusted earnings per share to be in the $0.37 to $0.39 range, representing growth of 19% to 26%, as compared to the third 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 would like to open up the call for questions, please.

Thank you, sir. (Operator Instructions). Quintin Lai, Robert W. Baird. Please proceed

Hi, good afternoon.

Good afternoon, Quintin.

Rob, you said three words we have heard a lot of this earnings season. Strong academic markets. Others seeing a little weakness you sound a little different it may, first can you remind us what your exposure is on the academic, and maybe US academics and why are you seeing the demand for the products that you are?

Yes, so, academic exposure for us is probably less than 5% we talked about this in the past was one of the reasons why when the stimulus spending, a couple of years ago, we didn't see as significant benefit from that the consequently, we are less impacted. As I mentioned before, I think, historically, we've been underrepresented in the academic area of research because a lot of our products were more tailored to pharma and biotech. It was a strategy of probably about 12 months ago that we started to adjust some of our product portfolio to do better in the academic markets, and so we are getting some of the benefit of that so I still think spending is probably flat to maybe up a little bit across academia. I guess we are just seeing a little bit of growth, relative to, as I said, we were fairly underrepresented in the area. So, I'm not suggesting that the market is growing that much, I think it is just a question of what we are probably doing a little bit better.

And then, with respect to your outlook on the environmental health, could you maybe talk a little bit about how spending was through the end of June? And maybe, through July? Because -- are you seeing signs of just tougher comps? Or, maybe a little bit more of a slower growth outside of the --?

I think you have to look at it region by region. I think in Asia we continue to see good growth there. I don't know that we are seeing much moderation, particularly in the emerging areas, I think Europe clearly has slowed. For us, Europe was, as Andy mentioned, was sort of low single digits, but we continue to see good strength in Asia. I think while that was true across the entire company, specifically on the environmental side, but, having said that, there is continued demand within both the environmental and the food and consumer areas.

I mean, you continue to see, whether it is regulations or EPA putting out the list of chemicals of concern, or the China five-year plan including directives and procedures targeting reducing water pollution, the UK government laid out specific air-quality targets, of course, you got the US Food Safety Modernization Act, you continue to see a lot of focus and emphasis in this area, and that's why I sort of said in my prepared remarks, while clearly, we think it's going to be a challenging economic environment, particularly, and I said sort of anything growth, I do think there's a high priority being placed on this area. So, we are still fairly optimistic that we'll continue to see growth in the broader environmental health arena, because of the things I mentioned before.

Thanks, congratulations on a nice quarter.

Thanks.

Our next question comes from the line of Isaac Ro, of Goldman Sachs.

Hi, good afternoon.

It seems to be an open line I think?

Can you guys hear me?

Yes we can.

Thanks for taking the question. Rob, I know it's a very uncertain environment that we're in here, but wondering if you could maybe go back to the late 2008 and 2009 period and provide some commentary if you compare that time frame to now, and how you think your outlook and visibility might be similar or different? I think it's certainly hard to call with any specifics where we are going in the economy, but thoughts on how you see some parallels and differences would be helpful?

If you look at our performance sort of from 2008 to 2009, we were down sort of low single digits, from a top line perspective. And of course, back then, we had IDS, the lighting and sensor business, which we called out was a little bit more cyclical and more sensitive to I would say the downturn in the economy. So, as I think about the portfolio of businesses now, without IDS, and of course a higher percentage of service, and I would say the software business -- I think we will, similar to what we were in 2008 and 2009, continue to be very resilient, even if we see a more difficult economic environment, and even if we dip into another recession. So I feel pretty good about our position from a portfolio of the end-markets we operate in, as well as the position of PerkinElmer within those end markets. So, that's why, even though it is a challenging macroeconomic environment, we're still talking about mid-single growth and we are taking our guidance up.

Got it, that's very helpful and maybe just one other item, Andy, on the numbers maybe you could just walk us through how we should expect the impact of acquisitions to roll to the numbers on revenue for the rest of year, just given some of the contracts you had lined up there? Just for the balance of 2011?

For all of the acquisitions, in total, we had said $75 million, the last time we talked, and that's -- we're going to do just under $20 million in the second quarter, right about that in the third quarter, and the balance will be in the fourth quarter. So, we'll see somewhat of a linear ramp through the year. And, ultimately the full year will be around $75 million, and private side, the majority of the profits will be recognized in the fourth quarter, and that's primarily due to CambridgeSoft, which we talked about last quarter.

Okay. Let me just squeeze in one last one, Rob. You guys commented briefly on new customers in the OneSource business. Could you just a little more color around what you meant by that?

Well, what I talked about was more specifically that were seeing growth outside of our traditional base, which is the pharmaceutical companies, and I just spiked in, in particular, a big contract that we got in the environmental testing area. So, while we do continue to get customers, probably more important is, we are broadening out the addressable market.

Got it. Very helpful, thank you.

Thanks.

Our next question comes from the line of Jon Groberg of Macquarie. Please proceed.

Hi, good afternoon. Thanks for taking the questions. So, first question was on the research business. Andy, you were probably trying to talk slower than normal, but still talking pretty fast and I thought you said high single-digit growth in research? But then, I think afterwards I thought I heard something like mid-single digits. So, I don't know -- I was trying to understand exactly to get a bit more detail on how the research markets, overall group you guys?

I appreciate the feedback. I'll get slower, each quarter. But mid-single-digit is what I said in my prepared remarks. For the research business.

For the second quarter.

Second quarter, yes.

And you said most of that was good growth in Asia? Right? And, in Europe and US in research, how are those?

What I was thinking about research, it was driven by Asia and it was also driven by academic as compared to pharma and biotech.

Okay. And, if you split it out, Asia was -- I'm assuming was more pharma oriented than academic? And the US was maybe more academic? Is that --?

Yes.

And Europe overall is kind of sluggish?

Yes, I think Europe was sort of flattish for us.

It was up slightly.

Okay. Thanks for the clarification and a second question, Rob, what are you doing, kind of what plans I guess are you putting in place from an expense standpoint, from a CapEx standpoint? Maybe what you are thinking about doing for the second half of the year, just given the macro signs that you are starting to see in the markets? Kind of telling us that maybe the markets have been wrong before but maybe things are going to get tougher, so just curious what you yourselves are doing there?

Well, I think generally we try to be prudent with how we spend, whether it is expenses or capital, but we continue to see growth in the mid-single-digits. So, while, say we are being cautious with, I would say, significant investments, we're continuing to spend money in R&D and building out infrastructure, particularly in the emerging markets, so it will be prudent but I would say we're not at this point at the level we were in sort of late 2008.

So you have no plans today to proactively stop some spending that you were previous going to do for the balance of the year?

Yes, I would say we haven't started anything right now that we had planned in the second quarter.

And, just to follow-up, what would you -- would it just be kind of seeing your revenues fall off that would get you to kind of change that? Is that what you are looking for, to actually starting to see some decline in terms--?

Probably orders and bookings that we saw -- and of course, it's hard to characterize across the entire company, because within various markets or with various businesses, we may see some slow down and therefore we will be responsive to that.

Sure.

But that's really up to the sort of individual business leaders to monitor that. I would say across the Corporation, we do not have any overall plans to curtail our expenditures or capital.

Okay, thanks a million.

Okay.

Our next question comes from the line of Dan Arias with UBS. Please proceed.

Hi, thank you. Rob, sort of just following up on the last question, is there any change in the way you are viewing the use of cash or the preservation of cash, just given the current level of macro uncertainty?

No, I think it is still consistent with what we've done historically, which is we look at acquisitions and we also look at buying our stock, and as I'm sure everybody is painfully aware, our stock is a lot cheaper today than it was seven or eight days ago. So, I think if there is a difference, it's only that perspective, is that probably that buying back PerkinElmer stock is a lot more attractive now than it was two weeks ago, but I think we look at both, and we look at the financial returns and consider the risks, aspects of both those investments in fact, if you look back two years, I think the split is about 60% of the cash we generated through operations and asset sales was invested back in acquisitions and about 40% was returned to shareholders through share buybacks.

Okay, great. Thanks. And then, could you just talk about the signature genomics business? I know there have been some publications that lay out best practices for labs doing postnatal testing. Can you just talk about trends and market growth there with that business?

I think signature genomics is a business where we invested in to continue to expand out our capabilities into the chromosomal analysis side. We continue to see good progress on the Oncochip and getting that out into the marketplace. I would say the area that has been somewhat difficult is the -- I would say the ramp up in the reimbursement of that product, is probably going a little slower than we would have originally anticipated.

Okay, thanks. And just quickly, Andy, are we able to get a currency impact for cash for the full year?

Well, sure. It was 6% tailwind in the second quarter, we expected to be 4% in the third and probably around 3% in the fourth, so hopefully that's you need.

Thanks very much.

Our next question comes from the line of Peter Lawson of Mizuho Securities. Please proceed.

Rob, what is your total government spending exposure, and which parts do you think are insulated from any cuts?

We talked about total government, I guess we need to sort of separate that in a couple of categories. I talked earlier about our exposure to academia, which was really in the research area. And, when you look at the US aspect of that, we think that's something less than 5%. The we start expanding it to all governments, and you get into newborn screening, which of course in most cases in the US, the newborn screening testing is reimbursed by state governments. And of course, when you get into the -- outside of the US, a lot of what we do in the screening area is paid ultimately by the government in the various countries. So, I guess, if you were just talking about total governments across everything that we do, it's probably 20% to 25% of our revenue.

Thank you. And then, the other trend, other than academia, you seemed to book was the strong instrument placements in human health. What industry was that in, and was there annuity stream attached to that?

Yes, historically that's been the case so while we are disappointed from a gross margin perspective, because of the mix issue, with insurance been a little lower in gross margins, long-term, we think it bodes positive for the business, because as you said, a lot of the instruments we place have a revenue stream associated with that. Quite frankly, the estimate growth we saw was both in academia, pharma, biotech and on the diagnostic side as well. So if you look within the screening business, we saw good placement of instruments, and again hopefully that bodes well for the future as it usually does carry with it a good annuity stream on the consumable and reagent side.

And for the second half organic growth number, is there anything in there where you're looking for an acceleration or improvement in particular end markets?

I would say that the one area I would spike out and probably slight improving but on the screening side as I mentioned before, I think we are expecting to see a little stabilization of birth rates and hopefully we will continue to get good traction outside the US. So, I think we are expecting screening to improve a little bit, research to sort of be consistent with what it was in the second quarter and probably a little moderation on the environmental side, and as I said before not necessarily because of demand characteristics but because of comparisons, year-over-year.

Great, thank you so much.

Okay.

Our next question is from the line of Steve Willoughby, please proceed.

Hi, thanks for taking question. First, if you could remind us on your screening business, how that breaks down in terms of revenue for US versus O-US and then on the assumption that screening should return to more normalized rates, is there any evidence you're seeing the market today, or I guess, what's that based off of?

So, I would think of the screening business probably two-thirds, one-third, from the standpoint of US, outside the US. And I would say we are seeing some early indication based on data that we track and the hospitals with regard to sort of deliveries that there may be some, again, modest improvement in stabilization in the back half.

Okay. And then, just a question on the share buybacks, how much do you have left remaining under your authorization?

We have 6 million shares remaining at this point.

Thank you.

Okay.

Our next question comes from the line of Jon Wood, please proceed.

Hey, good afternoon.

Good afternoon, Jon.

Hey, so, Andy, on the -- just looking at your third-quarter guidance and it looks like you're implying incremental margins a bit below, which you had the second quarter -- I guess kind of into what happened on the human health side, you talked about some growth investments in mix. Can you just kind of talk us through the human health incrementals going into the back half of the year? Vis-a-vis the overall business?

The growth investment side of it, we're mainly referring to our D&A business we talked about over the last couple of quarters and some of the expenditures around that. I think the rest of the human health side is really going to be impacted by mix, I think the overall margins, we expect to return to positive in the second half for human health, primarily because we do think there's a bit of a pickup in that mix with our screening business getting back to more of a positive than what we saw in the second quarter. So I think there's an incremental there. And, I think we still have very difficult comps in the med imaging side, we were at over 20% on med imaging in the third quarter last year, so I think that's going to be a little bit of an offset to that. So, I think with those investments and with volumes returning to more of a mid-single-digit type growth rate, that's kind of where we think we will end up.

So I guess the way I think about the third quarter is we do expect to see incremental margin improvement on the human health side. But we are forecasting is not as strong of expansion on the environmental side. If you look at the first half, environmental health was expanding operating margins over 200 basis points. We are assuming that moderates down a little bit.

Got it. And you kind of touched on is, Andy, but just looking at the comps, obviously the human health business in the back half of last year, right, there are increasingly or the appear to be increasingly tougher and you kind of called that out as being imaging growth in the back half of last year so can the human health business, as kind of consolidated, actually accelerate the back half of the year, given that imaging comp?

From a margin perspective, we think both gross margin and operating margins will expand in the second half, despite the year-over-year comparison at med imaging.

Okay. And, do you, Andy, remind us do you have any incremental capital redeployment activity built into your guidance at this point?

Incremental capital? Now. We do not.

Jon, do you mean like a stock buyback -- additional stock buyback?

Right.

No, there isn't any.

We have the authorization out there, but we don't have any of that built to the guidance.

Got it. Okay. Great, thanks a lot.

(Operator Instructions). The next question comes from the line of Paul Knight, of CLSA. Please proceed.

Hi, guys.

Hey, Paul, how are you?

Good. When we look at the world of the traditional analytical instruments, did you see any booking change? And mean, obviously, we worry that it's cyclical, what's happening there? I guess, Rob, when you look at the service side of the business, it's a lot larger portion of Perkin, do you really see any change in tone on service? Or should service really go through a rougher economic past, better? What you thought on A, hardware instrumentation, and secondly, what do you think happens in a service business in a recession? If we have one?

So, on the instrument side, I think I alluded this a little bit before, we have seen some slowing in Europe. Not surprising given what we are hearing about the economic environment there. We are not seeing anything in Asia, really noteworthy, so Asia continues to be strong for us. And, the US seems to be really consistent. So, I think we still feel pretty good about the demand pattern for the analytical instruments side in the back half and as I said, we are moderating it a little bit better relative to the strong second half we had last year.

On the server-side, if you go back again discuss the 2008, 2009 timeframe, service business continued to do quite well during the third of time. So, it's difficult to say something is immune to the overall macroeconomic environment, but I do think that the service business has done pretty well historically. Now, part of that is if you were to sort of separate between classical billable or time and material I think that does take a little bit of a hit during a difficult economic times. What was more than offsetting that, during the 2008, 2009 timeframe was we were continually expanding the OneSource program because of the continued adoption of that, largely within the pharmaceutical industry.

So, I think the real challenge, if we get into more difficult economic environment, is will we be able to continue to expand our addressable market with OneSource, and when I say that, it's not only from an industry perspective, it's also from a geographic perspective, to more than offset what will be some pressure on the historical time and material aspect of service.

And then, Rob, on the research reagent businesses, are you happy with the rejuvenation of that product line? Is that product line growing consistently now? What is the status of that?

I think when you think about our research reagent business, you really to bifurcate it between the radio chemicals and the non-rad. Radio chemicals, as we've talked on a number of occasions, continues to be under pressure. And so, again this year, this quarter it was down sort of high single digits. And, we are continuing to try as best we can do to manage through the transition and we think at some point that does stabilized at a certain rate. On the other hand, on the non-rad side, I think we continue to see good growth there and as you said, I do feel good about the rejuvenation there. Both with internal investments that we've made, as well as some of the external acquisitions we made, so for example, the Visen business, in the pre-clinical side, saw good growth in the quarter. So, I feel terrific about the progress we've made on the non-rad, it's just, it's going to take us a little while to make that piece large enough to make the non-rad piece not have such a big impact on the overall growth of the reagents business.

Okay, thanks a lot.

Okay.

With no further questions at this time I would now like to turn the call back over to Mr. Robert Friel for closing remarks. Please proceed.

Okay, first of all, thank you for your questions. As we move into the third quarter, our priorities will remain focused on bolstering our growth and utilizing a focused approach to improving our operating margins while investing in new technologies, software and services, that advance human and environmental health. During our next earnings call, I look forward to discussing our third-quarter performance, and how we are progressing against our priorities. Thank you for your participation in today's call, and continued interest in PerkinElmer. Have a great day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation, now disconnect, and have a great day.