PerkinElmer Sacrifices Short-Term Profit to Preserve R&D, Buy Technologies on the Cheap
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a bargain price-earnings ratio of about 13, below the industry average of about 15, according to data on competitors compiled by Yahoo Finance.
This is at least partly a direct response to a grim financial outlook from the company itself. PerkinElmer says it expects revenue in 2009 to be flat or down by a “mid-single digit” percentage. Instead of making drastic cuts to R&D or administrative spending, the company is going to go ahead and let that weakening revenue stream take a toll on its profits. The company expects its all-important earnings per share to fall by a “mid-single digits to mid-teen” percentage for 2009.
In a company that generated about $1.9 billion last year in revenue, PerkinElmer maintains an R&D budget of about $120 million, or about 6 to 7 percent of total revenues, Friel says. The company has about 9,000 employees around the world, including 800 at its Massachusetts headquarters, and about 800 scientists and engineers spread globally. (The R&D group in Waltham works mostly on tools for genetic screening which can make for more precise diagnostic tests, Friel says.)
PerkinElmer is looking for growth to come out of two primary groups—diagnostics and environmental detection/food safety, Friel says. Better understanding of the human genome is leading to more predictive diagnostic tests, especially in prenatal screening, Friel says. The second area is promising because of the move toward a globalized supply chain for food and personal products that gives a lot of people the willies—remember the tainted toothpaste from China? The tainted peanut butter? Such episodes are creating demand from companies like Wal-Mart who want tools to help them determine what’s really safe to put on the shelves, and what to take off, Friel says. To keep gaining momentum in these divisions, the company’s business development team will be on the lookout to acquire “great opportunities” and is willing to pay a premium for the ones that are proven and have cleared most of the risky hurdles in R&D, Friel says.
The company’s strategy makes one important assumption—that the downturn is going to last something like 12 to 18 months, and not for years and years. It will be interesting to see this year if PerkinElmer can hold to its strategy if the economic headlines coming out New York and Washington keep getting worse and worse. “We want to invest through the downturn, so that when we come out of it, we’ll be in a strong position,” Friel says.