Revvity, Inc. (RVTY) Q4 2010 Earnings Report, Transcript and Summary

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 PerkinElmer Fourth Quarter 2010 Earnings Conference Call. With me on 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 Investors 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 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 that we use non-GAAP financial measures during this call that are not reconciled to GAAP in that attachment, we will provide reconciliations promptly. And 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 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 top line 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 puts 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 Asian 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. And additionally, we increased our investments in providing epigenetic solutions with the introduction of new epigenetics-based 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 non-destructive 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 profit 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 Illumination and Detection Solutions business. Our strong balance sheet will fuel the accelerated execution against our strategic priorities. I'm pleased to note that we have a solid and expanding pipeline of potential acquisition targets that we're actively engaged 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 softwares. 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 ensuring 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, our 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 remain strong in the quarter, ramping 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 revenues. 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 at our Medical Imaging business grew over 20% in the quarter, as we continued to see strong growth from diagnostics, oncology and non-medical applications. We continued to benefit from the rebound of capital equipment investments in major hospitals in the last of our easier comparables from the prior year. Additionally, as Rob mentioned, we are continuing to expand into attractive adjacencies, including non-destructive 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 on 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 in 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 pre-clinical 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 represented 21% of total revenue; and industrial, which represented 9% of total revenue. Organic revenue in our lab services business grew low double-digit in the fourth quarter. Revenue from OneSource, our unique comprehensive service offering, as well as relocation and qualification services drove strong top-line growth, as customers continue to turn PerkinElmer for their laboratory asset management needs. Also in the quarter, we expanded our OneSource relationship with Boehringer Ingelheim, as they outsourced lab 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 continue to drive the need for analytical technologies to detect contaminants globally. As a result, we saw a 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 a healthy demand, due in part to the cyclical recovery, as well as the demand for 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 primary related to the start-up cost on key growth initiatives and the early stage solutions from our recent acquisition, 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 cost 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 in 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 are pleased with our financial performance for the quarter and for the year, as we continue 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 have seen in environmental, food and consumer safety testing, lab services and our academic research customers. We expect our Screening business to return to a more normalized growth patterns as we progress through the year, as birth rates begin to recover, as we penetrate diagnostic testing deeper into developing regions and expand our menu of test in the developed world. As for the businesses that benefited the most from the economic recovery in 2010, we're 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 multi-year 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 a 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 a 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] Your first question comes from the line of Isaac Ro with Goldman Sachs.

This is actually Jeff in for Isaac. Looking at the guidance from its single-digit organic revenue growth for 2011 and the comments you made about 25% of your business now coming from emerging markets and that's 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?

Yes, well, I would say the mid-teen 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 at 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%.

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

It's 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.

Switching gears a little bit, looking at the genetic screening, what are your assumptions for patient volumes testing going into 2011? And if you've seen any improvement in trends there?

So as Andy mentioned, we're seeing some improving trends with regard to growth in birthrates. As you recall in 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 Via core business is probably mid-single-digits, as where it's been through most of 2010.

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

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

So 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 a year and half lag before you see a significant, I would say, purchases relative to that. Now 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 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 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 to do more testing.

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.

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're seeing a European economy not as strong as we're 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.

Your next question comes from the line of Derik De Bruin with UBS.

This is Rafael 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.

So let me go through the market. I think if you step back from 2011 overall, we're seeing fairly consistent, or we're forecasting fairly consistent growth across the portfolio. 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 in 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 a radiochemicals. And as Andy mentioned, we're working hard to improve that portfolio in places like pre-clinical 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 in the service being in the 5% to 7% range.

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

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're seeing good traction there. The EnSpire was one that Andy pointed out and a couple of others that we're 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.

Earlier this year, you launched that next-generation sequencing and 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?

Yes, well, we actually have some customers now and so we're generating revenue in that business. It's obviously small. And we see that business from a couple perspectives. First of all, it's very complementary with what we do in some of 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, what we call, 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 [indiscernible] going through the service offering.

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

So could we talk a little bit about kind of contribution margin in the Environmental Health business? The pull-through there has been a little less than I would have thought. I mean, I think you've talked about some investments you 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 pull-through to be a little bit lower than we would've expected?

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

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. I mean, in terms of the types of assets you're looking at in the pipeline, I think we have reasonable understanding of the strategic side, where you'd like to add the financial profile of these assets broadly. What are the sort of parameters you look at? And when thinking about it, how do 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 the real bias toward recurring revenue. So whether it's service, reagents, consumables, software from that perspective. Financially, I don't think you should expect where we do something significantly dilutive. I think if you look at 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 sort of IRI or return on invested capital, and trying to obviously be smart with the capital deployment.

Your next question comes from the line of Paul Knight with CLSA. Paul Knight - Credit Agricole Securities (USA) Inc. Could you run through your share repurchase for me, Rob, or what your plan is? Or what you're willing to do here in '11?

In the fourth quarter, we purchased, 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're buying in the open market, and I think at least at this stage, that's the plan. We want to give ourselves flexibility because there are some other opportunities out there as well. Paul Knight - Credit Agricole Securities (USA) Inc. And the announcement regarding your genetic sequencing service business, can you run through the rationale on that, that new business?

Yes, so I mentioned a little bit previously, it's fundamentally two things. One is it's complementary to what we do in some of our businesses from the perspective of some of the front-end, we're using organic 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 realized to be sort of increasingly relevant to our customers, particularly on the Human Health side. It's important for us 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. Paul Knight - Credit Agricole Securities (USA) Inc. 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, 2013, I think in that timeframe.

Your next question comes from the line of Jon Groberg with Macquarie.

This is actually Dane in for Jon. I just have a few quick questions here. Just 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 initiatives 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 to, 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.

And for 2011 growth, should we be thinking of any wildcard, potentially late-cycle businesses that could kick-in maybe on the industrial side?

No, I don't think so. I mean, 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.

And just out of curiosity for the first quarter here, the month of January was particularly brutal weather-wise. Are you factoring any type of impact on 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, and we should be able to catch up during the quarter. So I would say this point, I wouldn't anticipate any issues with the weather.

Your next question comes from the line of Jon Wood with Jefferies.

This is Brandon Couillard in for Jon. Andy, can you give us a view in cash flow and CapEx expectations for next year? And what opportunities exist to rationalize excess working capital? And how should we think about those metrics trending in '11?

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 a little 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 little bit of an inventory build related to some 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 working capital as a goal. And hopefully, we can do better than that.

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 contribution from the M&A deal that have not been completed yet?

There is an assumption in there that it's 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 the wildcard is our ability to consummate the acquisitions. And what was the first part of the question?

The impact of acquisitions. Is this an acquisition that's actually completed?

The acquisition is already completed because it's fairly small. But as far as impact of acquisitions, that we have not consummated, we have nothing at the top line in the forecast.

[Operator Instructions] Your next question comes from the line of Peter Lawson with Mizuho.

I'm just wondering if you could think 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?

Well, 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, I mean, 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.

And then you touched on Europe or academia. I mean, what's your outlook on the academic NIH spend?

I mean, my sense is NIH has been fairly insulated from the budget pressures. And so our expectations, it'll 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's some real good significant growth opportunity there.

So we should think about it more as that kind of emerging market growth...

And 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 level?

No, I mean, 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 opportunities, that there isn't any reason why we shouldn't be able to get to those types of numbers. 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.

Well, thank you all for your questions. So I feel great about the shape of the company as we enter 2010. We serve growing markets with leading market positions. We are 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're 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.