In some cases, this meant smaller year-on-year drops. Merck KGaA’s Science & Lab Solutions was flat in US dollars, following a 7% decline last quarter. Sales at Waters fell 4%, beating last quarter’s 9% drop. Results for Danaher’s Life Sciences (-3.5%), Agilent’s Life Science and Applied Markets Group (-7%), and Shimadzu’s Analytical and Measuring Instruments business (-9% in USD) were all roughly the same as last quarter.

Agilent’s revenue fell 7.4%; and Waters was down 9%. Bruker’s Scientific Instruments business was flat. A few firms had bigger drops: Merck KGaA’s Life Sciences division fell 13% in EUR (-7.2% in USD). Bio-Rad’s life science group sank 25%, though its clinical diagnostics segment gained nearly 5%. 

Revenue growth went into positive territory for a few firms. Thermo Fisher Scientific’s Analytical Instruments segment hopped from a 3% dip last quarter to 3% growth, and Bruker Scientific Instruments’ organic revenues, flat last quarter, logged an 8% gain.

Capital Markets Still Constrained

Capital equipment markets continue to be constrained, keeping instrument sales down, with exceptions for the top-of-the-line systems. Sales of consumables and services are providing a much-needed stabilizer. 

The global pharma and biopharma industry continues to be soft. Most other applied markets were also quiet, but environmental analysis is still providing growth, fueled by PFAS applications. The academic and government markets proved a bright spot this quarter for highly differentiated research instruments, such asBruker’s NMR and timsTOF2 and Thermo Fisher’s electron microscopy and Orbitrap Astral systems.

Effects of China Stimulus Will Wait Until 2025

Conditions in China remain muted, but with a more positive outlook. For Waters, which is highly invested in China, pharma sales there declined 10%, better than expected and an enormous improvement on the 25% drop last quarter, mainly from better conditions in the generics market. 

Across the board, the new Chinese stimulus is beginning to generate sales funnel activity and may have some positive impact in Q4, but the effects are expected mainly in 2025, as organizations wade through paperwork to get the funding.

Sales in North America and Europe were generally down in the low- to mid-single digits. 

A Mixed Outlook

Current conditions have led to varied perspectives on the second half of the year. Agilent and Thermo Fisher have both raised their full-year revenue guidance slightly, while Danaher and Merck KGaA have made no change. Waters has added caution, as they now predict a slower-than-anticipated pace of recovery and a smaller fourth-quarter ramp compared to historic levels. Illumina has also lowered its full-year guidance, from -2% to -3%.

Disinflation has slowed worldwide, with the price of services reflecting higher-than-average inflation. In some countries, nominal wage growth has exceeded inflation. In the US, sequential inflation rose in Q1, while the central banks of many emerging market economies have been conservative about cutting rates to avoid the risks from changes in interest rate differentials and depreciation of their currencies relative to the US dollar.

The IMF expects nonfuel commodity prices to rise 5% and energy commodity prices to drop a similar amount in 2024.  Across advanced economies, growth is predicted to converge, slowing down in the US and increasing in much of the euro area—a result of gains in momentum in services, higher net imports, and real wage growth leading to increased consumption. However, as manufacturing remains weak, Germany’s recovery will occur at a slower pace. One possible indication of a growth slowdown in the US is the Bureau of Labor Statistics’ report that the unemployment rate rose 0.2 percentage points in July to 4.3%.

Although increased wages will prompt higher consumption in Japan, these gains will be offset by weak private investment and the supply disruptions early in the year. Increased activity in Asia, and especially in China and India, is projected to fuel higher growth in emerging market and developing economies, with rises in private consumption in both countries and strong Chinese exports. 

In addition, the IMF anticipates recovery in world trade growth of about 3.25% annually in 2024–2025 and for global inflation to keep falling. Some threats to the outlook include the exacerbation of trade tensions, persistent appreciation of the US dollar, and policy changes in the wake of elections.

The analytical instruments industry has largely experienced declines so far this year, particularly in life sciences (compared with higher revenues resulting from the COVID-19 pandemic). Inflation continues to be a consideration in laboratories’ budgets, likely limiting their ability to purchase instruments. In fact, in a recent survey, TDA learned that the top negative factor economic factor among respondents was customer budget constraints, followed by recession concerns, and pricing/inflation. However, other signs are more promising, suggesting the possibility of some improvement. For example, the general outlook for the pharmaceutical industry is positive, and the American Chemical Council, in its June mid-year outlook has predicted chemical output to grow 2.2% this year. 

The TDA Growth Index for Q2 shows positive mid-single-digit growth in both lab and process analytical instruments, with life science flat. Prior to the pandemic, industry growth typically reflected general economic dynamics, albeit with a lag of about six months. A return to this pattern would suggest that, despite some continuing ups and downs in various industrial and regional markets, some bright spots lie ahead toward year end.

Thermo Fisher’s core revenue decreased 3%; Danaher’s life science segment dropped 3%; 

Agilent’s revenue fell 7.4%; and Waters was down 9%. Bruker’s Scientific Instruments business was flat. A few firms had bigger drops: Merck KGaA’s Life Sciences division fell 13% in EUR (-7.2% in USD). Bio-Rad’s life science group sank 25%, though its clinical diagnostics segment gained nearly 5%. 

Shimadzu was an exception, with 7% growth in JPY (but -9.4% in USD), although the company reported only on the full-year results of its fiscal year that ends on March 31, without a quarterly breakdown that would provide a head-to-head comparison.

China Woes Continue, with Hope from the New Stimulus

China continues to drag down growth. Danaher’s life sciences business was down in the high teens in China. Merck KGaA’s life sciences business fell 10% (in EUR) there. Agilent’s China revenue dropped 21%, missing expectations of a mid-teens decline, as demand weakness extended beyond pharma. Sales for Waters in the Asian behemoth fell just under 30%, which was better than expected.

The new Chinese stimulus, which is three times the size of the previous program and includes a focus on equipment upgrades, is raising hopes for a market rebound. But with a three-year rollout, it is unclear whether the industry will see gains this year.

In the Americas and Europe, sales generally fell in the low- to mid-single digits. 

Pharma Still Slow

The pharmaceutical industry, still drawing down pandemic-era overstocking, also continues to provide challenges for growth. 

Agilent’s pharma sales declined 11% across both biopharma and small molecules, though consumables delivered mid-single-digit growth, to bolster slow instruments sales, which are expected to continue to be sluggish through the end of the year. 

For Waters, pharma sales declined 6% worldwide, weighed down by the nearly 30% drop in China. Nonetheless, the company is forecasting low-single-digit pharma growth for the full year. “Outside of China, there is no drama,” Waters reports.

Merck KGaA expects most destocking to be done by the end of the second quarter for its life sciences process solutions customers.

Academia and Government a Mixed Bag

The academic and government sectors, which generally contribute about 30% of the lab market, have been a mixed bag. 

These sectors fell 12% for Agilent, and Waters saw 30% slower growth in these end markets. Both were mainly dragged down by China, particularly compared with strong Q1 sales a year ago, but in North America, the delayed signing of the NIH budget also slowed academic research spending.

Danaher, in contrast, found that the academic market held up better comparatively, particularly for more advanced instrumentation. Bruker experienced growth in the academic and government markets for its BioSpin business—where it expects to see revenue later this year from the sale of three gigahertz NMR systems—and for its Nano division, which grew in the mid-teens.

Other applied end markets, such as industrial, chemical, advanced materials, food, and forensics, generally declined in the low-single digits, against tough comparisons, particularly in China.

In the environmental market, the demand for instruments for PFAS analysis continues to be a bright spot for anticipated growth. Of particular note, Thermo Fisher has partnered with the North Carolina Collaboratory, a new network that supports PFAS research.

Outlook

Based on first quarter results, most firms are maintaining their full-year 2024 outlook, generally in the range of low negative to low positive single-digit growth. Agilent, however, lowered its outlook slightly, to -4% to -5%, because of concerns about China overall and pharma outside of China.