4th Quarter, 2011

The good earnings reported by your companies for 2011’s final quarter revealed slowing yet ample revenue growth and slightly tighter margins for all but the few whose growth has not slackened. Our discussions with the able, battle-hardened managers of these companies convinces us that they have no inclination to increase the size or pace of investments they’ve made during the upturn which enables their companies to profit by refreshing and improving products or services. They have become skilled at carefully examining the specific reasons for uneven revenue growth characterized by accelerating spurts followed by lulls in almost all parts of their businesses. This holds true for product lines and geographies. Managers in several companies have commented on rising material costs and wage inflation in Asia and especially in China. Many spoke with some frustration about tax constraints restricting investment of the company’s accumulated overseas profits to acquisitions of business or facilities outside the U.S. While all are cautious, they all think that steady growth, though hard, is attainable. Since the beginning of the year, the S&P 500 is up 7.6%.

C.H. Robinson Worldwide Inc.

Robinson’s fourth quarter and full year total revenues of $2.6 billion and $10.3 billion rose 10.4% and 11.5% respectfully from the same periods the prior year while earnings of 67¢ per share and $2.62 per share rose 8% and 12% respectively. During 2011, Robinson completed 10 million shipments, up 8.7% from the prior year, utilizing 53,000 carriers for 37,000 customers. Its top 100 customers generate 30% of revenue. Robinson’s stock price has declined 7% year-to-date because of worries about its ability to continue to generate double-digit profitable growth.

During the fourth quarter, total transportation net revenues rose 4.9% to $358.7 million, significantly below the 16.5% pace of the first three quarters of 2011. Total transportation revenues, which includes the cost of third-party transportation, rose 13% to $2.2 billion during the fourth quarter and 15% to $8.7 billion for the full year. During the quarter, truckload pricing to customers rose 3% as the cost of transportation rose 4%, excluding the impact of fuel. Truckload volumes rose 7%. Importantly, logistics service net revenues of $16.2 million rose 12.6% during the quarter, after increasing just one percent during the first three quarters of the year. Robinson receives these fees from its customers for logistics planning and transportation management services. These add-on revenues are the direct result of the company’s continued $100 million annual investment in its unique information technology platform which enables it to provide its customers with the ability to gain more insight into their supply chain to reduce their total transportation costs. Robinson intends to increase its market share with these customers by making it easier to execute transportation plans utilizing third-party transportation providers like Robinson. Customers who increase their reliance on Robinson can reduce their capital investment in owned trucking fleets and convert fixed costs to variable costs based on actual transportation need. This is a long-term differentiator and an important reason why Robinson will continue to prosper.

Donaldson Inc.

Donaldson reported record fiscal second quarter sales and earnings of $580.9 million and 70¢ per share, up 8% and 17% respectively from the same period a year ago after excluding a one-time tax charge in the year ago period. Foreign currency translation reduced sales and earnings by 1% during the quarter. Sales growth was strongest in the Americas rising 18%, while Europe rose 7% and Asia rose 3% after excluding the impact of the decline in disk drive filter sales related to the Thai floods. Donaldson’s stock price is up 5% since the beginning of the year after rising 17% last year.

Engine filter sales rose 12% during the quarter to $370.8 million driven by strength in orders from original equipment manufacturers of on-road trucks which rose 37% to $39.4 million and off-road equipment which rose 18% to $87.0 million. Off-road filter sales remain strong as agricultural, mining and even the construction markets continue to strengthen. Replacement filter sales of $214.1 million rose 7%. Donaldson is taking market share and generating a higher proportion of sales from proprietary filtration solutions which require Donaldson replacement filters. Sales of Industrial filters rose 7% to $132 million as manufacturing activity continues to improve in the U.S. and Asia while Europe remains stable. Gas turbine filter sales grew 6% to $37.0 million marking the beginning of an upturn in this product category as orders for large gas turbines for power generation have picked up and orders remain strong from oil and gas customers. Specialty application filter sales of $41 million declined 14% as the decline in disk drive filter sales, a result of the Thai floods, more than offset growth from membrane and venting product sales.

Mettler-Toledo International Inc.

2011 was a great year for Mettler-Toledo. Fourth quarter and 2011 sales increased 8% and 13% in local currencies to $648 million and $2.3 billion respectively over the same periods last year. Adjusted earnings per share for the quarter and the year rose 13% and 20% to $2.85 and $8.23. Full year sales increased 11% in Europe, 9% in the U.S. and 20% in Asia. Mettler-Toledo has been less affected by the economic challenges in Europe. While 37% of the company’s sales come from Europe, only 5% come from Italy, Spain, Portugal, Ireland and Greece. The company has invested $122 million since 2009 in Blue Ocean, its multi-year program to establish a single global operating model with a global enterprise resource planning system and largely standardized business processes. Its Swiss and Chinese operations, which account for 50% to 60% of the company’s manufacturing, are now on Blue Ocean. The company consolidated eight factory systems in China onto a single platform. This move has allowed the company to tighten its supply chain and will improve productivity in its Chinese plants. The company generated $204 million in free cash flow despite investing $55.7 million in Blue Ocean and increasing inventory levels to minimize the risk of inventory stock-outs when China went live on Blue Ocean. Mettler-Toledo’s stock price is up 19% since the beginning of the year.


SGS’ second half and full year revenues of 2.45 billion and 4.8 billion Swiss Francs (CHF) rose 14.5% and 13.7% from the same periods the prior year on a constant currency basis. Organic revenue growth was 10.5% in constant currency driven by double-digit gains in Minerals, Consumer Testing, Industrial and Environmental Services. Operating income rose 10.7% resulting in a 17.0% operating margin, down 40 basis points from 17.4% a year ago in constant currency. Capital investments rose 38% to CHF 337 million in order to sustain long-term organic growth. Organic revenue growth accelerated to 11.3% in the second half of 2011 from a 9.7% rate during the first half. Due to the appreciation of the Swiss Franc against most currencies where SGS operates, but especially against the Euro, revenues for the year in Swiss Francs increased 1% on a reported basis.

During 2011, 3.2% of SGS’ revenue growth in constant currency came from the current year contribution from 22 bolt-on acquisitions which generate revenues of CHF 80 million and operating income of CHF 16 million on an annualized basis. The total price paid for the acquisitions was CHF 104 million. In January 2012, SGS made its most significant acquisition of the past year acquiring CIMM T&S, the leading provider of technical services to the mining industry in Chile. This is an important addition to SGS Minerals services provided in Chile and South America and adds $65 million of annual revenue for a purchase price of $37 million. CIMM T&S was previously 100% owned by the Chilean government. Many of the 2,000 employees acquired with CIMM T&S are embedded in mine, processing and port operations. Chile has the second largest mine exploration budget in Latin America. SGS once again will pay a dividend of CHF .65 per ADR which is comprised of a CHF .30 ordinary annual dividend and CHF .35 additional annual distribution reflecting the strong free cash flow generation of the company. This represents an approximate 4% current dividend yield. SGS ADR’s have risen 12% since the beginning of the year.

Express Scripts Inc.

Express Scripts’ stock price has risen 18% since the beginning of the year as investors become more confident that the Medco acquisition will close. The company issued $3.5 billion of Senior Notes on February 6 completing the financing of the $11.2 billion cash portion of the deal. On February 10, both companies certified that they had fully complied with the FTC’s second information request made in September. This certification starts a 30-day time period after which the FTC must present its final ruling on the acquisition.

The company reported fourth quarter earnings of 77¢ per share excluding non-recurring expenses, an increase of 19% over the fourth quarter of 2011. Full year earnings also rose 19% to $2.78 per share. Express Scripts maintained its gross profit margin of 7.4% in 2011 and increased the operating earnings per claim 11% to $3.54 despite increased SG&A spending on IT systems and staff. An increase in generic prescriptions filled from 72.7% to 74.8% offset some of the impact on margins of the slight decline in prescriptions to 751.5 million from 753.9 million. Utilization grew only 1% in 2011 and was below the company’s forecast which assumed stronger economic growth in the second half of 2011. Membership levels also continue to decline through attrition because Express Scripts’ clients are not hiring many full time employees.

The company executed well during the quarter. Its pharmacists and call center representatives worked with individual members to help them move their prescriptions from Walgreen’s to a nearby network pharmacy. The transfer of 95% of its Walgreen’s business to other pharmacies, managing increased member activity from Medicare drug plans and the annual preparations for flawless January 1 launches for new clients were accomplished without any member or client disruption because Express Scripts kept staffing levels high. The company will maintain these staffing levels throughout out 2012 to ensure that existing clients see no change in their quality of service during the integration of Medco. Express Scripts’ commitment to its existing clients resulted in a 97% client retention rate in 2011.

Varian Medical Systems Inc.

Varian Medical Systems’ fiscal first quarter sales of $625 million rose 5% in constant currency over the first quarter of 2011. Earnings per share of 79¢ were down 1% from a year ago but were ahead of the company’s forecast. Net orders of $485 million grew 5% over the same period last year. U.S. orders fell 11% because two or three large orders were not booked during the quarter. Varian expects them to close later this year. Given the uncertainties surrounding health care reform, hospitals now require more approvals for capital expenditures outside the budgeting process which increases the time it takes for oncology clinics, the first or second most profitable departments in a hospital, to get funding for upgrades during the middle of the year. International orders offset the decline in the U.S. rising 20% during the quarter to $280 million. European orders grew 18% in spite of the economic uncertainty as clinics ordered TrueBeam systems with service contracts. Orders from China, Thailand, Malaysia and Japan rose 23%. The Chinese market for radiation oncology systems is growing at 30% per year. Varian operates a large education facility in China to train medical physicists and therapists to plan and deliver treatments on their systems. The company will manufacture 40 to 50 lower cost, low energy radiation sources in China this year to free up capacity in Palo Alto to make TrueBeams.

Varian continues to introduce software and accessories that improve the speed and quality of radiation treatments for cancer. In December 2011, Varian received clearance for control software that doubles the dose delivery rate for the TrueBeam and Trilogy radiation sources. Increasing the speed of delivery makes it possible to perform radiosurgery treatments in the standard 15 minute treatment time. The company acquired Calypso’s real-time tracking technology last year for $15 million in cash. In a Phase II clinical trial with this system, 84 prostate cancer patients were treated in 5 sessions instead of 40. They had minimal side effects and a high quality of life three years after treatment. Calypso’s system has been used to treat 10,000 prostate cancer patients. Varian received FDA approval on February 28, 2012 for a transponder that can be placed on the skin for real-time tracking of respiratory and other patient motion using this very accurate system. Varian Medical Systems’ stock price is down 3% since the beginning of the year.

IDEXX Laboratories Corp.

IDEXX Laboratories continues to develop new diagnostic tests and to invest in its global reference lab business. The company will introduce SNAP 4Dx-Plus, a rapid assay used in vet clinics which adds two tests for tick-borne diseases for dogs that are more prevalent in the Western U.S. Adding these diseases offers vets in this part of country a reason to screen dogs for vector-borne diseases in addition to heartworm. IDEXX Labs will also add a test that measures phenobarbital levels in dogs to its in-clinic instrument test menu. Almost every vet practice has dogs on phenobarbital to control seizures and must ensure that the dog is receiving the correct dose. Having this test available on a Catalyst Dx analyzer improves patient care, increases the use of in-clinic testing and differentiates the company’s test menu from its competitors.

Full year revenues for the reference labs were $373.9 million, an increase of 13% with 2.5% coming from acquisitions. The company continues to improve electronic connectivity between vet clinics and the labs which nearly 60% of U.S. customers use to order and to receive test results on-line. IDEXX Labs also added five new molecular diagnostic tests to its diarrhea panels for dogs and cats. Reference lab volumes continue to increase because of the availability of unique tests and the addition of new customers. The company added 8 reference labs to its global network in 2011 which now has 56 labs. During the fourth quarter, they opened labs in Nashville, TN and near Milan, Italy and acquired a lab which is co-located with the Animal Medical Center in New York City, a national leader in veterinary medicine. IDEXX Labs acquired RADIL, the Research and Diagnostic Laboratory of the College of Veterinary Medicine at the University of Missouri for $43 million in cash in November 2011. This lab, located near Kansas City, MO, provides health monitoring and diagnostic services to animals used in bioresearch. The lab has an outstanding reputation, and the company plans to expand its business internationally. IDEXX Labs’ fourth quarter and full year sales of $307 million and $1.2 billion respectively increased 8% and 10% over the same periods a year ago. Fourth quarter earnings rose 8.5% to 64¢ per share and 2011 earnings of $2.74 increased 17%. IDEXX Laboratories’ stock price is up 8% since the beginning of the year.

Teradata Corp.

Teradata reported strong fourth quarter and full year financial results, which along with a positive outlook, has resulted in a 35% increase in its stock price since the beginning of the year. During the fourth quarter revenues of $673 million and operating earnings of 60¢ per share rose 23% and 20% respectively. In 2011, revenues of $2.4 billion and operating earnings of $2.10 per share rose 22% and 19% respectively. Product revenue, which includes software and hardware, rose to $331 million and $1.1 billion respectively for the quarter and the year representing growth of 24% and 18% from the same year ago periods. Consulting revenues of $197 million and $695 million rose 25% during both the quarter and the full year period. Maintenance revenues of $145 million and $545 million rose 16% and 14% for the quarter and the full year respectively. All geographic regions generated more than 20% revenue growth during the quarter.

The accumulation of vast growing data volumes and new types of data is compelling more companies to purchase Teradata enterprise data warehouse and analytic solutions in order to cost-effectively create new insights to achieve competitive advantage in the marketplace. In addition to strong sales from existing customers, Teradata added more new customers in both the quarter and the year than ever before, including 18 new Fortune 500 companies. During the quarter PepsiCo, an existing customer, began using Teradata as the foundation for its mobile business intelligence and geospatial applications. A top mobile provider expanded its usage of Teradata for their network operations in addition to marketing, retail, finance and customer service. This is an important new application opportunity at telephone companies for Teradata. A large consumer packaged goods company is expanding its Teradata system to reduce out-of-stocks by 2% which will increase revenue by $300 million a year. Statoil, a new customer, is implementing a Teradata system to analyze seismic data to improve oil extraction and recovery. Oil and gas customers comprise less than 2% of revenues today but represent a large opportunity as oil and gas companies seek to use information technology to analyze growing troves of data in order to improve returns earned from exploration and development.


Intel’s fourth quarter revenues and earnings of $13.9 billion and 64¢ per share exceeded the comparable year ago figures by 21% and 14% respectively. Revenues for all of 2011 reached $54 billion, 24% more than 2010’s and $19 billion or 35% more than 2009’s. Fully diluted 2011 earnings per share of $2.39 were 19% higher than the $2.06 earned in 2010. Last year Intel repurchased 5% of its outstanding shares for $14.1 billion or $21.96 a share. The amount spent was just over two-thirds of the cash Intel generated from operations last year. The company’s ability to grow revenues rapidly while maintaining gross margins above 60% generates prodigious amounts of cash, most of which is invested in applied research and development and transformative manufacturing processes. These immense investments enable Intel to produce even faster, more versatile miniaturized microprocessors which power the growth of digitization worldwide. This year Intel will spend $10.1 billion on R&D and $12.5 billion on capital expenditures primarily to build and equip two factories that will use its proven Tri-gate three dimensional technology to produce microprocessors with geometries as small as 22 nanometers. The miniaturization is barely conceivable when one thinks that more than 7 million 22 nanometer Tri-gate transistors could fit in the period at the end of this sentence.

Intel’s growth is in Asia, which generates almost 60% of its revenues. Its largest market is China where China Unicom with over 300 million cellphone subscribers has chosen to offer its users Lenovo’s smartphone powered by Intel’s 32 nanometer Medfield microprocessor. This constitutes a major opportunity for Intel after its effort to enter the mobile phone market through an alliance with Nokia fell apart early last year. Success for providing processors for a huge volume of smartphones will help Intel’s stock price, which has been held down by the perception that it has missed the market for mobile devices. Intel’s stock price is up 11% since the beginning of the year. The stock’s current yield is 3.1%.

CME Group Inc.

CME’s stock price has risen 13% since the start of the year after the company announced along with its full year financial results that it was increasing its regular quarterly dividend 59% to $2.23 per share and instituting an additional annual variable dividend of $3.00 per share. The first quarter dividend and the annual variable dividend will be paid on March 26. The $11.92 in total dividend payments to be made in 2012 provides more than a 4% current dividend yield. The quarterly dividend reflects a change in dividend policy to target payment of 50% of cash earnings, up from 35% previously. The dividend news overshadowed the fourth quarter results which included a $27 million write-off of a receivable from MF Global.

Revenues for the fourth quarter and full year 2011 of $737 million and $3.3 billion declined 3.5% and rose 9.2% respectively while operating earnings of $3.55 and $17.04 declined 6% and rose 10% respectively. During the year, 3.4 billion contracts traded at CME exchanges, up 10% from the prior year. Interest rates, agricultural commodities, equity indexes and foreign exchange contracts all generated growth in contract volumes traded of 12% or more while energy rose 2% and metals declined 8%. During 2011, CME expanded its global market share of all futures and options traded to 60.0% up 60 basis points through improved customer service and -marketing along with continued product innovation. This was especially important in generating solid growth in Eurodollar volumes and boosting volumes at the long-end of the Treasury curve during the continued zero interest rate environment.

Cenovus Energy Inc.

Cenovus’ fourth quarter per share operating earnings and cash flow of 44¢ and $1.12 were 32% and 126% higher than the comparable figures a year ago. Per share earnings and cash flow for the year were $1.64 and $4.32 respectively. Its stock price is up 11% since the start of the year.

Importantly, the company last year increased its proven bitumen reserves by 26% to 1.45 billion barrels. It also demonstrated an ability to successfully accelerate production from its two producing oil sands properties Foster Creek and Christina Lake in well managed phased increments which permit realization of lower unit costs from technical improvements and application of new technologies. For example, a new solvent aided controlled pressure startup technique at Christina Lake increases flow rates by improving porosity between the steam injection wells and the bitumen producing wells. Its use cut in half the time needed to reach design capacity. The time saved lessened the amount of natural gas used to heat water for injection into the structure to get the bitumen to flow. The new technique reduces water usage and fuel and non-fuel costs by more than 10%, lowering the cost per barrel by one dollar Canadian. Successful application of the startup technique helped Cenovus lift production at Christina Lake to 46,000 barrels a day in December, more than double the rate a year earlier. The next incremental increase of 40,000 barrels is slated to come on-stream at the end of this year. Cenovus has extended its negotiations with possible partners interested in developing its bitumen deposit at Telephone Lake. Realization that pipeline access to British Columbia ports will expand as a result of postponement of the Keystone XL pipeline to the U.S. has kindled interest from Asian investors.

Cenovus’ refineries continue to benefit from the lack of ample pipeline capacity from Cushing, Oklahoma to the Gulf Coast. Although the refining margin declined to less than half the percentage realized in the third quarter, the refineries still contributed 31¢ to the company’s fourth quarter cash flow. The company expects that the margin may contract slightly during the current quarter and diminish further when pipeline capacity to take Canadian crude to the Gulf Coast opens. Cenovus raised its quarterly dividend 10% to 22¢ Canadian, payable on March 30, 2012.

National Oilwell Varco

National Oilwell Varco’s (NOV) fourth quarter earnings per share of $1.35 and revenues of $4.36 billion were respectively 30% and 34% above the comparable results in the year ago quarter. Earnings for the year rose to $4.70 on revenue of $14.76 billion, 18% and 20% higher than the results for the 2010. The company’s order backlog for Rig Technology equipment reached $10.26 billion at year end, more than twice the $5 billion on order at the end of 2010. The company expects to book revenues of $6.6 billion from its backlog in 2012. During 2011 NOV generated an operating profit of $2.1 billion, 63% of overall operating earnings, on Rig Technology’s revenues of $7.8 billion. The 26.6% operating margin earned was lower than the 29.7% margin achieved in 2010 on revenues of $2.1 billion from orders largely booked in 2008 when prices were higher. NOV anticipates that it may realize margins near 25% in the next two quarters as it delivers on orders booked in 2009. Orders from international customers and offshore rig operators, which are not necessarily for the same customers, constitute 86% of NOV’s backlog. During the fourth quarter the company delivered equipment for six offshore rigs commissioned for service bringing the number delivered for the year up to 23.

NOV’s Petroleum Services and Supplies (PS&S) division which produces almost 40% of company revenues and a third of operating profits manufactures premium drill pipe, internal coating for drill pipe, corrosion resistant tubing, coiled tubing as well as drill bits and drilling motors. It also provides downhole services such as drilling and completion services, solids and waste handling as well as tubular inspection services and reclamation services for pipes. The fourth quarter $704 million acquisition of Ameron, a manufacturer of specialized fiberglass composite pipe for petroleum and chemical industry customers, reduced operating margins for NOV’s consistently profitable PS&S division to just under 20%. NOV expects to bring margins back above 20% despite revenue growth in the low single digits during the coming quarter. PS&S obtains almost 60% of its revenues from the U.S. and Canada and benefits from use of its products and services by shale oil and gas operators. Providing equipment for production of oil and gas from shales and offshore reservoirs located thousands of feet below the seafloor drive NOV’s growth. NOV’s stock price is up 18% since the start of the year.

Gen-Probe Incorporated

Gen-Probe’s fourth quarter and 2011 sales rose 16% and 8% respectively over the same periods last year to $158.2 and $576.4 million. Fourth quarter earnings rose 20% to 68¢ per share and earnings for the year grew 6% to $2.19 per share. Earnings from both periods exclude non-recurring charges. Fourth quarter sales of clinical diagnostic products grew 13% to $90.6 million. More than 1 percentage point of revenue growth came from clinical labs in Europe which are running Women’s Health assays on the fully-automated PANTHER instruments they acquired last year. Customer response to PANTHER has been strong and has encouraged the company to accelerate the build-out its test menu. Gen-Probe has allocated research and development funds made available from the FDA approval of its HPV assay to develop technology for PANTHER that quantifies the amount of HIV or Hepatitis C virus present in a sample. The company expects to launch these assays in international markets in 2014 to offer fully automated work flows to the $900 million viral load testing market.

Blood screening product sales were $62.1 million during the quarter, a 30% increase, with half of the $15 million in sales growth coming from Novartis placing TIGRIS instruments in China and other emerging markets. These instruments will lead to growth in assay sales once the instruments are validated. Full year sales declined 2% to $199.4 million as global blood donations of 90 million remained unchanged from 2010. Gen-Probe generated free cash flow of $140 million during 2011, about 132% of net income and repurchased 4.2 million shares of stock for $250 million at an average price of $59.52. Gen-Probe’s stock price is up 15% since the beginning of the year.

Techne Corp.

Techne reported fiscal second quarter revenues of $74.7 million, an increase of 10.3% over the fiscal second quarter of 2011. Sales of $5.5 million from Tocris and Boston Biochem, two acquisitions that closed in April 2011, accounted for 8.5% of the growth. The impact of foreign currency rates was negligible in both periods. Earnings per share of 74¢, not including one-time inventory mark-ups, rose 3%. Boston Biochem, acquired for $7.9 million in cash, adds 200 new products in a vibrant research area to the 8 products that Techne was selling. The acquisition allows Boston Biotech to focus on its strength, new product development, while Techne manufactures, distributes and offers technical support for these products through its existing staff and facilities.

At our meeting with management on February 29, 2012, we learned that Techne’s management discovered the value to life science researchers of chemical compounds that interact with proteins as part of its due diligence on Boston Biochem. This insight led to the acquisition of Tocris for $124 million, a Bristol, U.K.-based company that sells 3,000 chemical compounds that react with the same enzymes and other substances inside a cell as do Techne’s proteins and antibodies. Because of its excellent track record respecting intellectual property, Tocris offers the active ingredients of some of Pfizer’s drugs along with biologically active compounds that did not enter clinical use to the research community. Tocris will continue to develop and manufacture compounds in Bristol, but Techne’s staff will distribute them and provide technical support to customers in the U.S., Canada, Mexico and South America. Both acquisitions achieve 80% gross margins because they develop and manufacture the products they sell. Their cost discipline delivered operating margins of 60%. Techne’s gross margin of 76.3% in the second quarter, a decline of 1 percentage point from the same period last year that resulted mainly from increased sales of the less profitable hematology products, demonstrates that the company has successfully added to future growth with these acquisitions. Techne’s stock price is up 2% since the beginning of the year.

Sigma Aldrich Corp.

Sigma-Aldrich’s fourth quarter sales of $610 million grew 3% organically over the fourth quarter of 2010. Acquisitions added 2% to revenue growth. Full year sales of $2.5 billion rose 10% with organic growth contributing 5% and acquisitions and favorable foreign exchange rates adding 1% and 4% respectively. Earnings rose 10% during the quarter to 91¢ and 14% to $3.76 for the full year, excluding non-recurring charges in both periods. Research sales grew 1% organically during the fourth quarter because academic researchers waited to place orders until December when they had more clarity about research funding levels in the 2012 federal budget. Research sales were $1.8 billion during 2011, growing 3% organically. Sigma continues to add new tools to its web-site that make it more useful to life science researchers. Web visits increased 26% to 12.7 million during the fourth quarter and on-line sales in constant currencies increased 10%.

Sigma Aldrich Fine Chemicals (SAFC) had record sales of $185 million in the fourth quarter, growing 7% organically and 1% from acquisitions. Sales for the full year were $728 million, organic growth of 9%. The Hitech business, which supplies chemical precursors to electronics and LED manufacturers, grew 16% during the fourth quarter as more LEDs are used in smartphones, tablets and general lighting where they are starting to replace incandescent light bulbs. SAFC will open a new Hitech plant in Taiwan on March 15, 2012 to meet the growing demand for these compounds. SAFC’ s custom pharmaceutical manufacturing business grew organically more than 10% during the quarter as its facilities in Wisconsin were both certified that they adhere to stringent quality standards for the high potency active drug ingredients manufactured there. On January 31, 2012, the company completed its acquisition of BioReliance for $350 million in cash. This privately-held company with 2011 sales of $126 million provides in-process testing to manufacturers of biologic products for both R&D and commercial use. This service, which accounts for 80% of BioReliance’s revenues, complements Sigma’s industrial media business that sells products to the same customers. The company also will expand BioReliance’s business to Asia where it serves the manufacturers of biologic drugs that have lost patent protection. Sigma’s stock price has risen 13% since the beginning of the year.

Automatic Data Processing

ADP’s fiscal second quarter sales of $2.6 billion rose 7% from the same period a year ago while earnings of 68¢ per share excluding a one-time gain rose 10% from a year ago. Employer Services, Professional Employer Organization (PEO) and Dealer Services rose 7%, 16% and 7% respectively from the same period a year ago. ADP saw strength across all its markets and booked new sales 14% above the same period a year ago. The number of employees on existing ADP client payrolls in the U.S. rose 2.8% during the quarter, slightly ahead of the 2.7% increase the previous quarter. ADP continues to invest in its innovative products and services which utilize information technology to reduce operating costs while improving service and client satisfaction. ADP’s strong earnings results come despite the 8.6% decline in interest earned on client funds balances to $118 million. A 6% increase in the average customer balance to $15.6 billion was more than offset by a one-half of one percent decline in the average interest yield to 3.0%. The PEO which provides a complete payroll, human resources and healthcare solution, boosted its customer base by 13% during the quarter to 251,000 employees. ADP’s stock price is unchanged since the beginning of the year after rising 17% last year.

Exxon Mobil Corp.

Exxon reported fourth quarter earnings per share of $1.99 compared to $1.55 earned in the year ago quarter. On a comparable basis, however, earnings were down year-to-year because the past quarter included a 13¢ per share after-tax gain on the sale of North Sea production to Apache Corp. Exxon’s oil and natural gas volumes during the quarter fell 8.8% below last year’s volumes as calculated by the company using the industry’s standard oil-gas BTU equivalent which equates six thousand cubic feet of gas to one barrel of oil. Production sharing payments primarily to the Nigerian government once again reduced volumes by nearly 3%. The worldwide oil price realized during the quarter was 27% higher than last year while the benefit of a 26% higher realized price for European gas, which was three times the U.S. price, was blunted by a 16% volume decline. U.S. gas prices dropped 7% below a year ago, more than offsetting a 3.5% volume rise. Unfortunately, Exxon’s refining and chemical businesses endured fourth quarter earnings declines of 57% and 26% respectively. Both kept their U.S. and overseas operations profitable during 2011 and together contributed to over 10% of Exxon’s pre-tax profits. After the end of the quarter, Exxon announced that it had agreed to sell all but 22% of its Japanese refining and petrochemical assets to TonenGeneral Sekiyu for $3.9 billion.

Exxon’s earnings for all of 2011 of $8.42, including 59¢ from asset sales, were 35% higher than Exxon’s 2010 results. Despite low gas prices, the company has not curtailed drilling in the U.S. to develop the vast shale and tight sand acreage obtained through the acquisition of XTO and Phillips last year. The company also plans to begin producing 110,000 barrels of bitumen per day from its Kearl Oil Sands Project during the fall. Development of shale gas and oil deposits to the U.S. along with the Canadian oil sands helped Exxon increase its proven oil and natural gas reserves by less than 1% to 24.9 billion barrels of oil and gas equivalents by the end of 2011. Exxon’s stock price, up 1% since the start of the year, benefits from the high oil price.

Stryker Corp.

On February 8, 2012, Stephen MacMillan, the Chairman, President and CEO of Stryker resigned abruptly. Curt Hartman, the Chief Financial Officer, became acting CEO while the company searches for a replacement for MacMillan. Hartman joined the Instruments division at Stryker in 1990 and became president in 2003 before becoming CFO in 2008. He also manages the operations of the neurovascular business that the company acquired last year. Stryker reported fourth quarter sales and adjusted earnings per share of $2.2 billion and $1.02, increases of 11% and 5% respectively over the fourth quarter of 2010. Revenue and earnings per share for the full year rose 13.5% and 12% to $8.3 billion and $3.72. Organic sales grew 4% during 2011. While the MedSurg businesses continue to deliver double-digit revenue growth, the reconstructive implant businesses remain challenging, growing only 1.5% in constant currency in 2011 as people continue to delay hip and knee replacements. Given the sudden loss of a well-respected, competent CEO on top of the existing challenges to the orthopaedic implant business and the on-going integration of six acquisitions made during the last two years, we decided to sell the stock. It has risen 4% since the beginning of the year.

Client portfolio holdings may change, and stocks of companies noted may or may not be held by one or more client portfolios from time to time. Investors should not consider references to individual securities as an endorsement or recommendation to purchase or sell such securities. Transactions in such securities may be made which seemingly contradict the references to them for a variety of reasons, including but not limited to, liquidity to meet redemptions or overall client portfolio rebalancing. Investing in the stock market involves gains and losses and may not be suitable for all investors. Investment return and principal value of an investment will fluctuate.