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Optics Market Weakness Means More Belt-Tightening at CVI

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by Melinda Rose, Senior Editor

LAKE FOREST, Ill., July 26, 2012 — CVI Melles Griot's lower-than-expected financial performance in the second quarter will mean cost-cutting will continue through the end of the year, the CEO of parent company Idex Corp. said this week. The restructuring is intended to "right size their cost structure" to drive profitability; cost-cutting measures at the lasers and optical equipment manufacturer have already resulted in a loss of about 20 percent of its workforce and one manufacturing facility.

Albuquerque, N.M.-based CVI Melles Griot's products are used in spectroscopy, cytometry, remote sensing, target designation and interferometry, among other applications. The company was acquired by Idex in June 2011 (See: Idex to Acquire CVI Melles Griot for $400M) and added to its optics and photonics platform. Other companies in that platform, located within the Health & Science Technologies (HST) segment, are Semrock, ATFilms and Precision Photonics.

Approximately 54 percent of its optics and photonics sales in 2011 were to customers outside the US.

"The business has exposure to defense, electronics and life science. And each of these have been softer than anticipated," Idex CEO Andrew Silvernail said about CVI in an earnings call with investors on Tuesday. "As a result, we're behind our initial objectives, and we have a lower profit profile at CVI as we exit 2012 than we anticipated. Needless to say, CVI has had a dilutive impact on our consolidated financial performance."

He said Idex has been "pretty aggressive" in reducing CVI's head count, cutting it "by a magnitude of plus-20 percent."

He didn't attach a specific number to the downsizing, but Idex's companywide 2011 restructuring initiatives included severance benefits for 337 employees, the company reported in a May 2012 SEC filing. As of Dec. 31, 2011, the company employed 6814.

In the past year, Idex also has "fully consolidated one facility and partially consolidated a couple of other facilities," Silvernail said, without elaborating on their locations.

"We're working through a tough patch in optics, but we like this business and the broader market segment," he said.

Health & Science Technologies segment sales for the second quarter totaled $171 million, a 21 percent increase year-over-year.

"Outside of the selected end-market challenges in optics and photonics, the remaining HST businesses are generally in line with our expectations, with strength in North America offset by a softer Europe," Silvernail said.

He said the company will continue its mergers and acquisitions strategy toward small and medium-size businesses, and that the company has the ability to invest $1 billion over the next three years in capital outlay, including M&A.

Last week, Idex announced the acquisition of Matcon, which will be part of its material process technology platform in the HST segment (See: Idex Acquires Matcon).

"In the first half of the year, we deployed approximately $80 million on M&A," Silvernail said. "We are in various stages of diligence on a number of deals, and we expect to announce additional transactions by year-end."

But he did downplay the likelihood of more acquisitions being announced soon in the optics and photonics space.

"We're not going to put more work on that team until we're comfortable that we are where we want to be on CVI," Silvernail said. "The only way we would do one is if it is something that is very strategically important to us."

Overall, Idex reported a profit of $54 million for the quarter, up 8 percent year-over-year. New orders were up 4 percent over the same quarter a year ago, to $466 million, and sales were up 9 percent year-over-year, to $494 million.

"We missed our earnings expectations, and we see the balance of the year as more challenging than we did in Q1," he said.

At the end of the first quarter, the company saw strength in most of its markets, with a healthy backlog and order rates, but "within a few weeks of delivering our guidance update in April, we saw certain markets deteriorate," Silvernail said. "Order rates softened, first in Europe and then in China, which combined to make up about one-third of our sales. Our second-quarter guidance did not anticipate the magnitude of the deceleration."

The company reduced its guidance figures for earnings for the rest of the year to between $2.65 and $2.70 per share from its previous estimates of $2.80 to $2.85.

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Jul 2012
That branch of science involved in the study and utilization of the motion, emissions and behaviors of currents of electrical energy flowing through gases, vacuums, semiconductors and conductors, not to be confused with electrics, which deals primarily with the conduction of large currents of electricity through metals.
The technology of generating and harnessing light and other forms of radiant energy whose quantum unit is the photon. The science includes light emission, transmission, deflection, amplification and detection by optical components and instruments, lasers and other light sources, fiber optics, electro-optical instrumentation, related hardware and electronics, and sophisticated systems. The range of applications of photonics extends from energy generation to detection to communications and...
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