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Thermo Fisher (TMO) Beats on Q1 Earnings, Raises Outlook

Zacks Equity Research
Updated

Thermo Fisher Scientific, Inc. TMO reported better-than-expected first-quarter 2016 financial results. Adjusted earnings per share (EPS) in the quarter came in at $1.80, 3.4% ahead of the Zacks Consensus Estimate and higher than the year-ago quarter number by 10.4%. On a reported basis, first-quarter EPS from continuing operations of $1.01 showed a 5.2% improvement year over year.

Quarter in Details

Revenues for the reported quarter amounted to $4.29 billion, up 9.4% year over year, ahead of the Zacks Consensus Estimate of $4.12 billion. Organic revenue growth in the quarter was 10%. While acquisitions increased revenues by 1%, currency translation reduced revenues by 2%.

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Thermo Fisher currently operates in four business segments viz. Life Sciences Solutions, Analytical Instruments, Specialty Diagnostics, and Laboratory Products and Services.

Impressively, Thermo Fisher delivered positive year-over-year growth in each of its business segments during the first quarter. Revenues from the Life Sciences Solutions Segment improved 11% year over year to $1.13 billion, while Analytical Instruments Segment sales grew 4% to $759 million. Revenues from the Laboratory Products and Services Segment improved 14% to $1.72 billion, while the Specialty Diagnostics Segment recorded 9% revenue growth to $855 million.

Gross margin of 47.9% during the first quarter was down 132 basis points (bps) year over year on account of a 12.4% increase in cost of revenues. Adjusted operating margin contracted 91 bps to 20.7% on a 8.2% rise in selling, general and administrative expenses and a 6.5% increase in research and development expenses.

The company exited the first quarter of 2016 with cash and cash equivalents of $826.8 million compared with $452 million at the end of full year 2015. Operating cash flow for the quarter was $289.1 million compared with the year-ago figure of $80 million.

Guidance

Thermo Fisher has raised its full year 2016 financial guidance, reflecting the inclusion of Affymetrix (acquisition closed on Mar 31 2016) for nine months, a less adverse foreign exchange environment, additional stock buybacks completed in the first quarter and stronger operational performance. Adjusted EPS is currently expected in the range of $8.05 to $8.19, indicating 9% to 11% growth year over year (earlier guidance was $7.80 to $7.96; growth of 6% to 8%). Besides, the company expects to deliver revenues in the range of $17.86 billion to $18.04 billion (earlier $17.36 billion to $17.56 billion) in 2016. The Zacks Consensus Estimate stands at earnings of $7.94 per share and revenues of $17.58 billion, below the company’s expectation.

Bottom Line

Thermo Fisher has started the year on a promising note, delivering better-than-expected first-quarter 2016 outcome that squarely beat the Zacks Consensus Estimate. We are looking forward to the integration of Affimetrix, the recently completed mega acquisition by Thermo Fisher, which is expected to boost its offering in the fast-growing flow cytometry market through an advanced antibody portfolio. Moreover, in genetic analysis, Affymetrix’s technologies should perfectly complement Thermo Fisher’s products in targeted clinical and applied markets.

We are also upbeat about the significant product launches by the company in the quarter including the Integrion HPIC system in applied markets. The company also deployed $1 billion of capital for share buybacks in the reported quarter. This in turn reflects the company’s strong cash balance position.

Zacks Rank & Stocks to Consider

Thermo Fisher presently carries a Zacks Rank #3 (Hold). Some better-ranked medical stocks are Edwards Lifesciences Corp. EW, Hologic Inc. HOLX and IDEXX Laboratories, Inc. IDXX. All the three stocks carry a Zacks Rank #2 (Buy).

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THERMO FISHER (TMO): Free Stock Analysis Report
 
HOLOGIC INC (HOLX): Free Stock Analysis Report
 
IDEXX LABS INC (IDXX): Free Stock Analysis Report
 
EDWARDS LIFESCI (EW): Free Stock Analysis Report
 
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