Thermo Fisher Scientific Inc. (TMO) on Q1 2021 Results - Earnings Call Transcript

Operator: Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific 2021 First Quarter Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to introduce our moderator for the call, Mr. Rafael Tejada, Vice President, Investor Relations. Mr. Tejada, you may begin the call. Rafael Tejada : Good morning and thank you for joining us. On the call with me today is Marc Casper, our Chairman, President and Chief Executive Officer; and Stephen Williamson, Senior Vice President and Chief Financial Officer. Please note, this call is being webcast live and will be archived on the Investors section of our website thermofisher.com, under the heading Webcasts and Presentations until May 14, 2021. A copy of the press release of our first quarter 2021 earnings is available in the Investors section of our website under the heading Financial Results. So, before we begin, let me briefly cover our Safe Harbor statement. Various remarks that we may make about the company's future expectations, plans, and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the company's most recent annual report on Form 10-K which is on file with the SEC, and available in the Investors section of our website under the heading SEC Filings. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. Therefore you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. Also, during the call, we'll be referring to certain financial measures not prepared in accordance with Generally Accepted Accounting Principles or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our first quarter 2021 earnings, and also in the Investors section of our website under the heading Financial Information. So, with that, I'll now turn the call over to Marc. Marc Casper: Thanks, Rafael. Good morning, everyone. Thank you for joining us for our Q1 call. As you saw in our press release, we had a very strong start to the year. We delivered another quarter of outstanding financial performance with excellent growth on both the top and bottom line. As you know, we're playing a significant role in enabling society's response to the pandemic, including a rapidly expanding role in supporting vaccine production. In our base business, we meaningfully accelerated growth across all our businesses in the first quarter. Stephen Williamson: Thanks, Marc. And good morning, everyone. I'll begin with a high level summary of our Q1 performance. As Marc mentioned, we have another exceptional quarter and grew our revenue 59% including 53% organic growth. We deliver $2.9 billion of COVID-19 response revenue and accelerated the growth of our base business 13%. So a great start to the year on the top line. We also had an excellent start of the year on adjusted EPS growing 145% in Q1 to $7.21. This was $0.70 higher than our expectations for Q1 at the time of our last earnings call driven by great operational execution, the timing of expenses within the year and then higher tailwind from FX. Overall exceptional financial results in Q1 continuing that momentum from 2020. Let me now provide you with some additional details on our Q1 performance. GAAP EPS in the quarter was $5.88 up 198% from Q1 last year. On the top line, our Q1 reported revenue grew 59% year-over-year. The components of our Q1 report the revenue increase included 53% organic growth, a 4% tailwind from foreign exchange, and a 2% from acquisition. As a reminder, we had three extra selling days in Q1 which represents a tailwind of approximately 3%. Looking ahead, we have four fewer days in Q4. Turning to our performance by geography during the quarter, all regions will have a very strong growth. North America, Europe and Asia Pacific all grew approximately 50%, China grew 60% and the rest of the world grew over 80%. Turning to our operational performance, Q1 adjusted operating income increased 155% and adjusted operating margin was 35.4%, 13 percentage points higher than Q1 last year. And the quarter our PPI business system enabled us to drive exceptional volume leverage and strong productivity. We also had favorable business mix and a tailwind from FX. This was partially offset by strategic investments across our businesses to support our near and long-term growth. Moving on to the details the P&L, total company adjusted gross margin in the quarter came in at 54.1% up 810 basis points from Q1 of the prior year. The increase in gross margin and very similar drivers as those of our adjusted operating margin. Adjusted SG&A in the quarter was 15.4% of revenue a decrease of 460 basis points versus Q1 2020 reflecting strong volume leverage. Total R&D expense was $320 million, representing growth of 31% over Q1 2020, reflecting our increased investments in high impact innovation to fuel future growth. Looking at results below the line for the quarter, our net interest expense was $113 million, $23 million higher than Q1 last year. Adjusted other income and expense with a net income in the quarter of approximately $14 million, $11 million lower than Q1 2020 mainly due to changes in non-operating FX. In line with our expectations, our adjusted tax rate in the quarter was 16% up 550 basis points versus Q1 last year, due to the substantial increase in pre-tax profit. Average diluted shares with $397 million in q1, about $2.5 million lower year-over-year. Driven by share repurchases net of options dilution. Turning to cash flow and the balance sheet, cash flow was another strong highlight for the quarter. Our PPI business system enabled us to deliver a significant cash flow from the very strong top line performance. Cash flow from continuing operations was $2 billion and free cash flow was $1.4 billion. Our capacity and capability investments are proceeding very well. And this quarter net capital expenditures were $620 million. In the quarter we returned $2 billion of capital to shareholders through buybacks. $1.5 billion in January, and a further $500 million in March. During the quarter we also increase that dividend by 18%. We deployed $1.4 billion in acquisitions in Q1 including Mesa Biotech, and the acquisition of a European based viral vector business. Shortly after the quarter end, we also announced an agreement to require CPD. Earlier in the quarter, we completed the redemption of $2.6 billion of senior notes, at the end of Q1 with approximately $5.6 billion in cash and $18.6 billion of total debt. A leverage ratio at the end of the quarter was 1.5 times gross debt to adjusted EBITDA, and 1.1 times on a net basis. Concluding my comments on our total company performance adjusted ROIC was 21.4% up 960 basis points from Q1 last year, as we continue to generate exceptional returns. Now provide some color on the performance of our four business segments. Similar to the last few quarters, I'll start with some framing thoughts on the impact of the COVID-19 response on our segment results. From a revenue standpoint, as was the case from the last two quarters, the majority of the COVID-19 response revenue is recognized in lifetime solutions, with the remainder recognized and specially diagnostics and the laboratory products and services segment. From a margin standpoint, the impact of COVID-19 different across the segments based on the scale of the response revenue and the different levels of profitability on that revenue. In addition, during the quarter, we continued to make strategic investments across all of our businesses that included investments in commercial, R&D and production capacity. The size of those investments does not necessarily align with the COVID-19 response revenue in each segment. So that does skew some of the reported segment margins. A lot of moving parts from a segment margin standpoint, but it reflects a very active management of the company successfully navigating the current environment to position the company for even brighter future. So moving on to the segment details starting with life sciences solutions. In Q1 reported revenue in this segment, increased 137% and organic growth was 129%. In the quarter, we saw exceptionally strong growth in genetic sciences, bio sciences and bio production businesses. Q1 adjusted operating income and Life Sciences Solution increased 238% adjusted operating margin was 54.2% up 16 percentage point year-over-year. In the quarter we drove very strong volume pull through at positive business mix. And we continue to make strategic investments across all businesses in this segment. We also had a tailwind on margin from FX in this segment in Q1. The analytical instruments segments reported revenue increased 26% in Q1 and organic growth was 22%. During the quarter, we saw strong growth in both the chromatography and mass spectrometry and the materials and structural analysis businesses. And it was good to see chemical analysis returned to growth. Q1 adjusted operating income in analytical instruments increased 59% and adjusted operating margin with 19.6% up 410 basis points year-over-year. In the quarter we drove very strong volume leverage and productivity with more than offset strategic investment. Since especially diagnostic segments, the Q1 reported revenue increased by 69%, organic revenue growth was 65%. A COVID-19 response enabled us to deliver very strong growth in our microbiology, healthcare market channel and clinical diagnostics businesses. In addition, it was good to see immunodiagnostics business returned to growth in Q1. Adjusted operating income increased 81% in the quarter and adjusted operating margin was 26.5% up 180 basis points from the prior year. And in Q1 we drove very strong volume leverage, which is partially offset by unfavorable business mix and strategic investments. Lastly, in the products and services segments, Q1 reported revenue increased 32%, organic growth was 26%. In the quarter, we saw a very strong growth in all of our businesses in this segment. Adjusted operating income in the segment increased 80%. And adjusted operating margin was 14.8%, which is 400 basis points higher than the prior year. In the quarter we delivered strong volume pull through and productivity, partially offset by strategic investments. So with that, let me now turn to our updated 2021 guidance. Consistent with the approach we took with our initial guidance, we're providing a point outlook rather than a range. We think this is the most helpful approach given there are a multitude of different potential customer demand outcomes for the year. As Marc mentioned, we're raising both revenue and adjusted EPS guidance. Let me walk you through the detail. Talking about revenue, we're raising our revenue guidance by $550 million to $35.6 billion, which represents 10% reported growth over 2020, including 8% organic growth. This increase was driven by three factors. $250 million of the increase is due to an improved organic growth outlook for the base business. The strong start to the year, enabling us to increase base business organic growth from 7% to 8% for the full year. $225 million of the increase comes from the higher impact of acquisition, reflecting the acquisition of Mesa Biotech, which was not included in our initial guidance, and a good start to the year for our European viral vector business. And the final element is increases $75 million for the higher FX tailwind. Turning to adjusted earnings per share, we're increasing our annual adjusted EPS guidance by $0.35 to $21.97, which would result in 12% growth over 2020. The increase reflects $0.20 from improved operational outlook for the year, $0.10 for FX and $0.05 from capital deployments. To break down the $0.05 increase in the impact of capital deployment versus our initial guide, I'm now including $0.10 of additional interest cost in Q4 as a placeholder for pre financing for the PPD acquisition. And this is more than offset by $0.06 benefit from the $500 million stock buyback undertaken in March and $0.9 benefit from acquisition. So after great starting Q1, we're able to increase our outlook for the full year. Let me now provide you with some additional assumptions behind our updated -- our updated guidance. We're now assuming that will deliver $7.3 billion of COVID-19 response revenue in 2021. This is $200 million higher than the initial guidance reflecting the acquisition of Mesa Biotech. Within the $7.3 billion we're now assuming vaccine and therapy related revenue of approximately $1.5 billion for the year. This is $500 million higher than our initial guidance assumptions, reflecting strong customer demand and progress with our capacity expansion project. Still remains a large range of outcomes for testing demand and we remain well positioned to support our customers. With regards to FX, we're now assuming a year-over-year tailwind to $475 million, or 1.5% of revenue, and $0.24 or 1.2% of adjusted EPS. We're assuming that completed acquisitions contribute $350 million to our reported revenue growth in 2021 or 1.1%. The guidance does not include any operational benefit in 2021 from the acquisition of PPD. We get more clarity on the actual close dates will provide an estimate of the likely 2021 impact. As mentioned earlier, and included $40 million or $0.10 to adjusted EPS impact of higher interest costs in the guide as a placeholder for the pre-financing of the PPD transaction. We now expect net interest expense in 2021 to be approximately $510 million. We continue to expect the adjusted income tax rate to be 14% in 2021, no change from prior guidance, receiving net capital expenditures of approximately $2.5 billion to $2.7 billion. This is $300 million higher than your initial guidance for the year as we continue to identify opportunities to support future customer demand with our capacity and capability expansions in our pharma services bio production, bio sciences and the Laboratory Products businesses. Free cash flow is expected to be approximately $7 billion in 2021. No change from prior guidance. The guidance now includes $3.8 billion of capital deployment, $2 billion a share buybacks, which were completed in Q1, $1.4 billion for completed M&A, and $400 million of capital returned to shareholders through dividends. We have to make that the full year average diluted share count will be 397 million shares. And finally, I wanted to touch on quarterly phasing for the year and give a reminder of the factors that I outlined when I gave the initial guidance. First, as mentioned earlier, we had three extra selling days in Q1, we have four fewer days in Q4. The COVID-19 response revenue in the guidance is more significantly weighted to the first half of the year and the 2020 comparisons are significantly easier at the beginning of the year. That sets up for very strong growth in the first half of the year and given the revenue phasing the adjusted EPS is weighted more to the first half of the year. In summary, we started the year with an excellent Q1 are in great position to achieve our goals for the year. With that, I'll turn the call back over to Ralph. Rafael Tejada : Thank you, operator. We're ready to take questions. Operator: Your first question comes from the line of Jack Meehan with Nephron Research. Jack Meehan : Thank you. Good morning. I was wondering if you could start and talk about PPD, they got off to a strong start to the year a lot of momentum. Can you talk about how the initial integration planning is going to ensure they keep that momentum going? And you mentioned some of the customer feedback? Can you talk about maybe from a therapeutic perspective where customers are seeing the value? Marc Casper: Sure. Thanks for the question. As you know very excited about the combination of PPD and offering to our pharma and biotech customers. And as you know, the CRL market is very, very good characteristics of strong growth, because of the relevance of that offering and the trend for more and more of the activities that go to the biotech area where there's less of those capabilities and how. So you've got good market and PPD off to a very good start to the year financial performance and authorizations backlog very, very encouraging, it's a great business performing at a very high level. We're just starting that process of planning the combination, and we've had very good collaborative dialogue with the leadership there. And over the coming months, we'll be working on that process. But for the colleagues there, we can't wait to walk on them. And it really is largely business as usual and bringing new ways to add more value to our customers. So very encouraging and customers are very excited that the customers are interacted with. They get it, they understand the logic and they like the fact that we're going to have more capabilities to help them navigate the important things that they're doing. In terms of therapeutic areas, PPD covers the full range of the therapy classes and as Thermo Fisher, so we'll be able to support our customers and important work that they're doing. Jack Meehan : Great. And then everyone is focused on the durability of the COVID benefit. Appreciate all the color so far. I guess I'm curious based on the core recovery, and the increased outlook on the vaccine and therapeutic side. Do you think the street forecasts in 2022 are a good baseline? And can you just talk about the level of visibility on the interplay between COVID and core? Marc Casper: Yes. When I think about the COVID response, the first quarter was exactly how we thought it was going to play out. And when we look at the outlook for the year, we've assumed parts of that response are going to within the parts of our growing parts of it will be less and in aggregate. We feel very comfortable with the outlook of the same number the $7.1 billion that we started with at the beginning of the year and added $200 million for Mesa. So that's been our view and three months into the year. That continues to be a view that we think makes sense. Thanks, Jack. Operator: Our next question comes from the line of Tycho Peterson with JP Morgan. Tycho Peterson: Thanks. Marc, can you actually brought up the benefits of accelerated investments in a brokerage in your comments. I know you took the 20% last year and it was up 31% in the first quarter. Can you make this give us a little sense of where the incremental R&D investments are going, and how you think about some of the payoff there? Marc Casper: Yes. So it would go in areas as you would expect, right, where we were are in the budget is largely deployed. So increases in mass spectrometry, electron microscopy, would be two of the big areas, bioscience reagents, as well as clinical sequencing. Those are all the areas that got good investments. And when I look at our results, obviously, products take time to have the big impact, but those businesses are performing at a very high level. And you saw from the press release, and some of my comments. We had a very good, strong start to the year on new product launches to mass spectrometers, building on our leadership and Orbitrap. Another exciting electron microscopy offering this one, particularly for material science applications that we launched in the quarter. We've had good launches around our clinical sequencing business. And then one to meet a societal need, probably not a huge revenue opportunity, but an incredible need, which is how do you know if COVID is present in an indoor space, and because of our very deep scientific knowledge about air monitoring. We were able to launch a very relevant solution for that application. We also have applications in the past and things that we learned from anthrax challenges of years in the past, we were able to deploy here. So bringing out solutions that are relevant for our customers. It's like that the OpEx yield and CapEx are substantially increased a CapEx for the last couple of years. And we're seeing the benefits of those coming online, selling now as the market highlighted a couple of lenders prepared remarks. And they'll be more of those coming along, as we go through this year and next year. Tycho Peterson: Thanks. And then, Stephen for the follow-up two on the model. I'm just curious, as we look a little bit further out. If you give us any sort of rough guidance on how we should think about normalized, ex-COVID margins, 2022 and beyond? And then any preliminary thoughts on the tax rate, given what's on the table here with perform longer term? Stephen Williamson: Yes. So we started before the pandemic, we had a strong margin profile as a company will exit the pandemic with a higher revenue base, which will come through at a higher margins. So, margins will be elevated from where we went into this pandemic, and look forward to getting more details about that, at the appropriate time. In terms of tax, we've continued to follow closely, what's happening in DC and various different proposals being made. As we've done in prior times have changed, we remain active and since advocating for change to happen, that is the right change and the unintended consequences. And we'll manage the company appropriately through that period of time. We have a competitive tax rate versus others and will remain with that competitive acquisition, through whatever change happens is the way I think competitive. Operator: And your next question comes from the line of Vijay Kumar with Evercore. Vijay Kumar: Hi, guys. Congrats on announcement here. Two from me, maybe I'll start one on the, Stephen. What is the base business growth in Q1 was a high-single. So I just want to clarify that. And now, when you speak about $1.5 billion of vaccine revenue. Does that is you have any contribution from booster opportunity, or perhaps a pediatric label indication? Marc Casper: So Vijay, I'll start. So, based business was 13% in the quarter. And as a reminder, the days are favorable in Q1 less favorable in Q4. But we raised our base business, the $250 million organic raise is based on the base business performance so that the base business organic growth also goes up from seven to eight from that perspective. On the $1.5 billion of vaccine and therapy revenue. It's -- the demand is very strong. It's probably not tied actually to the label. It's really a combination that orders are very large, and we've been able to get our manufacturing capacity to ramp up more quickly than we originally anticipated. It's really the benefits of the PPI business system. So that means that for '21, we have a big increase in expectation. And my take on the discussions with our customers, and certainly what we understand from the medical side of things. The vaccine and therapy revenue is likely to be quite a bit duration well beyond 21. So as you get more indications of potential need for boosters or even annual vaccinations, you could imagine that the demand for vaccine revenue to be willing to '22 and beyond. Vijay Kumar: That's helpful Marc. And then one follow-up maybe a bigger picture question in the testing. There's been some chatter from your peers saying, look, as we get past the peak of the pandemic, perhaps testing is going to consolidate and more automated platforms. And I think the implication is perhaps your systems are not as automated, maybe it could be clockwork, but more often on how does Thermo stacker versus peers in that spirit? And then the pieces that I mean, I'm looking at your guidance, it looks like testing, you guys are faring much better than competition. So it seems to be slightly confusing on the messaging versus what we're seeing on the numbers? Marc Casper: Vijay, thanks for the question. So when I think about our role in the response. We understand customer needs, we have an incredible team of people that respond to it. We had the largest COVID response revenue last year, by a huge margin, right? And we've had these discussions in the past, where people in March bets at Thermo Fisher would have done the best job in supporting the industry, probably not on that particular dimension. Broadly, yes. But on molecular diagnostics, we didn't go in with the strongest hand, if you will. But we made a huge difference. And the demand in the first quarter, as you see in the $2.9 billion was extremely good for us. And so, we're assuming that, will play a role in both symptomatic and asymptomatic testing. And remember, it's quite a global business, right? Our install bases around the world. So that's the view. Now, we expect that there'll be less testing, right? In Q2, and in the second half, exactly, as we said back in January. As more vaccinations happen, that testing will come down a bit. And that's embedded in our guidance, sure. So I'm very enthusiastic about the role we're playing. And to be honest, I'm looking forward to the world, when we'll have so much testing, because it means that, we're going to sporting events, and we're traveling around the world and all the good things that come with it. And what happens when that happens is our base business really picks up as well. So, hopefully that gives you a sense of where we are. Operator: And your next question comes from the line of Dan Arias with Stifel. Dan Arias: Good morning, guys. Thanks. Marc on bio production, obviously, you guys have quite a bit going on there in terms of expansion activity touched on that. I think the press release from March talked about 600 million in investments there. Are you able to sort of just crystallize for us what kind of incremental revenue capacity you think you'll be adding? By the time all is said and done, if we just sort of look 12 to 18 months, down the road? I mean, it feels like if you're looking for where the base business might be most different in 2022 or 2023. That's sort of a good place to start. So I'm wondering what you might be able to just put some numbers around that. Marc Casper: Yes. So the way that I think about the investments in bio production. That's always been a very rapid growth double-digit -- strong double-digit growth, historically, right. And you can glean from the comments over the many years, that when we look at the other companies in the field reporting, and we're comfortable saying we're growing faster or gaining share, that means that we don't get down to the micro detail of how each of our sub businesses are reporting there, performing there, we're doing very well. And the expansion of $600 million of capacity supports that growth. For a number of years, we're pulling forward programs that we had online so that we can sustain very strong growth for many, many years to come. And when I look at the Q1 performance for bio production, the business has been extremely robust. And that takes into account what others have reported so far. Dan Arias: Okay. Maybe just as a follow-up on federal research funding. You've usually got a better than average line of sight into what's been talked about in Washington? Any views on the NIH budget next year and how that shapes up the President's proposal is obviously pretty encouraging. It does have that ARPA H program in there. I'm curious if you have a view on that, the appetite for that and whether you think that that might actually end up translating to fund availability for basic research, if that does come to fruition? Marc Casper: Yes, I mean, historically, there's been bipartisan support for national institutes of health funding. And as the former Vice President, and as the President might basically also listen to his remarks last night. I would expect him to be a real advocate for NIH, and he is a champion of tackling cancer. And the NIH plays a real role in that. And I think that bodes well for funding. So we'll see, obviously, but I would expect that the NIH should be in good stead, which is good news for academic and government customers, for sure. Operator: Your next question comes from the line of the Doug Schenkel with Cowen. Marc Casper: Doug? Doug, you're on mute. We'll go to the next question and come back around to Doug. Operator: Okay. And your next question comes from the line of Derrick Brown with the Bank of America. Marc Casper: Good morning, Derrick. Derrick? Operator: Your line is open sir. Marc Casper: Derrick, we don't hear you unfortunately. We'll go to the next question and see if we can sort out what the technical challenges operator. Operator: Okay. And your next question comes from the line of Puneet Souda with SVB Leerink. Puneet Souda: Hi, Marc. Can you hear me? Marc Casper: Yes. Puneet Souda: Okay. Thanks. So just wanted to get your view. In terms of post-pandemic, PCR installed base, you obviously have a very large install base here. Obviously, you're pointing out decline in COVID testing in line with their previous comments. But as we think about that larger instrument, install base, and some of that is automated amplitude and others. How should we think about menu expansion on that? How can you monetize that further into a broader diagnostics operating around the world? Marc Casper: Yes. So pretty thanks for the question. When I think about post-pandemic, right. I'm going to give a holistic answer including the specifics around the question that you asked. One of the things that we said back a year ago, was we've managed the company in such a way that we exited the pandemic, with a meaningfully stronger industry leadership than when we went in, obviously, we end up with a very strong position. And if I think about the actions that we've taken, we've accelerated our investments in operating expenses, R&D and CapEx to be a faster growing company organically exiting the pandemic. So that's the overarching thing that we've done. So we didn't necessarily say, let's put all of the money where the pandemic stuff was where rather, where's the best opportunities to make a difference for your customers long-term. So the first thing we expect, and whether it's '22 or '23, whatever the timeframe is, as the pandemic, we -- is to expect that we will be a faster growing company. At the same point, we've made very significant investments in our pharma services, and by our production business, they're very strong performing in their normal activities across many therapeutic classes. But that capacity will easily shift from COVID related demand to non-COVID related therapy classes. So when you think about those investments, the capacity is usable for the different areas. So again, you see that those investments transitioning from one type of use to the other. When you think about the molecular diagnostics business, and you think about what's happened, we're obviously going to exit a much stronger player than where we were when we started. We have a much expanded install base of PCR instruments. We also have a refreshed base of a PCR instruments. And those instruments are very good for lab developed tests, where customers are looking for excellent economics and to customize their work and we're a major component supplier. And we'll also be adding regulated content on top of that as well. So you'll see respiratory panels and overtime and things of that sort. We've dramatically increased our installed base of sample preparation instrumentation and we've gained very meaningful share. And we're well positioned to have a much stronger business going forward. The two other things that have changed is that our lab plastics business, lab plastics essential, the pipette tips, the micro tighter plates, all things you use for testing. We've expanded capacity, we have alleviated supply chain issues across the industry. And we put ourselves in a position to have a bigger business coming out of the pandemic. And then finally, we were a tiny player in specimen collection. And we'll have a nice business on things like viral transport media, obviously, at a much smaller level than the pandemic. And it's been unprecedented, the demand for viral transport media during the pandemic, but we built low cost capacity in two countries to be able to serve the world. And that's going to be a nice, smaller but nice, profitable business that serves customer needs. So we will exit the pandemic period at some point in time with a stronger molecular diagnostic business and we had coming into it and I feel great about it. The big numbers are going to come from the organic growth of the company and the repurposing of the capacity for of our production and pharma services. Yes, that's probably the way to think about the question. Operator: And your next question comes from the line of Doug Schenkel with Cowen. Doug Schenkel: Good morning. Can you hear me now? Marc Casper: Hi Doug. Perfect. Doug Schenkel: Okay. Excellent, excellent. Well, thank you for taking my questions. The first thing I want to talk about is just really trends, your capital exposed business, and then I want to go back to guidance. So Marc, how much of the strength you're seeing in your more capital exposed businesses, what you talked about in your prepared remarks was do the recapture of demand from earlier drivers that maybe got pushed off because of the pandemic versus a real sign that things are improving here. Can you give us some sense of, are you seeing backlog build and in turn are you now expecting capital equipment demand to trend better than you might have a few months ago over the balance of 2021? So that's the first topic I want to talk about. Marc Casper: Let's do that one, and we will hit the second one. Doug Schenkel: Okay. Marc Casper: So, Doug, thank you for that question. And when I think about our analytical instruments business, off to a very strong start. Obviously gets an easy comparison. But nonetheless, very good to see demand, build excellent growth in the crawling aspect business, and very strong growth in electron microscopy and very good production, chemical analysis, all three businesses did well, with calling us back doing the best. Bookings orders, we're meaningfully ahead of the revenue. So part of the outlook, we don't in segment level, our part of our confidence and in raising organic outlook is that the instrument business is well positioned after the start of the year to have a strong 2021. It's hard to know whether that was activity that just didn't happen last year. It's hard to know exactly why but activity is robust around the world. And that's very encouraging. Doug Schenkel: Okay. That super helpful. So thanks for that. And then on guidance, and again, maybe this is overdoing things. But at a simple but important level, Q1 revenue growth was better than your target, Q1 earnings was over $0.50 better than Street expectations. However, while you increased for your revenue targets by more than the magnitude of the Q1 revenue beat. You increased for the EPS targets by less than the magnitude of the Q1 beat. You did provide EPS guidance teams bridge in your prepared remarks. So thanks for that, Steven. So this is maybe where I'm over thinking things. But I am wondering if this is also a reflection, this change EPS is the fact that you're seeing a base business trending a lot better than you expected coming into the year. And you are now taking a more conservative stands on COVID-19 revenue. And given the ladder is higher margin that this is going to have some impact on earnings. Maybe that was intended to be clear, or maybe I'm just wrong, but I'd love it. If you could just talk about that a little bit. Thank you. Stephen Williamson: Doug, it's simpler than that. So we're basically banking the great performance on the base business in Q1 for the full year, both on the organic growth that goes into the revenue and then the adjusted EPS. We're banking the Q1, strong FX stronger than we'd anticipated. The timing of expense about $100 million expenses that have been more Q2, Q3 than we expected in Q1. And then we're adding in $0.10 of impact of interest costs in Q4 for the acquisition PPD. I mean, the response revenue, it's basically the increased response revenue. We've added and they serve biotech for the year and kept to 7.1 plus Mesa, so 7.3. That's the way to think about the guy. Marc Casper: In the way you frame the question. It's really the $0.10 of PPD interest costs, obviously, a little bit of variability and other aspects of it, but that's probably what the differences and there's nothing, as Steven just said, on this off in a read into the COVID response revenue in terms of the guidance on EPS. Operator: And your next question comes from the line of Derrick Brown from Bank of America. Marc Casper: Derrick, you there? Derrick Brown: I'm here. Can you hear me? Marc Casper: Awesome. We can. Derrick Brown: Perfect. Great. So Marc, I won't ask you on '22 this time. Marc Casper: You could have, I think, I got it when you asked it. So I think I try to get it there. Derrick Brown: Yes. But I do want to follow-up on some of the macro rebounds and recovery in that. And just can we talk a little bit about FDI? I mean, you called out your electron microscopy business. I mean, is that still mostly require that you've seen? Have you seen any sort of pickup in the semi side of the business obviously? There's a lot of semiconductor shortages concerns about that. Can you talk about, what sort of opportunity is that for you? And you're sort of like near-line testing? Marc Casper: Yes. So Derrick, the electron microscopy business performed very well, broad based strength and material science and life sciences, applications. So and obviously, within material science, because of all of what we read about chip shortages and capacity expansions. We typically benefit from the capital investment cycle that will be coming online in the semiconductor industry is one of the material science applications. So I would think that's encouraging and we're seeing good activity and strong bookings across the board, they're so off to a good start. Derrick Brown: Got it. And just as a follow-up. The Mesa acquisition is interesting, just because you historically have not done deals like that. And just sort of wondering if you could pontificate on sort of point of care versus central lab testing and sort of how you see it given you've got your fingers above it. I mean, how do you see sort of a mix of that evolving as we go forward? I mean, it's one of the debates in the diagnostics industry right now, is there like what is ultimately that central lab portion going to be? And how much of that is going to go to the PSC? And is this an area where you would see some incremental, potentially capital deployment in that space? Thanks. Marc Casper: Thanks Derrick. In terms of Mesa, one of the things obviously, that the pandemic drove, was testing happening in totally different ways and in different locations than it was pre-pandemic, and certainly, there was also back to life applications, which historically wouldn't have had any testing, if you think about it. And we got inundated with technology companies coming to us for either distribution partnerships or acquisition opportunities, a huge number. And a sub counting, I think they get 50 or 60 different ones that we looked at extensively. And we were very impressed with the Mesa Technology in terms of ease of use and accuracy. And already having the 510(k) on the respiratory tests. We saw as a really interesting addition to the portfolio and that actually, its role in COVID on back to life applications. With the 30 minutes PCR answer, very easy to use. We a lot of what COVID will do will pay for the acquisition, and then you get an option on the upside for its application as you build out a menu over time. That's how we thought about it. So it was probably less about a huge change in strategy or a huge move from a point of care standpoint, other than technology that we like we're extremely capable and PCR and said, this is a really natural extension of our offering. So and the business often I start, which is great. Thanks, Derek. Rafael Tejada: Operator, we have time for one more question. Operator: And your next question comes from the line of Dan Brennan with UBS. Dan Brennan: Great. Thanks for taking the question. Marc, I wanted to test you a question. Start off with a question on COVID testing. And then just wanted to ask you, just to give us a look around the world. But what's happening with the reopening, but just on COVID testing is an important question that we get. I know Derrick was pressing on '22. I'm even looking beyond '22 to '23. How do we just, it's possible just to frame where thermal business could go as things normalize? Obviously, there's a ton of assumptions that go into what we've had a lot of conversations with investors just trying to figure out where this could go. So firstly, the $6.1 billion that you give in 2020. Any sense of as you look at me, it's one normal state of testing a couple of years out what some level of that could be. And then the second question was just related to, just you talked about the really strong rebound in China. Just -- could you give us a sense of kind of what they gain within your new 2021 guidance, kind of reasonably? Thank you. Marc Casper: So in terms of geographic view, incredible strength across the world, with all regions growing greater than around 50%, and rest of the world with 80%, and China with 60%, really broad base strength. And we're seeing encouraging, obviously, encouraging outlook, and that from a geographic perspective. From a testing perspective, we're going to play a larger role than what we would have played back in 2019, based on the comments around a larger specimen collection business, a larger installed base of PCR instruments that's also refreshed as well as meaningfully higher share and sample prep, and adding content to that install base overtime. Very hard to quantify what it is in '23. Because you really have to make an assumption of what the pandemic looks like. Is it history or are we still fighting new variants and those things, and depending on that, you can have an incredibly wide range of outcomes. So we'll keep updating you periodically, overtime. So thank you, Dan. Let me just wrap it up here with a quick comment, which is -- as I think about the quarter, your market conditions are strong, we're off to an excellent start. And we're on track to deliver really another outstanding year. We look forward to updating you on our Q2 call, and please continue to stay safe. And as always, thank you for your ongoing support of Thermo Fisher Scientific. Thanks, everyone. Operator: Thank you. And thank you for your participation. This conclude today's conference. You may now disconnect.
TMO Ratings Summary
TMO Quant Ranking
Related Analysis

Thermo Fisher Scientific Inc. (NYSE:TMO) Reports Mixed Q3 Earnings

  • Thermo Fisher's EPS of $5.28 exceeded estimates but showed a year-over-year decline.
  • Revenue reached $10.6 billion, slightly missing the consensus estimate.
  • The company raised its annual profit forecast, indicating strong demand for its products and services.

Thermo Fisher Scientific Inc. (NYSE:TMO) is a prominent player in the medical instruments industry, known for its innovative tools and services in drug development. The company competes with other industry giants like Danaher. On October 23, 2024, Thermo Fisher reported its third-quarter earnings, showcasing a mixed financial performance.

Thermo Fisher's earnings per share (EPS) for the quarter were $5.28, exceeding the Zacks Consensus Estimate of $5.24 by 0.6%. However, this represents a 7.2% decline from the previous year. The adjusted EPS, which excludes expenses like asset amortization and restructuring costs, was higher than the GAAP EPS of $4.25, which saw a 3.8% year-over-year decrease.

The company's revenue for the quarter was $10.6 billion, slightly below the estimated $10.63 billion. This revenue figure marked a 0.2% increase from the previous year but fell short of the Zacks Consensus Estimate by 0.4%. Despite this, Thermo Fisher has a history of exceeding consensus revenue estimates in three of the past four quarters.

Following the earnings announcement, Thermo Fisher's stock saw a nearly 2% decline in pre-market trading. Despite this, the company remains optimistic, raising the lower end of its annual profit forecast for the third time this year. The new forecast ranges from $21.35 to $22.07 per share, reflecting strong demand for its products and services.

Thermo Fisher's financial metrics reveal a price-to-earnings (P/E) ratio of 35.45 and a price-to-sales ratio of 5.13. The company's enterprise value to sales ratio is 5.86, and its enterprise value to operating cash flow ratio is 27.28. With a debt-to-equity ratio of 0.72 and a current ratio of 1.63, Thermo Fisher demonstrates a balanced financial position.

Thermo Fisher Scientific Reports Better Than Expected Q1 Results

Thermo Fisher Scientific (NYSE:TMO) announced its first-quarter earnings and revenue that topped Wall Street forecasts. The company reported an adjusted earnings per share (EPS) of $5.11, which exceeded analyst expectations of $4.71. Its quarterly revenue also surpassed expectations, amounting to $10.34 billion compared to the projected $10.16 billion.

Although revenue saw a slight decline of 3% from the previous year's $10.71 billion, the adjusted EPS reflected a 2% increase from $5.03 reported in the first quarter of 2023. The company's GAAP diluted EPS also grew by 4% to $3.46 from $3.32.

CEO Marc N. Casper praised the strong financial results, crediting the success to the company's effective growth strategy and the PPI Business System. He emphasized Thermo Fisher's focus on customer success, robust commercial execution, and stringent operational discipline as crucial for its standout performance in 2024.

Thermo Fisher updated its full-year 2024 guidance, now expecting revenues to range between $42.3 billion and $43.3 billion, and adjusted EPS to be between $21.14 and $22.02. The projected midpoint for adjusted EPS, at $21.58, slightly surpasses the analyst consensus of $21.53, while the revenue guidance midpoint of $42.8 billion is marginally below the consensus estimate of $42.83 billion.