Thermo Fisher Scientific Inc. (TMO) on Q2 2021 Results - Earnings Call Transcript

Operator: Good morning ladies and gentlemen and welcome to the Thermo Fisher Scientific 2021 second quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you’d like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would 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, News and Events until August 13, 2021. A copy of the press release of our second quarter 2021 earnings is available in the Investors section of our website under the heading, Financials. 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 this indicated by the 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 and subsequent quarterly reports on Form 10-Q, which are on file with the SEC and available in the Investors section of our website under the heading, Financials - 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 this call, we will 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 second quarter 2021 earnings and also in the Investors section of our website under the heading, Financials. With that, I’ll now turn the call over to Marc. Marc Casper: Thanks Raf and good morning everyone. Thank you for joining us today for our second quarter call. As you saw in our press release, we executed on our growth strategy to deliver another fantastic quarter in Q2 with excellent growth on both the top and bottom line. As I reflect on the first half of the year, three things stand out to me: first, our team’s exceptional execution operating with speed at scale to deliver on our growth strategy and gain share; second, we’re already seeing the benefit of the accelerated investments we initiated in 2020; and third, the power of our PPI business system, which enables our performance. These three factors position us exceptionally well to deliver a fantastic 2021 and provide terrific momentum as we enter 2022. Stephen Williamson: Thanks Marc and good morning everyone. I’ll begin with a high level summary of our Q2 performance. We had another excellent quarter and grew our revenue 34%, including 28% organic growth. As Marc mentioned, our growth strategy is enabling us to take share on top of strong market conditions. As a result, in Q2 we were able to deliver 27% organic growth in the base business and continue our industry-leading response to the pandemic, generating $1.9 billion of COVID-19 response revenue in the quarter. Rafael Tejada: Thank you Stephen. Operator, we’re ready to take questions. Operator: Your first question comes from the line of Vijay Kumar with Evercore. Vijay Kumar: Hey guys, congrats on a solid this morning. Marc, one on the guidance here. Overall revenues were up, increased by $300 million for the year, but your COVID response revenues were lower by 600 and the implied math on base is it’s up 850 million ex-FX contribution. That’s a big number, and that’s all coming here--you know, most of it seems to be in the back half. I’m curious, what changed versus the prior assumptions, which segments are coming in better? Clearly we saw analytical tech come in better, and I’m curious if it has any implications for fiscal ’22. Marc Casper: Yes Vijay, thanks for the question. As I look at the base business outlook, really incredibly strong Q2. The performance, the 27% base business organic growth, the business is really firing on all cylinders, and orders were very strong. The informal dialog you have with customers is very bullish about market conditions and also, more importantly, our role in supporting them, and that gave us confidence that 12% organic growth for our base business activities is an appropriate guidance for the full year, so we feel really good about that. You’re seeing the benefits of the acceleration in our growth strategy investments that we started in the second half of last year. You’re seeing those things start to come into the new products that we launched, the collaborations, new capabilities. It’s really a super exciting time, and we’re excited about it in terms of what the fundamental outlook is for the base business. Vijay Kumar: Understood, and one for us, Stephen, on the margins here, I think you called it out, one time or maybe two weeks of extra pay. What was the impact, and is that expected to continue in the second half? I think you mentioned a billion dollars of testing in back half, and I think the comment you used was it’s de-risked, so I’m curious, do you have any tenders for orders that gives visibility into those numbers? Marc Casper: Stephen, why don’t you do the margin, and I’ll talk about the testing. Stephen Williamson: Yes, when we think about the mix of change in our guidance, it brought down the margin profile for the full year down to about 29.7%, which is down about 15 basis points from what I’d assumed in my prior guide. That’s kind of taken into consideration the different mix of contribution margins in the revenue changes. Marc Casper: Yes, and in terms of the response revenue and on the testing side of the equation, we took this strategy around de-risking the outlook. We had a strong quarter, actually, at $1.4 billion of testing, felt reasonably good about that, and we actually have a number of orders for the second half. We felt that given how much dialog there is around testing just generally and so much noise, we just felt that taking that off the table felt like the right thing to do, and we’re well positioned, as you know, given our relationships and capacity. If things like the delta variant continue to drive more demand for testing, then obviously we’re going to be higher than the number we assumed in the guidance. Operator: Your next question comes from the line of Doug Schenkel with Cowen. Doug Schenkel: Hey guys, can you hear me? Marc Casper: Perfectly. Doug Schenkel: Okay, sorry about that. I had some technical difficulties. I guess a question as we think about 2022, and I know you’re not going to guide on this call and I’m going to apologize for-- Marc Casper: Don’t apologize. Doug Schenkel: But I mean, at some level, to maybe just cut to the chase, is it reasonable to take the three-year revenue and EPS targets from your 2019 analyst day at the mid to high end, layer in some lingering COVID-19 relief revenue at the top and bottom line, and then add in whatever we’re going to model for PPD and basically take those three components and add them up and use that as kind of a construct for thinking about 2022? Is there any reason to not just boil it down to that construct at this point? Marc Casper: Doug, I’m going to give you terrific news, which is we’re going to hold an analyst day on September 17 and we’re going to give some early thoughts about 2022 to help with some of the ways to think about modeling, and not what I would call official guidance for the year but at least some scenarios to help that, and then give the three-year outlook going forward. We thought an analyst day would be the best way, because we think it’s a great question. What I would say, as you think about between now and whatever it is, seven weeks now, as for 2022, the performance of the base business is super cool - you know, 12% organic growth. We’re going to be entering the year with a very strong order book with very strong momentum, and more and more of those investments that we’ve made and are making positions us for great momentum in 2022. We’re going to play a meaningful role in what our customers need on their response, right? 2022 seems like a long way off, but I’d say obviously vaccines and therapies are going to be super relevant and there will be testing, the question is at what level. We’ll try to do some scenarios to help with that, but nobody knows what the demand is going to be for testing next year, so there will be range of outcomes around that, but I’m excited. PPD, obviously you’d add whatever assumptions for next year to the numbers from a capital deployment perspective, so 2022 is going to be another great year for the company. Doug Schenkel: Okay, all right. Thanks for that, Marc. Then I guess as my follow-up, maybe I’ll just throw the two quick ones out there. The first is as you know as well as anybody, there is a ton of labs globally that built out new infrastructure for COVID-19 testing using Thermo products. What are you seeing at these sites now? Testing volumes, they’re slowing but still robust. What I’m curious about is as we move towards the fall, are you seeing these labs move more into four-in-one testing, and then I guess beyond that, is there any move toward broader infectious disease testing at these sites, because I think that would help us as we think about the durability of what’s occurred in that category. Then the other one I just want to sneak in for Stephen, COVID-19 revenue has clearly been a boon to operating margins. That said, underlying margin seems to be tracking quite nicely. Maybe I should be able to do this math real quick, but I haven’t. I’m just wondering, if you take COVID-19 revenue contributions out of your 2021 targets, where do you believe 2021 operating margin would come out? Thank you. Marc Casper: Those would be good two or three-hour long conversations, but I’ll take a shot at it, and Stephen, certainly feel free to add. When I think about the COVID testing demand and what are we seeing, what I would say is we obviously have built--we have and had built during the pandemic a huge installed base around the world. For us, the activities we do across all of the countries is the huge driver of our activity, so a lot of what we read about is what’s going in the U.S., and the U.S. testing demand is definitely less at this moment, although obviously cases are starting to increase, but there’s quite a bit of demand around the world and certain customers are preparing for a respiratory panel for the winter season, and obviously we’ll have that. We’re going to support our customers at whatever level of demand that they need. In terms of margins, I’ll make it sort of what’s the philosophy, and then Stephen, if you want to add, feel free. We’re not thinking about it base business versus COVID, we’re thinking about how do we manage the company appropriately in terms of the profitability of the company and the investment rate for the going forward. I think one of the things that if you kind of do very simple math, and I’ll do it from an EPS perspective, we raised our--based on the very strong outlook for the year and the very strong first half, we raised our EPS by $0.10 in the guidance. We chose to invest another $0.25 in our colleagues, right - the $100 million in the Q2 additional payment is an investment in the future, right, so we made a conscious decision. Obviously margins are very strong and we’ll manage that appropriately. It really highlights the power of our PPI business system. Stephen Williamson: Yes, we’re really just focused on that. When you maximize the top line opportunity, invest appropriately for the future, it pays--we’re getting great--we’ll get the right returns off that investment, and then the flow through then comes, so it’s less that we’re trying to manage to a margin expansion number than appropriately manage the P&L and invest appropriately for the future. Marc Casper: Thanks Doug. Operator: The next question comes from the line of Jack Meehan with Nephron Research Jack Meehan: Thank you, good morning. Marc, was hoping you could give us your latest thinking on capital allocation within the--you know, if I go back to the 2019 analyst day, you talked about $29 billion of deployment through 2022, though I think there’s a view in the market that it could be a lot higher than that because of the COVID response sales, so my question is what’s your latest view on ability to close deals as the multiples seem to be moving higher, and if not, why not do more buybacks? You’ve only done $3.5 billion since the beginning of 2020. Marc Casper: Jack, thanks for the question. In terms of capital deployment, first of all, it’s been an active year between--and I’ll give you an update on PPD in a minute, but it’s been an active year. We obviously announced PPD, we’ve done a number of smaller bolt-on transactions, so we’ve been active. Our pipeline is quite busy. We’re looking at things, we’re disciplined, and because our industry is so large and fragmented, we’re seeing opportunities to continue to build on our M&A strategy and execute against that, so from that perspective things are good. From a return of capital perspective, we felt the $2 billion that we did in terms of buybacks and increasing the dividend felt like the right return, given the M&A commitments we’ve made to PPD, and we certainly revisit our return of capital mix with our board periodically and we’ll continue to do so. But right now, we continue to have M&A as the primary focus. PPD, I’ll spend a moment there because it’s a large commitment of capital. I’ve been super impressed with the team. I’ve gotten to meet a number of the team because of the integration planning. It’s going very smoothly, the colleagues are very excited to become part of the company. As you see from some of the other companies in the CRL field that are reporting, the end markets are super good, the industry is doing well. PPD as a leader is very well positioned, so this is going to be a really good growth asset. From the pathway to closure of the transaction, we’ve gotten most of the direct investment, the foreign investment approvals done, still got a little bit left to do there but that’s pretty much done. We’re working our way through the various anti-trust filings around the world, we’re collaborating with the FDC on second request, and we’re looking forward to closing the transaction by the end of the year, so that’s a quick recap on capital deployment. Stephen Williamson: Yes, and Jack, one thing to add. When I think back to 2019, the outlook around that use of cash and ROI, we put significantly higher investments in capex. We’ve identified some great opportunities to invest organically, and we’re putting cash to work and getting great returns in really a short period of time as well, so that’s another element as I think about how the company’s evolved over that period of time. Jack Meehan: Yes, definitely hear you on that. Just as a follow-up either for Marc or for Stephen, there’s been a lot of discussion around inflation across the market, so I was curious to get your view, just ability to toggle pricing as a lever in the channel, how that is going, and then any thoughts around the supply chain, have you had any issues? Stephen Williamson: Yes, I think when you look at the world, it’s unwinding from the recessionary impacts of the pandemic, and as a result you’ve got kinks in supply chain and clearly inflationary pressures in multiple different places. How large that impact is and how long it lasts for is still to be proven out. We’re operating on the basis that it will be with us for some time. Our PPI business system enables us to effectively navigate events like this and run our operations efficiently, use our scale to partner with suppliers, and then maximize opportunities, as you mentioned, around pricing for certain products to help protect our margins. That’s not just really across the portfolio, that’s kind of the scale benefit of using our pricing discipline across the company, and we’ve navigated through this dynamic really well through the first half of the year, and I expect us to continue to do so going forward. Operator: Your next question comes from the line of Tycho Peterson with JP Morgan. Tycho Peterson: Hey, good morning. Marc, I’m wondering if you can talk a little bit more about the recovery in analytical instruments. I know you said it was widespread, but you did call out electron microscopy a couple times, so could you maybe just talk to that dynamic, how much of that do you think is pent-up demand how much of that is tied to the semi-cycle? Just curious for some more color there. Marc Casper: Tycho, good morning, thanks for the questions. Yes, our analytical instruments business performed extremely well, grew over 35% in the quarter, and all three businesses really performed very well - chemical analysis, chrom and mass spec, and materials and structural analysis . When I think about the dynamics here, our new products, they’re very exciting, I mentioned a few of them this quarter as I did last, so the investments we’ve been making in R&D there are really paying off, and the end markets are good. You see that in electron microscopy, both in the adoption of the tools for life sciences applications, so the cryo electron microscopy, but you also see that across the material science applications, including semiconductor, and obviously from everything you read around what’s going on in chip supply and investments there, that bodes well for the electron microscopy business for sure. Tycho Peterson: Okay, thanks. Then for the follow-up, I’ve actually got two quick ones. On COVID, I think you made a prudent move to take testing down. Just curious your latest thoughts on the durability on the vaccine and therapy side, what you’re hearing from customers, obviously a lot of focus on boosters now. Then on margins, I know a lot of people are focused on 2022 operating margins. You did take up R&D by 20% last year, so maybe another way to ask the question is, how much of the opex do you think will carry through, or do you think you’ll reset R&D a little bit to drive more leverage? Thanks. Stephen Williamson: Tycho, let me cover the margin question. I think the elevated investments are getting great returns, so we’re going to manage the company appropriately, spend appropriately, and have fueled really strong base business organic growth going forward. Should those returns not be in the right places, we’re going to obviously appropriately manage spend, and then as the pandemic response unwinds, we will appropriately deal with the variable costs that go with that and manage the P&L appropriately. We look forward to giving more details when we’re in a better position to do that around 2022. Marc Casper: Tycho, in terms of the role that we’re playing in supporting the vaccines and therapies for COVID, it’s quite significant, right, and it cuts across both our pharma services capabilities for the active ingredients as well as in the sterile fill/finish activities for the vaccines. We play obviously a very substantial role as the technology provider in our bio sciences business with things like enzymes, nucleotides, as well as in our single use technologies and cell culture media, so a very large role. We expect that to be about $1.8 billion this year. Demand is very robust, right, so for the industry it’s mostly about capacity coming online to support the demand, so we look at our momentum going into 2022, we would expect that the vaccine and therapy demand to be very strong given the likely demand for the response to the pandemic, and as our capacity comes more and more online, that positions us very well to meet the strong backlog of orders that we’ve been able to generate because we have the right solutions for our customers. Operator: Your next question comes from the line of Dan Arias with Stifel. Dan Arias: Good morning guys, thanks for the question. Marc, on the new plasmid production site out in Carlsbad, I think you just opened up there, so when do you expect to be fully scaled up and going? Is there anything you can say about the extent to which capacity has already been booked there, just given that it sounds like that’s a pretty supply constrained area? Then I think you’re supporting mRNA vaccine work out there and I’m just curious whether you’re starting to talk to customers about projects maybe down the road with them on mRNA vaccines that are not related to COVID. Just thinking one of the open questions here is where are we headed with mRNA now that we have some proof of concept. Marc Casper: Dan, great question. A few different things that are going on. Let’s do the mRNA more broadly first. There has been a huge increase in investments in the biotech and pharmaceutical industry given the success that mRNA has had on the COVID vaccine, so that investment is both in next generation vaccines, combination vaccines, as well as just in the class of other diseases altogether. And yes, we’re in numerous dialogs in supporting those activities across our capabilities, so that’s a wonderful tailwind for our largest segment of pharma and biotech in terms of customers, so that looks very strong. One of the things that we have seen is that in plasmid DNA, there has been a shortage of capacity for some period of time, and we’ve been addressing that by making significant organic investments. We have been able to secure meaningful orders for our new facility in Carlsbad. I had the opportunity to visit the facility in June - it’s awesome and super exciting. It’s open - and we just did the ribbon cutting in early July, and we’ll be producing product in the not distant future there and building momentum on that, and that’s great. The customer base wanted choice and we’re giving them choice, and we’re excited about that. Dan Arias: Okay, appreciate that. Maybe just Stephen, just thinking about some of the other parts of bio production, on Novasep, I think the outlook last time was for $150 million in contributions from Novasep. Is that still the current outlook, because I felt like that was conservative last quarter just given that you had done almost half that, if not a little bit more than half that in Q1 alone, so just wanted to check. Stephen Williamson: Yes, we secured some additional orders on the COVID response and it’s slightly higher - it’s about another $30 million to $40 million for the year, and that’s included in that increasing guide for the response revenue. Operator: Your next question comes from the line of Derik de Bruin with Bank of America. Derik de Bruin: Hi, good morning. A couple questions. I guess on the first one, can you talk a little bit about the China market - obviously it wasn’t going to be as strong in the second quarter as it was in the first quarter, the growth, just given that China started to recover in the second quarter, but it was a little bit lower than I would have thought. Can you talk about the dynamics in the Chinese market? Marc Casper: Yes, China is performing very well. When I think about the growth in the quarter of just under 30%, we’ve got 40% growth in the first half. I spent time with the team, activities have returned to pretty much normal. The five-year plan is being implemented and that has tailwinds for our industry, and Thermo Fisher is well positioned to capitalize also, so I think about China in terms of our outlook and it’s off to a good start through the first half of the year. Derik de Bruin : Got it. I’m going to squeeze two in. I guess the first one is, can you talk a little bit about academic and government and what you’re seeing in that market? That 35% growth, is any of that, do you think, tied to new funding that’s coming up, is there a pick-up or is that just catch-up spending? Then another question I keep getting from people is I still think there’s some concern over the impact of PPD on the margin, given it’s more of a people business than a razor and blade business. Just your general thoughts on the margin opportunity in PPD, thanks. Marc Casper: Yes, so Derik, academic and government had a very good quarter, 35% growth, that’s exciting. As you think about academic and government, obviously it was one of those segments of the four end markets we serve that was very affected last year in 2020 because of the pandemic, and in the second quarter, that’s really the place you saw it the most. What you’re seeing now is largely activity has returned back to normal around the world - I mean, it might be different, but actually the activity level is pretty normal, and what I’m encouraged about is two things . One is widespread in terms of the performance across our businesses - you know, bio sciences, research and safety market channel that talks about activity is very high, and electron microscopy really excellent funding, so it talks about sort of the big capital funding there also was strong. Then when you look going forward, that really does look good because there’s so much positive talk around the world about the funding. Stephen Williamson: Then on PPD, Derik, the margin profile of that whole industry is significantly lower than the company average, and knowing that eyes wide open going into this, the investment thesis in this asset is that margin expansion--we’ll get some margin expansion from cost synergies, but it will be lower than the company average expansion year-over-year but be higher than average growth business. When you think about the growth in operating income dollars, it will be very equivalent to the rest of the company, so it’s just a slightly different P&L profile that we’re bringing into the company and you need to factor that is as you’re thinking about modeling the company going forward. It’s a scale business coming in at lower than the average margins, but that doesn’t change the margin profile or the margin opportunity for the rest of the company and doesn’t change the great outlook that we think PPD has, and we’re excited about bringing it into the company. Operator: Your next question comes from the line of Patrick Donnelly with Citi. Patrick Donnelly: Great, thanks for taking the questions, guys. Marc, maybe one on the specialty diagnostics business - you know, it came in a bit lower than we expected. Obviously a big chunk of that is the COVID testing piece, but can you just talk about the core business trends there, what the recovery path looks like in the back half? Marc Casper: Yes Patrick, thanks for the question. When I look at the specialty diagnostics business, actually underlying what’s going on in the business actually is quite encouraging. Activity levels are pretty much back to the pre-pandemic levels. You see it in really strong growth in our immunodiagnostics business, allergy and autoimmunity. You see it in our transplant diagnostic business. businesses were highly disrupted a year ago when procedures were put on hold, but you also saw good growth in microbiology, you saw it as well in our healthcare market channel, so it’s encouraging. In terms of the--you know, you do see some of the COVID response revenue there as well, and that will have a more challenging comparison in the second half, but I feel good about the underlying outlook within specialty diagnostics. Rafael Tejada: Operator, we have time for one more question. Marc Casper: I think Patrick just--. Patrick Donnelly: Yes, sorry, just a quick one on PPD. I know, Marc, you mentioned second response from the FTC. Just a quick update there in terms of any surprises from what the discussion has been and the confidence level there in getting that done. Thank you. Marc Casper: No, no surprises there. We’re just working through the process and we’ll work collaboratively and look forward to bringing it to a close at the end of the year. Operator, we’ll take one more question. Operator: Your last question will come from the line of Puneet Souda with Leerink. Puneet Souda: Yes, hi Marc, Stephen. Thanks for taking the question. Just a quick clarification for Marc--actually, for Stephen. On the COVID related, a number of points have been covered, but just in terms of the Mesa acquisition, I know you had highlighted a contribution there, maybe closer to $200 million or so. Does that still remain, or was that removed in part of the de-risking that you mentioned? Then Marc, just broadly speaking, you mentioned a number of times Orbitrap platform continues to grow. This has been a decade-plus growth opportunity for the company. Could you, maybe just on a very high level, give us a view on where that stands today and where do you expect that to go over the next few years, and if just given the high growth areas of bio pharma and where its levered to, so I’d appreciate some thoughts there. Thanks so much. Patrick Donnelly: Thanks Puneet. In terms of Mesa, we’re scaling up the manufacturing capacity, we’re working for the longer term as well for building out the menu. It’s a really exquisite technology, so we’re very excited about it, and the revenue assumptions remain the same as where they were last quarter, so from that perspective, very positive. When I look at the Orbitrap, what a phenomenal technology. It continues to drive very good growth for our analytical instruments business, super relevant for our customers, and we’re able to continually push the technology forward to bring out more and more relevant solutions. The most recent launch really is focused on complex small molecule analysis, but you’re also planning on the technology being used in the multi-attribute method for biologics in terms of QAQC, which is a very large market opportunity and we’re well positioned there, so I feel great about the performance of our chrom mass spec business and even more excited about what the future holds there as well. Puneet, thank you for the questions, and I’ll turn to just wrapping it up here. Marc Casper: We really had an excellent first half of the year. We’re on track to deliver another outstanding year and we’re going to enter 2022 with great momentum that sets us up for a very bright future, and we’re looking forward to sharing more about our future during our virtual analyst day on September 17, and of course then updating you in October on our Q3 call. As always, thank you for your ongoing support of Thermo Fisher Scientific. Thanks everyone.
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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.