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Thermo Fisher (TMO) Tops Q2 Earnings & Revenues, View Up

Thermo Fisher Scientific Inc. TMO reported better-than-expected performance in second-quarter 2017. Adjusted EPS came in at $2.30, beating the Zacks Consensus Estimate by 1.8% and the year-ago quarter figure by 13.0%.

On a reported basis, second-quarter EPS of $1.56 marked a 20% year-over-year rise.

Revenues in the quarter came in at $4.99 billion, up 10% year over year. Sales also exceeded the Zacks Consensus Estimate of $4.91 billion by 1.6%.

Quarter in Detail

Organic revenues in the second quarter grew 4% year over year and up 8% on the back of acquisitions. Total revenue grew 1%, offset by currency translation.

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

Revenues at the Life Sciences Solutions segment improved 3% year over year to $1.40 billion while Analytical Instruments Segment sales grew 47% to $1.17 billion, reflecting the acquisition of FEI Company. Revenues at the Laboratory Products and Services segment grew 4% to $1.79 billion, while the Specialty Diagnostics segment recorded a 1% increase to $862 million.

Thermo Fisher Scientific Inc Price, Consensus and EPS Surprise

 

Gross margin of 48.3% during the second quarter was up 10 basis points (bps) year over year on a 10.3% rise in gross profits. Adjusted operating margin expanded approximately 80 bps to 23.1% despite a 4.3% rise in selling, general and administrative expenses and 21.5% increase in research and development expenses.

The company exited the second quarter with cash and cash equivalents of $611.0 million, compared with $713.3 million at the end of the previous quarter. Year-to-date net cash provided by operating activities was $1.21 billion, compared with $1.25 billion in the year-ago period.

Guidance Raised

Backed by a solid second-quarter performance and a less adverse foreign exchange environment forecast, Thermo Fisher raised its full-year 2017 financial guidance. The revenue guidance has been raised to a range of $19.71–$19.89 billion (growth of 8% to 9% from the previous year) from the earlier band of $19.51–$19.71 billion. The current Zacks Consensus Estimate of $19.65 billion is close to the low end of the guided range.

The company has also raised its adjusted EPS guidance to a range of $9.15 to $9.28, reflecting growth of 11% to 12% from the previous year (earlier prediction was $9.12 to $9.28). The Zacks Consensus Estimate of $9.23 per share is also near the low end of the band.

Patheon Acquisition Deal

In a parallel announcement, the company informed about entering into a definitive agreement to acquire Patheon N.V. and thereby paving its way into the contract development and manufacturing organization (CDMO) market.  The total transaction value is estimated to be roughly $7.2 billion, which includes the assumption of approximately $2.0 billion of net debt. Apart from strengthening the biopharmaceutical offerings per management, this deal is also expected to be immediately and considerably accretive to Thermo Fisher's adjusted EPS by $0.30 in the first full year after close. 

Bottom Line

Thermo Fisher ended the second quarter on a promising note with both adjusted earnings and revenues beating the Zacks Consensus Estimate.

We are encouraged by the company’s series of product launches along with major progress in precision medicine initiatives. Thermo Fisher’s acquisition of FEI Company has already started to boost its analytical instruments portfolio. The company also opened Center of Excellence for electron microscopy in Saudi Arabia. Management is upbeat about the company gaining entry into the CDMO market through the agreement to acquire Patheon for $7.2 billion. The raised guidance is all the more encouraging indicating the fact that this overall bullish trend will continue through 2017.

Zacks Rank & Other Key Picks

Currently, Thermo Fisher carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks worth considering in the broader medical sector are PetMed Express, Inc.PETS, Becton, Dickinson and Company BDX and Quest Diagnostics Inc. DGX. Notably, PetMed sports a Zacks Rank #1 (Strong Buy), while Becton, Dickinson and Company and Quest Diagnostics carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed has a long-term expected earnings growth rate of 10.00%. The stock has gained around 21.1% over the last month.

Becton, Dickinson and Company has a long-term expected earnings growth rate of 11.25%. The stock has gained around 4.8% over the last month.

Quest Diagnostics has a long-term expected earnings growth rate of 8.39%. The stock has gained around 16.7% over the last six months.

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