Thermo Fisher Scientific
) reported adjusted earnings per share ("EPS") of $1.19 in the
third quarter of fiscal 2012, surpassing the Zacks Consensus
Estimate of $1.16 and the adjusted EPS of $1.07 in the year-ago
Revenues increased 5% year over year to reach $3.09 billion
during the quarter, higher than the Zacks Consensus Estimate of
$2.99 billion based on overall growth across the diverse
segments. Revenue growth on a pro forma basis (considering Phadia
acquisition was owned for the entire third quarter in both years)
was 4%. There was a 1% tailwind from acquisitions other than
Phadia negated by a 3% impact from currency translation.
Thermo Fisher reports revenues under three segments -
Analytical Technologies, Specialty Diagnostics and Laboratory
Products and Services. These three segments recorded revenues of
$1.01 billion (1% annualized growth), $707 million (up 15%) and
$1.51 billion (up 5%), during the quarter, respectively.
Gross margin expanded 68 basis points (bps) to 43.86% during
the quarter. In addition, Thermo Fisher witnessed a 5% increase
in adjusted operating income for the third quarter 2012 to $575.7
million leading to an adjusted operating margin of 18.7%, flat
year over year. Adjusted figures exclude amortization of
acquisition-related intangible assets and other
acquisition-related costs, restructuring costs and related tax
The company exited the quarter with cash and cash equivalents
of $832.2 million compared with $1,016.3 million at the end of
December 2011. A strong cash balance helps the company to pursue
suitable acquisitions or reward its shareholders through share
buybacks. During the quarter, the company acquired global
transplant diagnostics major One Lambda, in order to strengthen
its offering of in vitro specialty diagnostics for improving
patient care for $925 million in cash.
During the reported quarter, the company deployed $400 million
to repurchase 7.1 million shares.
Based on a strong third quarter performance along with
completion of One Lambda acquisition and improved foreign
exchange, Thermo Fisher raised its fiscal 2012 guidance. The
company now expects to report revenues of $12.32−$12.40 billion
(previous guidance was $12.14−$12.26 billion) reflecting
annualized growth of 7%.
The outlook for adjusted EPS has also been raised to
$4.81−$4.88 ($4.74−$4.84), resulting in 16−17% (14−16%) growth.
The current Zacks Consensus Estimate of $4.81 for EPS is falling
at the lower level of the guided range though the consensus
revenue estimate of $12.26 billion is way below the company's
We are encouraged by Thermo Fisher's performance in the third
quarter with both revenues and EPS sailing past the respective
Zacks Consensus Estimates. We are optimistic about the company's
continuous acquisition spree which includes the recent ones like
One Lambda, Dionex and Phadia, which are expected to strengthen
the company's product portfolio and provide better access to
regions with strong potential.
We believe that the acquisition of One Lambda, with strong
operating margin should also benefit the company and be accretive
to earnings in 2013.
The company's strong cash position enables it to make suitable
acquisitions, or repurchase shares, thereby improving the bottom
line further. Moreover, after a period of unfavorable currency
movement, the company heaved a sigh of relief with a slight
improvement in foreign exchange during the quarter. Thermo Fisher
operates in a fiercely competitive market with peers like
We currently have a Neutral recommendation on Thermo Fisher
over the long term. The stock retains a Zacks #2 Rank (Buy) in
the short term.
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