Thermo Fisher Scientific
(
TMO
) reported earnings per share (
EPS
) of 75 cents in the first quarter of fiscal 2012 compared with 64
cents in the year-ago quarter. After taking into account certain
one-time items, adjusted EPS came in at $1.17, above the Zacks
Consensus Estimate of $1.11 and the adjusted EPS of 92 cents in the
year-ago period.
Revenues increased 14% year over year to reach $3.1 billion
during the quarter, higher than the Zacks Consensus Estimate of
$2.98 billion based on strong demand for analytical instruments and
strength in the biopharma services business. Revenue growth on a
pro forma basis (considering Dionex and Phadia acquisitions were
owned for the entire first quarter in both years) was 4%. There was
a 1% tailwind from acquisitions other than Dionex and Phadia
negated by a 1% 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
(21% annualized growth), $729 million (up 27%) and $1.51 billion
(up 4%), during the quarter, respectively.
Gross margin expanded 100 basis points (bps) to 43.4% during the
quarter. In addition, Thermo Fisher witnessed a 90 bps increase in
adjusted operating margin to 18.5% while net margin increased only
70 bps to 14%. Adjusted figures exclude amortization of
acquisition-related intangible assets and other acquisition-related
costs, restructuring costs and related tax benefits.
While revenues increased 14% during the quarter, Thermo Fisher's
adjusted EPS saw a higher rate of increase (27%) driven by
improvement in operating margin and a 6.2% decline in the share
count, partially offset by higher net interest expenses ($57.7
million compared with $27.8 million in the year-ago quarter).
The company exited the quarter with cash and cash equivalents of
$788.3 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. Thermo Fisher spent $300 million to buy back 6 million
shares during the quarter and initiated a quarterly dividend of 13
cents per share.
Guidance
Thermo Fisher raised its outlook for fiscal 2012 primarily due to
favorable currency movement. The company now expects to report
revenues of $12.27−$12.43 billion (previous guidance of
$12.15−$12.35 billion), representing growth of 5−6% (4−5%) and
adjusted EPS of $4.71−$4.83 ($4.67−$4.82), resulting in 13−16%
(12−16%) growth. The current Zacks Consensus Estimate of $4.76 in
EPS with revenues of $12.312 billion is within the company's
guidance.
Recommendation
We are encouraged by Thermo Fisher's performance in the first
quarter with both revenues and EPS sailing past the respective
Zacks Consensus Estimates. This is all the more commendable as
players in the life science tools segment experienced difficult
times over the last few quarters due to the challenging economic
uncertainty especially in the government and academic markets.
Bracing several headwinds, players in the life science tools
segment have resorted to cost control, new product launches and a
re-focus on emerging markets to drive growth. These strategies are
yielding palpable results as seen in the first-quarter numbers from
Thermo Fisher and its peer
Life Technologies Corporation
(
LIFE
). Life Technologies released upbeat numbers yesterday after market
close.
Besides, a strong cash position has enabled the company to look
for suitable acquisitions; the most significant in recent times are
Phadia and Dionex. Thermo Fisher's expansion in high growth
emerging markets led to strong double-digit performance in China,
India and Brazil during the quarter. The stock retains a Zacks #2
Rank (Buy) in the short term.
Although the current economic environment has stabilized to some
extent, we prefer to hold a cautious view for the time being. We
currently have a Neutral recommendation on Thermo Fisher over the
long term.
LIFE TECHNOLOGS (
LIFE
): Free Stock Analysis Report
THERMO FISHER (
TMO
): Free Stock Analysis Report
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