Having completed a full quarter post the Life Technologies
acquisition, Thermo Fisher posted a better-than-expected second
quarter with adjusted EPS of $1.72 and revenues of $4.32 billion,
both ahead of the respective Zacks Consensus Estimate of $1.62 and
$4.24 billion. The results also sailed past the year-ago numbers.
The company is on track with the integration process and expects to
achieve $100 million in synergies in 2014, up from the $85 million
originally anticipated. This buyout is expected to complement
Thermo Fisher's portfolio of analytical technologies and specialty
diagnostics. However, in a challenging market environment, mere 3%
organic growth remains a concern. Moreover, economic uncertainties
and currency headwinds continue to act as dampeners. We are thus
Neutral' on the stock.
Headquartered in Waltham, MA, Thermo Fisher Scientific Inc.
(TMO) is a scientific instrument maker and a world leader in
serving science. Thermo Fisher was incorporated in 1956 as Thermo
Electron Corporation. In Nov 2006, Thermo Fisher Scientific, Inc.
was formed through the merger of Thermo Electron Corporation with
Fisher Scientific International Inc.
On Feb 3, 2014, Thermo Fisher announced the much-anticipated
completion of the acquisition of Life Technologies Corporation. The
acquisition was closed on payment of approximately $13.6 billion in
cash, along with the assumption of $1.5 billion in net debt.
Following the acquisition, Thermo Fisher made changes in its
reporting segments Per the changes, effective from Jan 1, 2014, the
new segments are:
Life Sciences Solutions Segment: This is the new segment added
by the company post the acquisition of Life Technologies. It
incorporates majority of the former Life Technologies and Thermo
Fisher's Biosciences businesses. Although the segment has been only
recently added, the company has reported the results on a pro forma
Analytical Instruments: Formerly known as Analytical Technology,
this segment has been renamed in order to reflect the transfer of
the bioprocess production business to the newly formed Life
Sciences Solutions Segment post the takeover of Life Technologies.
This segment caters majorly to industrial and applied markets.
Specialty Diagnostics (SD): This segment, formed after the
acquisition of Phadia, serves customers in healthcare and clinical
laboratories with a portfolio of diagnostic test kits, reagents and
instruments used to increase the speed and accuracy of diagnoses to
improve patient care. The segment also includes the company's
healthcare market customer channel consisting of catalog,
e-commerce and direct sales. This segment has six primary
businesses Immuno Diagnostics, Clinical Diagnostics, Transplant
Diagnostics, Microbiology, Anatomical Pathology and Healthcare
Market Channel. Post-acquisition, management has incorporated the
two small Specialty Diagnostics businesses within Life Technologies
into the Specialty Diagnostics segment of Thermo Fisher.
Laboratory Products and Services (LPS): This segment serves
laboratory customers with equipment and consumables that improve
productivity and a range of BioPharma outsourcing services such as
clinical trials management and logistics. This segment also
includes the company's research and safety market customer channels
consisting of catalog, e-commerce and direct sales.
Post-acquisition, Thermo Fisher's Global Chemicals business has
moved from the Biosciences business to the Laboratory Products and
End market review
Thermo Fisher derives its revenues from four end-markets
Industrial/Applied, Pharma and Biotech, Healthcare and
Government/Academic. The Academic/Government market has gone down
slightly in the first quarter of 2014 and thus continues to be a
headwind for some segments. On the other hand, in two of the end
markets Industrial/Applied and Healthcare and Diagnostics Thermo
Fisher experienced some improved market conditions in the first
quarter. Applied markets were led by demand for chromatography
systems. In pharma and biotech, the company experienced high
single-digit growth in the first quarter as well.
Management continues to expect a rise of 50 basis points (bps)
each in Academic/Government and Industrial/Applied in the near term
as a result of modestly stronger end markets. However, management
expects this rise to be partially offset by 100 bps approximately
due to lower contribution from Pharma and Biotech which has been
experiencing a growth rate in high-single digits for the last 2
years. However, a growth rate of mid-single digits based on Thermo
Fisher's strong value proposition is still expected in the Pharma
and Biotech end market. The company is also expecting a nominal
amount of dilution from the acquisition-related divestitures which
are growing faster than the company average.
Thermo Fisher Scientific, Inc. (TMO): Read the Full
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