Thermo Fisher Scientific
) reported adjusted earnings per share ("EPS") of $1.22 in the
second quarter of fiscal 2012, surpassing the Zacks Consensus
Estimate of $1.16 and the adjusted EPS of 99 cents in the year-ago
Revenues increased 9% year over year to reach $3.10 billion
during the quarter, nominally higher than the Zacks Consensus
Estimate of $3.05 billion based on overall growth across the
diverse segments. Revenue growth on a pro forma basis (considering
Dionex and Phadia acquisitions were owned for the entire second
quarter in both years) was 1%. There was a 1% tailwind from
acquisitions other than Dionex and 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 $1.00 billion
(8% annualized growth), $732 million (up 28%) and $1.52 billion (up
2%), during the quarter, respectively.
Gross margin expanded 220 basis points (bps) to 44.2% during the
quarter. In addition, Thermo Fisher witnessed a 110 bps increase in
adjusted operating margin to 19% while net margin also increased by
the same magnitude to 14.5%. The improvement in operating margin
reflects the company's initiatives over the recent past to keep the
cost structure lean. Adjusted figures exclude amortization of
acquisition-related intangible assets and other acquisition-related
costs, restructuring costs and related tax benefits.
While revenues increased 9% during the quarter, Thermo Fisher's
adjusted EPS saw a higher rate of increase (23%) driven by
improvement in operating margin and a 4.3% decline in the share
count, partially offset by 47.6% higher net interest expenses.
The company exited the quarter with cash and cash equivalents of
$732.3 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. During the quarter, the company acquired Doe &
Ingalls to expand its presence in the production market. Last week,
the company decided to acquire California-based One Lambda, the
global leader in the filed of transplant diagnostics, for $925
million in cash. For now, the transaction will be funded partly by
the company's existing cash balance and through new debt
During the reported quarter, the company deployed $100 million
to repurchase 2 million shares and announced an additional $500
million of stock repurchase authorization (in July), through
Last month, in an effort to exit a non-core business, Thermo
Fisher had decided to sell its laboratory workstations business, a
part of its Laboratory Products and Services segment. The
transaction is expected to be completed within 12 months.
Accordingly, result from this segment has been treated as
discontinued operation during the reported quarter.
The company revised its fiscal 2012 guidance to reflect the
divestiture, the acquisition of Doe & Ingalls and unfavorable
currency movement. As a reminder, at the end of the first quarter,
the company had raised its outlook for fiscal 2012 primarily due to
favorable currency movement.
The company now expects to report revenues of $12.14−$12.26
billion (previous guidance of $12.27−$12.43 billion). However, the
outlook for adjusted EPS has been raised to $4.74−$4.84
($4.71−$4.83), resulting in 14−16% (13−16%) growth. Apart from the
above mentioned factors, increased stock repurchase authorization
led the company to raise its EPS outlook. The current Zacks
Consensus Estimate of $4.78 for EPS is within the guided range
though the consensus revenue estimate of $12.36 billion is higher
than the company's guidance.
We are encouraged by Thermo Fisher's performance in the second
quarter with both revenues and EPS sailing past the respective
Zacks Consensus Estimates. Unfavorable currency movement was a
major headwind during the quarter. Bracing several headwinds,
players in the life science tools segment such as
) have resorted to cost control, new product launches and a
re-focus on emerging markets to drive growth.
We currently have a Neutral recommendation on Thermo Fisher over
the long term. The stock retains a Zacks #3 Rank (Hold) in the
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