Thermo Fisher Scientific
) reported adjusted earnings per share ("EPS") of $1.37 in the
first quarter of fiscal 2013. This was 6.2% ahead of the Zacks
Consensus Estimate of $1.29 and surpassed the year-ago adjusted
EPS by 17.1%. Amid a challenging global economic environment, the
company is encouraged with this performance and expects to
continue with this growth momentum for the rest of 2013.
Revenues increased 4% year over year to reach $3.19 billion
during the quarter, higher than the Zacks Consensus Estimate of
$3.17 billion, based on 3% organic growth.
Thermo Fisher reports revenues under three segments -
Analytical Technologies, Specialty Diagnostics, and Laboratory
Products and Services. These three segments recorded revenues of
$978 million (0.2% annualized growth), $806 million (up 10%) and
$1.54 billion (up 5%), during the first quarter,
Gross margin contracted 36 basis points (bps) to 43.6% during
the quarter. However, Thermo Fisher witnessed a 7.7% increase in
adjusted operating income for the first quarter of 2013 to $600.6
million leading to an adjusted operating margin of 18.8%, up 58
bps year over year. Adjusted figures exclude amortization of
acquisition-related intangible assets and restructuring costs and
related tax benefits.
The company exited the fiscal with cash and cash equivalents
of $1.0 billion compared with $851 million at the end of Dec
2012. A strong cash balance helps the company pursue suitable
acquisitions or reward its shareholders through share buybacks.
During the reported quarter, the company deployed $90 million to
repurchase 1.3 million shares.
Life Technologies Acquisition
Earlier this month, Thermo Fisher disclosed that it will
) for roughly $13.6 billion (or $76 per share), plus the
assumption of Life Technologies' net debt ($2.2 billion as of
Life Technologies preferred Thermo Fisher as a potential buyer
against the consortium of private equity firms. Thermo Fisher was
not willing to lose its chance to become an unparalleled industry
leader to other potential buyers.
From the financial perspective, the buyout is expected to be
immediately accretive to Thermo Fisher's adjusted earnings by 90
cents to $1.00 within the first full year of the takeover.
Further, the acquisition is expected to create significant cost
and revenue synergies for the company with adjusted operating
income synergies of $85 million in the first year.
Within three years of completion of the acquisition, Thermo
Fisher envisages adjusted operating income synergy of $275
million, comprising $250 million and $25 million of cost and
revenue synergies, respectively. Apart from strong cash flow, the
company also expects adjusted return on invested capital (ROIC)
to surpass the cost of capital by the fourth year.
Thermo Fisher expects to close the acquisition in early 2014,
subject to standard closing conditions and Life shareholder vote.
The total price of the purchase of $13.6 billion includes cash
and debt of $9.5-$10.0 billion and as much as $4.0 billion in
Accordingly, Thermo Fisher provided an update to its fiscal
2013 guidance. The company tightened its revenue guidance to
$12.84−$13.00 billion from the earlier $12.80−$13.00 billion
reflecting annualized growth rate of 3%−4%.
The company also expects adjusted EPS in the band of
$5.27−$5.39 from earlier provided range of $5.32−$5.46 for 2013.
This will result in annualized growth rate of 7%−9% (earlier
range being 8%−11%). The lowering of EPS guidance reflects its
decision to suspend share buybacks for the rest of the year and
tighten its revenue guidance range. The 2013 guidance does not
include the effect of the proposed acquisition of Life
Technologies or the impact of related financing activities.
The current Zacks Consensus Estimates for EPS $5.41 falls
outside the guided range. The current revenue estimate of $12.98
billion, however, is within the projected range.
For most of the last 7 years, Thermo Fisher has supported its
business momentum by acquiring several entities. Nevertheless,
the acquisition of Life Technologies is the biggest ever deal for
Thermo Fisher, since its inception in 2006. This acquisition has
helped the company prove its strength to continue with
acquisitions and grow further.
Given Life Technologies' expansive line of consumables for
genomic, and molecular and cell biology, the buyout will
complement Thermo Fisher's market-leading portfolio of analytical
technologies and specialty diagnostic. The takeover will
seamlessly strengthen Thermo Fisher's global foothold and
The acquisition will create a kingpin in the research,
specialty diagnostics and applied markets. As per management at
Thermo Fisher, the acquisition supports its three-pronged growth
strategy of technological innovation, a unique customer value
proposition and expansion in emerging markets.
In addition, substantial expansion in the Asia-Pacific market,
mainly China, is in the cards for the company. Given the huge
potential in the region and high growth rate in China, Thermo
Fisher is likely to exceed its goal of garnering 25% revenues
from the high-growth Asia-Pacific region and emerging markets by
Thermo Fisher retains a Zacks Rank #3 (Hold). Medical devices
stocks such as
Health Net Inc.
), which carry a Zacks Rank #1 (Strong Buy) are worth
CYBERONICS INC (CYBX): Free Stock Analysis
HEALTH NET INC (HNT): Free Stock Analysis
LIFE TECHNOLOGS (LIFE): Free Stock Analysis
THERMO FISHER (TMO): Free Stock Analysis
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