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Thermo Fisher (TMO) Beats on Q2 Earnings, Ups '18 EPS View

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Thermo Fisher (TMO) Beats on Q2 Earnings, Ups '18 EPS View

Thermo Fisher (TMO) is performing well on the back of a series of product launches along with major progress in precision medicine initiatives.

Thermo Fisher Scientific Inc. TMO reported better-than-expected performance in second-quarter 2018. Adjusted earnings per share (EPS) came in at $2.75, beating the Zacks Consensus Estimate by 4.6% and the year-ago quarterly figure by 19.6%. On a reported basis, the EPS of $1.85 marked an 18.6% increase year over year.

Revenues in the quarter under review logged $6.08 billion, up 21.8% year over year. The top line also outpaced the Zacks Consensus Estimate of $5.92 billion.

Quarter in Detail

Organic revenues in the reported quarter grew 8% year over year while acquisitions drove revenues by 12%. Currency translation positively influenced total revenues by 2%.

Thermo Fisher operates under four business segments: Life Sciences Solutions, Analytical Instruments, Specialty Diagnostics and Laboratory Products and Services.

Revenues at the Life Sciences Solutions segment (25.8% of total revenues) improved 12% year over year to $1.57 billion while Analytical Instruments Segment sales (21.5%) rose 13% to $1.31 billion.

Thermo Fisher Scientific Inc. Price, Consensus and EPS Surprise

Thermo Fisher Scientific Inc. Price, Consensus and EPS Surprise | Thermo Fisher Scientific Inc. Quote

Revenues at the Laboratory Products and Services segment (41.9%) surged 42% to $2.55 billion, banking on the buyout of Patheon in last August. The Specialty Diagnostics segment (15.2%) recorded an 8% rise to $0.93 billion.

Gross margin of 47.2% during the second quarter was down 117 basis points (bps) year over year despite an 18.9% improvement in gross profits. Adjusted operating margin contracted 11 bps to 22.9% despite a 21.2% rise in operating profit.

The company exited the second quarter of 2018 with cash and cash equivalents of $937 million compared with $950 million at the end of the first quarter. As of Jun 30, 2018, net cash provided by operating activities was $1.52 billion compared with $1.21 billion in the year-ago period.

2018 Guidance

Based on a solid first-half operational performance and a more favorable foreign exchange environment, Thermo Fisher has raised its earnings projection and the lower-end of its 2018 revenue outlook. Revenues are expected in the range of $23.68-$23.86 billion (compared with the company's earlier predicted band of $23.62-$23.86 billion), enhancing 13-14% revenue growth from the year-ago period. The Zacks Consensus Estimate of $23.76 billion remains within the guided range.

Adjusted EPS view has been lifted to a new band of $10.89-$11.01 (compared with the previous forecast of $10.80-$10.96), reflecting 15-16% growth from the year-earlier period. The Zacks Consensus Estimate of $10.90 per share falls within but near the lower end of the company's view.

Bottom Line

Thermo Fisher ended the second quarter on a promising note with both adjusted earnings and revenues surpassing the consensus mark.

We are encouraged by the company's solid international performance with strong year-over-year growth in Asia-Pacific and the emerging markets including China.

Also, a series of product launches along with major progress in precision medicine initiatives aided the company's performance. In the quarter under consideration, the company launched a suite of new mass spectrometry systems for life sciences and applied markets as well as a lineup of new products for clinical research and diagnostics including the Ion Torrent Oncomine Childhood Cancer Research Assay and the Thermo Scientific B.R.A.H.M.S. Kryptor Gold immunoassay analyzer in Europe. The company is currently upbeat about its agreement to acquire Gatan, which per Thermo Fisher, is going to complement its electron microscopy business.

Moreover, adding a substantial impetus to the company's value proposition for biopharma customers, the Patheon buyout has already started to prove accretive to the company's laboratory products portfolio as well as its services segment.

Zacks Rank & Key Picks

Thermo Fisher has a Zacks Rank #4 (Sell).

A few better-ranked stocks in the broader medical space are Insulet Corporation PODD, ABIOMED, Inc. ABMD and Illumina, Inc. ILMN.

Insulet is expected to release second-quarter fiscal 2018 results on Aug 2. The Zacks Consensus Estimate for the quarterly loss per share is pegged at 13 cents and for revenues at $132.9 million. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ABIOMED is expected to release first-quarter 2019 results on Jul 26. The Zacks Consensus Estimate for adjusted EPS stands at 80 cents and for the top line at $171.9 million. The stock carries a Zacks Rank of 2.

Illumina is slated to release second-quarter 2018 results on Jul 30. The Zacks Consensus Estimate for bottom line per share is pegged at $1.11 and for revenues at $787.7 million. The company is a Zacks #1 Ranked player.

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