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Thermo Fisher (TMO) Beats on Q3 Earnings, Lifts Guidance

Zacks Equity Research

Thermo Fisher Scientific Inc.'s TMO third-quarter 2019 adjusted earnings per share (EPS) came in at $2.94, beating the Zacks Consensus Estimate by 2.1%. The figure also improved from the year-ago quarterly figure by 12.2%. On a reported basis, EPS was $1.88, up 7.4% year over year.

Revenues in the quarter under review grossed $6.27 billion, up 5.9% year over year. The top line also beat the Zacks Consensus Estimate by 1.3%.

Quarter in Detail

Organic revenues in the reported quarter grew 7% year over year while currency translation affected total revenues by 1%.

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 (27.1% of total revenues) improved 13.3% year over year to $1.70 billion while Analytical Instruments Segment sales (21.7%) edged up 2.3% to $1.36 billion.

Thermo Fisher Scientific Inc. Price, Consensus and EPS Surprise

 

Thermo Fisher Scientific Inc. Price, Consensus and EPS Surprise

Thermo Fisher Scientific Inc. price-consensus-eps-surprise-chart | Thermo Fisher Scientific Inc. Quote

Revenues at the Laboratory Products and Services segment (41.8%) rose 6.1% to $2.62 billion. The Specialty Diagnostics segment (14%) recorded a 1.1% drop from the year-ago quarter to $0.88 billion.

Gross margin of 46% during the third quarter contracted 22 basis points (bps) year over year despite a 5.4% rise in gross profits. Adjusted operating margin for the quarter came in at 22.5%, reflecting an expansion of 27 bps.

The company exited the third quarter of 2019 with cash and cash equivalents of $1.27 billion, compared with $2.29 billion in the second quarter. Year to date, net cash provided by operating activities was $3.06 billion compared with $2.74 billion a year ago.

2019 Guidance

Banking on an improvement in operational performance, Thermo Fisher has raised its 2019 revenue and earnings guidance.

Revenue guidance has been raised to $25.34-$25.50 billion from the earlier-provided $25.30-$25.50 billion, indicating revenue growth of 4% to 5% from 2018. The Zacks Consensus Estimate of $25.43 billion is within the guided range.

Adjusted EPS guidance for 2019 has also been raised to $12.28 to $12.34 (previous range was $12.16 to $12.26), suggesting 10% to 11% growth from 2018. The Zacks Consensus Estimate of $12.25 falls below the guided range.

Bottom Line

Thermo Fisher ended the third quarter of 2019 on a solid note with both EPS and revenues beating the Zacks Consensus Estimate. We are encouraged that three of its four business segments witnessed strong year-over-year revenue growth.

During the reported quarter, the company launched a range of products like the TSQ Altis, the Quantis MD mass spectrometers and the Vanquish MD HPLC for clinical diagnostic laboratories. The company also broadened its global market reach by setting up a Biosciences Customer Exploration Center in Shanghai and expanding its clinical trials logistics facility in Suzhou. We are looking forward to the recently-completed acquisition of an active pharmaceutical ingredient manufacturing facility in Cork, Ireland, of GlaxoSmithKline. Meanwhile, adjusted operating loss during the quarter is concerning.

Zacks Rank and Key Picks

Thermo Fisher currently has a Zacks Ranks #3 (Hold).

A few better-ranked stocks in the broader medical space are Mckesson MCK, ResMed RMD and Syneos Health SYNH. While  ResMed has a Zacks Rank #1 (Strong Buy), the other two carry a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for ResMed’s first-quarter fiscal 2020 revenues is pegged at $657.2 million, calling for a year-over-year increase of 11.7%. The same for adjusted EPS stands at 87 cents, indicating an increase of 7.4% from the year-ago reported figure.

The Zacks Consensus Estimate for Syneos’ third-quarter fiscal 2019 revenues is pegged at $1.18 billion, suggesting 6.03% growth from the prior-year reported figure. The same for adjusted earnings per share stands at 72 cents, implying a 5.3% improvement from the year-ago reported number.

The Zacks Consensus Estimate for McKesson’s second-quarter fiscal 2020 revenues is pegged at $54.94 billion, suggesting 3.5% growth from the prior-year reported figure. The same for adjusted EPS stands at $3.59.

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