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What's in Store for Thermo Fisher (TMO) in Q3 Earnings?

Zacks Equity Research

Thermo Fisher Scientific Inc. TMO is slated to release third-quarter 2019 results on Oct 23, before the market opens. In the last reported quarter, it posted a positive earnings surprise of 1%. The company reported better-than-expected earnings in all of the trailing four quarters, the average being +2.05%.

Let's discuss the factors that are likely to get reflected in the upcoming quarterly results.

Key Catalysts

In the past few quarters, Thermo Fisher has witnessed strong revenue growth and improvement in earnings performance. However, the company witnessed a data center outage just before the second quarter ended, which is expected to have affected its performance in the third quarter results.

Thermo Fisher Scientific Inc. Price and EPS Surprise

 

Thermo Fisher Scientific Inc. Price and EPS Surprise

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

The outage mainly affected revenue generation of the Analytical Instruments business, apart from negatively impacting Specialty Diagnostics and Lab Products and Services. Due to this, there has been a shift in the timing of revenue recognition from the second to the third quarter. This is likely to have impacted the company’s earnings in the third-quarter.

We are upbeat about the addition of three systems — Vanquish MD High Performance Liquid Chromatography (HPLC), TSQ Altis MD Series mass spectrometer and Quantis MD Series mass spectrometer (all three now listed as Class I medical devices with the FDA) — in the analytical instruments segment. This, while improving the company’s comprehensive platform for developing sensitive and reliable laboratory developed tests (LDTs), is likely to have aided its performance in the third quarter.

The Zacks Consensus Estimate for analytical instruments’ revenues is pegged at $13.88 billion for the third quarter, suggesting an increase of 4.12% from the year-ago quarter’s reported figure.

Robust performances of bioproduction, biosciences and clinical next-generation sequencing businesses are expected to have aided solid revenue growth for the life science solutions segment in the third quarter.

This apart, the addition of Brammer Bio (a leader in viral vector manufacturing for gene and cell therapies) is likely to have contributed significantly to the company’s top line in the third-quarter by expanding its offering in the fast-growing gene therapy market.

However, the life science solutions segment recently faced headwinds from unfavorable business mix. This might have affected the company’s performance in the third-quarter.

The Zacks Consensus Estimate for life science solutions’ revenues is pegged at $16.32 billion for the third-quarter, suggesting an increase of 8.51% from the year-ago quarter’s reported number.

Within specialty diagnostics (“SD”), Thermo Fisher launched a slew of products, which is likely to have a positive impact on the company’s performance in the third quarter. The launch of products — including HAAKE Viscotester 3 Rotational Viscometer, Thermo Scientific Avizo2D software and Spectra scanning/transmission electron microscope (S/TEM) — are expected to have driven revenue growth in the third quarter.

The Zacks Consensus Estimate for SD’s revenues is pegged at $868 million for the third quarter, suggests a decline of 2.91% from the year-ago quarter’s reported figure.

Other Factors Likely to Influence Q2

Turning to pharma and biotech, the company witnessed strong growth in the second-quarter, backed by consistent strength in all end markets, with a wide range of products and services. This is expected to have continued in the third-quarter.

The company is making efforts to expand capabilities across the rapidly-growing Asia Pacific belt and emerging markets. Similar to the last-reported quarter, these are expected to get reflected in the third quarter. Outside the United States, the company’s largest market lies in China and it has taken measures to sustain the momentum in this market in the third quarter. The company’s commercial infrastructure in China is likely to have aided growth in the third quarter.

However, Thermo Fisher is apprehensive about negative impacts of foreign-exchange fluctuation, which are likely to have negatively impacted third-quarter revenues.

Which Way Are Estimates Treading?

The Zacks Consensus Estimate for total revenues of $6.19 billion suggests growth of 4.55% from the prior-year quarter’s reported figure. Also, the consensus mark for earnings per share is pegged at $2.88, indicating 9.92% rise from the year-ago quarter's reported figure.

What Our Quantitative Model Predicts

Our proven model, does not conclusively predict an earnings beat for Thermo Fisher this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat But that is not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Thermo Fisher has an Earnings ESP of -0.59%.

Zacks Rank: Thermo Fisher currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks Worth a Look

Here are a few medical stocks worth considering, as these have the right combination of elements to post an earnings beat this quarter.

Addus HomeCare Corporation ADUS has an Earnings ESP of +0.69% and a Zacks Rank #1.

Alexion Pharmaceuticals, Inc ALXN has an Earnings ESP of +1.31% and a Zacks Rank #2.

Assembly Biosciences, Inc ASMB has an Earnings ESP of +20.43% and a Zacks Rank #1.

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