Thermo Fisher Scientific (TMO) reported an EPS of 57 cents in the second quarter of 2010 compared to 49 cents in the year-ago period. However, after adjusting for certain one-time items, the EPS was 84 cents, meeting the Zacks Consensus Estimate and 14% higher than the second quarter of 2009.
The company reported revenues of $2.65 billion, up 7% compared to the year-ago quarter. Acquisitions had a positive impact of 3% on revenues while unfavorable foreign exchange (forex) movement brought down revenues by 1%. Reported revenues narrowly missed the Zacks Consensus Estimate of $2.67 billion.
Thermo Fisher’s two segments – Analytical Technologies and Laboratory Products and Services recorded revenues of $1.10 billion (10% annualized growth) and $1.68 billion (5%), respectively.
Thermo Fisher witnessed an expansion in margins in the first quarter. Gross margin increased 112 basis points (bps) year-over-year to 42.12%. Adjusted operating and net margins increased 80 bps and 60 bps year-over-year to 17.6% and 13.2%, respectively. Adjusted figures exclude amortization of acquisition-related intangible assets and other acquisition-related costs; restructuring costs and related tax benefits.
Thermo Fisher has grown through several acquisitions, the latest being Fermentas International, a manufacturer and global distributor of enzymes, reagents and kits for molecular and cellular biology research. The acquisition, completed earlier this month, will enable the company to expand its offering in the field of genomics research and polymerase chain reaction based testing. Moreover, Thermo Fisher has developed new screening methods to help laboratories analyze seafood from the Gulf of Mexico for oil contamination.
The company exited the second quarter with cash and cash equivalents of $1.3 billion, down from $1.6 billion at the end of December 2009. Supported by a strong cash balance, $187 million worth of shares were repurchased during the quarter.
Guidance
A strong quarter ensures that Thermo Fisher will be able to meet its earnings growth outlook for 2010. The company maintained its adjusted EPS guidance of $3.40-$3.50, representing a growth of 11% – 15% over 2009. However, unfavorable forex movement forced Thermo Fisher to lower its revenue guidance to $10.60-$10.75 billion, down from the previous guidance of $10.65-$10.80 billion. This represents a growth of 5%-6% over 2009.
After a drop in revenues during 2009, Thermo Fisher is back on the growth trajectory. A gradual improvement in the economic scenario along with its focus on emerging markets with strong potential should drive its top line in the forthcoming period. However, any kind of economic turbulence resulting from financial constraints or deferrals in buying decisions of customers could negatively impact the company’s sales. We are currently Neutral on the stock.
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