Thermo Fisher Beats & Meets - Analyst Blog

Thermo Fisher Scientific (TMO) reported an EPS of 75 cents in the fourth quarter of fiscal 2010 compared to 65 cents in the year-ago period. However, after adjusting for certain one-time items, the EPS was $1.00, surpassing the Zacks Consensus Estimate of 95 cents and 10% higher than 91 cents of the fourth quarter of 2009.

For the full year, the company reported a 17% growth in EPS to $3.57, beating the Zacks Consensus Estimate of $3.52.

The company's revenue of $2.78 billion during the quarter was in line with the Zacks Consensus Estimate of $2.8 billion and 2% lower than $2.84 billion of the fourth quarter of fiscal 2009. While acquisitions had a positive impact of 2% on revenues, unfavorable currency movement had a negative impact of 1%.

For fiscal 2010, Thermo Fisher recorded a 7% growth in revenues to $10.79 billion, almost in line with the Zacks Consensus Estimate of $10.80 billion. The decline in fourth quarter revenue was expected due to the termination of the Biosite contract, difficult flu comparison and fewer calendar days.

Despite a decline in revenues, Thermo Fisher's EPS increased because of improvement in both gross and operating margins, 33% lower interest expense and a 5.5% decline in the share count. Thermo Fisher's two segments – Analytical Technologies and Laboratory Products and Services – recorded revenues of $1.24 billion (4% annualized growth) during the quarter and $1.67 billion (down 6%), respectively.

Thermo Fisher witnessed an expansion in margins in the fourth quarter. Gross margin increased 170 basis points (bps) annually to 43.0%. Adjusted operating and net margin increased 40 bps and 80 bps to 18.4% and 14.4%, respectively. Adjusted figures exclude amortization of acquisition-related intangible assets and other acquisition-related costs; restructuring costs and related tax benefits.

The company exited the year with cash and cash equivalents of $917.1 million, down from $1.6 billion at the end of December 2009. The cash balance depleted on 20.7 million shares amounting to $1 billion being repurchased during the year. A strong cash balance helps the company to pursue suitable acquisitions or reward its shareholders through share buybacks. Its recent decision to acquire Dionex Corporation (DNEX) for $2.1 billion would add chromatography systems to its portfolio.

Guidance

Thermo Fisher provided its guidance for fiscal 2011. The company expects revenue and adjusted EPS in the range of $11.33-$11.45 billion (representing growth of 5%-6% and $4.00-$4.10 (12%-15% growth), respectively. While the Zacks Consensus Estimate of $4.03 is at the lower end of the guidance, the revenue estimate of $11.6 billion is much higher than the company's outlook.

Recommendation

A gradual improvement in the economic scenario along with the focus on emerging markets should drive Thermo Fisher's top line in the forthcoming period. Moreover, strong cash position should assist the company in making suitable acquisitions, reduce debt burden or repurchase shares. However, any kind of economic turbulence could negatively impact the company's sales based on financial constraints and customers deferring their purchase.

We are currently Neutral on the stock.

 
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