Thermo Fisher Scientific, Inc. (TMO Quick QuoteTMO - Free Report) reported better-than-expected second-quarter 2016 financial results. Adjusted earnings per share (EPS) in the quarter came in at $2.03, 1.5% ahead of the Zacks Consensus Estimate and ahead of the year-ago quarter number by 10.3%.

On a reported basis, second-quarter EPS from continuing operations of $1.30 showed a 2.4% improvement year over year.

Quarter in Detail

Revenues for the reported quarter amounted to $4.54 billion, up 6% year over year, ahead of the Zacks Consensus Estimate of $4.50 billion. Organic revenue growth in the quarter was 4%. While revenues grew 3% on the back of acquisitions, it was slightly offset by currency translation.

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

Impressively, Thermo Fisher delivered positive year-over-year growth in each of its business segments during the second quarter. Revenues from the Life Sciences Solutions Segment improved 13% year over year to $1.28 billion, while Analytical Instruments Segment sales grew 2% to $794 million. Revenues from the Laboratory Products and Services Segment improved 6% to $1.80 billion, while the Specialty Diagnostics Segment recorded 4% revenue growth to $851 million.

Gross margin of 48.2% during the second quarter was up 20 basis points (bps) year over year on account of higher revenue growth, despite a 5.7% increase in cost of sales. Adjusted operating margin also improved approximately 20 bps to 22.3%, inspite of the company incurring a 6.9% rise in selling, general and administrative expenses and a 4.5% increase in research and development expenses.

The company exited the second quarter of 2016 with cash and cash equivalents of $663.1 million compared with $826.8 million at the end of first-quarter 2016. Operating cash flow for the quarter was $1.18 billion compared with the year-ago figure of $0.8 billion.

Guidance

Thermo Fisher has updated its full-year 2016 financial guidance, primarily based on two factors – a strong operating performance in the first-half 2016  and more unfavorable foreign exchange environment.  Adjusted EPS is currently expected in the range of $8.07 to $8.20, indicating 9% to 11% growth year over year (earlier guidance was $8.05 to $8.19 and growth of 9% to 11%).

The company expects to deliver revenues in the range of $17.84 billion to $18.00 billion (earlier $17.86 billion to $18.04 billion) in 2016. The current Zacks Consensus Estimate stands at earnings of $8.13 per share and revenues of $17.96 billion, within the company’s expectation.

Bottom Line

Thermo Fisher’s financial numbers squarely beat the Zacks Consensus Estimate in the second quarter, in line with the trend that the company displayed at the start of 2016. We remain encouraged with the company’s recent product launches during the second quarter along with a strong growth in emerging markets and an enhancement management observed in the company’s customer value proposition.

Looking ahead Thermo Fisher’s pending acquisition of FEI, is expected to add leading capabilities in electron microscopy to the company that in turn will complement its analytical instruments portfolio. However, the reduced revenue guidance on management’s part, on account of unfavourable currency fluctuation disappoints us.

Zacks Rank & Stocks to Consider

Thermo Fisher currently holds a Zacks Rank #3 (Hold). Some better-ranked medical stocks are Abiomed, Inc. , Masimo Corp. (MASI Quick QuoteMASI - Free Report) and Natus Medical Inc. .  All these stocks sport a Zacks Rank #1 (Strong Buy).

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