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Thermo Fisher (TMO) Beats on Q3 Earnings, Raises 2021 View

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Thermo Fisher Scientific Inc.'s (TMO - Free Report) third-quarter 2021 adjusted earnings per share of $5.76 beat the Zacks Consensus Estimate by 23.3%. The figure improved 2.3% year over year. The adjusted number excludes certain non-recurring expenses, including asset amortization and restructuring costs.

GAAP earnings per share were $4.79, reflecting a 1% drop on a year-over-year basis.

The company’s robust organic growth in the base business contributed to a strong bottom-line performance.

Revenues in the quarter under review grossed $9.33 billion, up 9.5% year over year. The top line exceeded the Zacks Consensus Estimate by 12%.

Quarter in Detail

Organic revenues in the reported quarter grew 7% year over year. While acquisitions contributed 1% to the top line, favorable currency translation too increased revenues by 1%. Organic revenue growth from the base business was 10% in the reported quarter. COVID-19 response revenues (effects of COVID-19 response revenues from acquired businesses and foreign currency translation) declined 2% in the reported quarter.

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 (39.9% of total revenues) improved 9% year over year to $3.72 billion, while Analytical Instruments Segment sales (15.8%) rose 11% to $1.48 billion.

Revenues at the Laboratory Products and Services segment (37.4%) rose 12% to $3.49 billion. The Specialty Diagnostics segment (14.6%) recorded a 4.9% year-over-year decline in revenues to $1.36 billion.

Gross margin of 51.4% in the third quarter contracted 88 basis points (bps) year over year on a 7.7% rise in the cost of revenues. In the quarter, selling, general and administrative expenses increased 32.5% to $1.73 billion. Research and development expenses were $351 million, up 18.6% year over year. Adjusted operating margin for the quarter came in at 29.1%, reflecting a contraction of 439 bps.

The company exited the third quarter with cash and cash equivalents of $12.03 billion compared with $7.02 billion at the end of the second quarter. Cumulative net cash provided by operating activities at the end of the third quarter was $6.89 billion compared with $4.95 billion a year ago.

Meanwhile, Thermo Fisher has been consistently paying dividends, with the 5-year annualized dividend growth being 13.55%.

Guidance

The company raised its revenue guidance for 2021 to $37.1 billion, indicating 15% reported growth over 2020 (earlier guidance was $35.90 billion, implying 11% reported growth expectation). Full-year adjusted EPS guidance has been raised to $23.37, indicating 20% growth over 2020 (previous guidance was $22.07, representing 13% year over year growth). The current Zacks Consensus Estimate for adjusted earnings and revenues is pegged at $22.13 and $36.05 billion, respectively, below the company expectation.

Our Take

Thermo Fisher ended the third quarter of 2021 with better-than-expected numbers. The company delivered a strong quarterly performance, leveraging on a significant rebound in its base business.

We are encouraged by the strong year-over-year revenue growth across each of its reporting segments. The raised 2021 guidance too buoys optimism.

On the flip side, in the quarter, COVID-19 response revenues were $2.05 billion, a reduction from the year-ago period. Gross and operating margin contraction in the third quarter was discouraging too.

Zacks Rank and Other Key Picks

Thermo Fisher currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader medical space that have announced quarterly results are Quest Diagnostics Incorporated (DGX - Free Report) , Abbott Laboratories (ABT - Free Report) , and HCA Healthcare, Inc. (HCA - Free Report) . You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Quest Diagnostics, carrying a Zacks Rank #2 (Buy), reported third-quarter 2021 adjusted EPS of $3.96, which beat the Zacks Consensus Estimate by 33.8%. Third-quarter revenues of $2.77 billion outpaced the consensus mark by 12.6%.

Abbott reported third-quarter 2021 adjusted EPS of $1.40, which surpassed the Zacks Consensus Estimate by 52.2%. Third-quarter revenues of $10.93 billion outpaced the Zacks Consensus Estimate by 15.3%. It currently carries a Zacks Rank #2.

HCA Healthcare, carrying a Zacks Rank #2, reported third-quarter 2021 adjusted EPS of $4.57, surpassing the Zacks Consensus Estimate by 11.5%. Revenues of $15.28 billion surpassed the Zacks Consensus Estimate by 4.7%.