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Thermo Fisher (TMO) End Markets Strong, Margin Under Pressure
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Thermo Fisher Scientific, Inc. (TMO - Free Report) is rapidly boosting its inorganic growth profile through strategic acquisitions. Its strong focus on emerging markets is also encouraging. Yet, competitive headwinds and currency fluctuations continue to pose a threat. The stock has a Zacks Rank #3 (Hold).
Thermo Fisher has outperformed its industry in the past year. The stock has rallied 17.4% against the industry’s 14% fall.
The company exited the first quarter with better-than-expected results on 3% organic revenue growth and 18% contribution from acquisitions. The robust year-over-year revenue growth was driven by strong core business performance organically. The strength of the core business was broad-based across operating segments, end markets, and geographies. Thermo Fisher’s PPI business system enabled the company to generate very strong pull-through on revenues.
Geographically, North America grew in the low single digits. Europe’s performance was flat year over year. Based on a strong Q1 performance, the company has increased its 2022 revenue and adjusted EPS guidance.
Thermo Fisher continued to play a very meaningful role in terms of COVID-19 testing, vaccines and therapies-related advancement. In the first quarter of 2022, the company generated $1.68 billion in COVID response-related revenues. Thermo Fisher’s 2022 guidance now assumes $1.5 billion of COVID-19 vaccines and therapies revenues in total for 2022. In terms of the COVID-19 testing revenue assumption, the current guidance now assumes $2.1 billion for testing revenues in 2022. This includes the $1.68 billion delivered in Q1, $225 million in Q2, and then an assumed endemic run-rate level of $100 million of revenue per quarter in the second half of the year. According to Thermo Fisher, there are scenarios where testing demand could be higher than this level.
In first-quarter 2022, Thermo Fisher witnessed strength in three out of its four end markets, categorized either by customer type or geography. Within the pharma and biotech end market, the company delivered growth in the mid-teens on broad-based strength in this end market. In academics and government, Thermo Fisher grew in the mid-single digits, with good growth in biosciences, electron microscopy, and research and safety market channel. Within industrial and applied, Thermo Fisher grew in the mid-teens during the quarter on strong growth in all its analytical instrument businesses including electron microscopy, chromatography, mass spectrometry, and chemical analysis as well as in the research and safety market channel.
On the flip side, in terms of end market, Thermo Fisher’s diagnostics and healthcare revenues in Q1 declined in the mid-teens. Specialty Diagnostics reported revenues declined 8% and organic revenues declined 7%. According to Thermo Fisher, in the quarter, strong underlying growth in the healthcare market channel, transplant diagnostics, and clinical diagnostics businesses was offset by lower COVID-19 testing revenues compared with the year-ago quarter.
Added to this, Thermo Fisher’s gross margin of 47.4% in the first quarter contracted 657 basis points (bps) year over year on a 36.4% rise in the cost of revenues. In the quarter, selling, general and administrative expenses increased 17.2% while research and development expenses were up 13.8% year over year. The adjusted operating margin for the quarter came in at 28.9%, reflecting a contraction of 613 bps.
Foreign currency fluctuations and a competitive landscape are the other major downsides.
Key Picks
Some better-ranked stocks in the broader medical space that have announced quarterly results are Molina Healthcare, Inc. (MOH - Free Report) , Medpace Holdings, Inc. (MEDP - Free Report) and Alkermes plc (ALKS - Free Report) .
Molina Healthcare, having a Zacks Rank #2 (Buy), reported first-quarter 2022 adjusted EPS of $4.90, which beat the Zacks Consensus Estimate by 3.4%. Revenues of $7.8 billion outpaced the consensus mark by 3.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Molina Healthcare has an estimated long-term growth rate of 16.4%. MOH’s earnings surpassed estimates in the trailing three quarters and missed in one, the average surprise being 1.5%.
Medpace reported first-quarter 2022 adjusted EPS of $1.69, which surpassed the Zacks Consensus Estimate by 34.1%. Revenues of $330.9 million outpaced the Zacks Consensus Estimate by 1.1%. It currently has a Zacks Rank #2.
Medpace has a historical growth rate of 27.3%. MEDP’s earnings surpassed estimates in the trailing four quarters, the average surprise being 17.1%.
Alkermes reported first-quarter 2022 adjusted EPS of 12 cents, which surpassed the Zacks Consensus Estimate of a penny. Revenues of $278.6 million outpaced the Zacks Consensus Estimate by 6.2%. It currently sports a Zacks Rank #2.
Alkermes has an estimated long-term growth rate of 25.1%. ALKS’ earnings surpassed estimates in the trailing four quarters, the average surprise being 350.5%.
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Thermo Fisher (TMO) End Markets Strong, Margin Under Pressure
Thermo Fisher Scientific, Inc. (TMO - Free Report) is rapidly boosting its inorganic growth profile through strategic acquisitions. Its strong focus on emerging markets is also encouraging. Yet, competitive headwinds and currency fluctuations continue to pose a threat. The stock has a Zacks Rank #3 (Hold).
Thermo Fisher has outperformed its industry in the past year. The stock has rallied 17.4% against the industry’s 14% fall.
The company exited the first quarter with better-than-expected results on 3% organic revenue growth and 18% contribution from acquisitions. The robust year-over-year revenue growth was driven by strong core business performance organically. The strength of the core business was broad-based across operating segments, end markets, and geographies. Thermo Fisher’s PPI business system enabled the company to generate very strong pull-through on revenues.
Geographically, North America grew in the low single digits. Europe’s performance was flat year over year. Based on a strong Q1 performance, the company has increased its 2022 revenue and adjusted EPS guidance.
Thermo Fisher Scientific Inc. Price
Thermo Fisher Scientific Inc. price | Thermo Fisher Scientific Inc. Quote
Thermo Fisher continued to play a very meaningful role in terms of COVID-19 testing, vaccines and therapies-related advancement. In the first quarter of 2022, the company generated $1.68 billion in COVID response-related revenues. Thermo Fisher’s 2022 guidance now assumes $1.5 billion of COVID-19 vaccines and therapies revenues in total for 2022. In terms of the COVID-19 testing revenue assumption, the current guidance now assumes $2.1 billion for testing revenues in 2022. This includes the $1.68 billion delivered in Q1, $225 million in Q2, and then an assumed endemic run-rate level of $100 million of revenue per quarter in the second half of the year. According to Thermo Fisher, there are scenarios where testing demand could be higher than this level.
In first-quarter 2022, Thermo Fisher witnessed strength in three out of its four end markets, categorized either by customer type or geography. Within the pharma and biotech end market, the company delivered growth in the mid-teens on broad-based strength in this end market. In academics and government, Thermo Fisher grew in the mid-single digits, with good growth in biosciences, electron microscopy, and research and safety market channel. Within industrial and applied, Thermo Fisher grew in the mid-teens during the quarter on strong growth in all its analytical instrument businesses including electron microscopy, chromatography, mass spectrometry, and chemical analysis as well as in the research and safety market channel.
On the flip side, in terms of end market, Thermo Fisher’s diagnostics and healthcare revenues in Q1 declined in the mid-teens. Specialty Diagnostics reported revenues declined 8% and organic revenues declined 7%. According to Thermo Fisher, in the quarter, strong underlying growth in the healthcare market channel, transplant diagnostics, and clinical diagnostics businesses was offset by lower COVID-19 testing revenues compared with the year-ago quarter.
Added to this, Thermo Fisher’s gross margin of 47.4% in the first quarter contracted 657 basis points (bps) year over year on a 36.4% rise in the cost of revenues. In the quarter, selling, general and administrative expenses increased 17.2% while research and development expenses were up 13.8% year over year. The adjusted operating margin for the quarter came in at 28.9%, reflecting a contraction of 613 bps.
Foreign currency fluctuations and a competitive landscape are the other major downsides.
Key Picks
Some better-ranked stocks in the broader medical space that have announced quarterly results are Molina Healthcare, Inc. (MOH - Free Report) , Medpace Holdings, Inc. (MEDP - Free Report) and Alkermes plc (ALKS - Free Report) .
Molina Healthcare, having a Zacks Rank #2 (Buy), reported first-quarter 2022 adjusted EPS of $4.90, which beat the Zacks Consensus Estimate by 3.4%. Revenues of $7.8 billion outpaced the consensus mark by 3.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Molina Healthcare has an estimated long-term growth rate of 16.4%. MOH’s earnings surpassed estimates in the trailing three quarters and missed in one, the average surprise being 1.5%.
Medpace reported first-quarter 2022 adjusted EPS of $1.69, which surpassed the Zacks Consensus Estimate by 34.1%. Revenues of $330.9 million outpaced the Zacks Consensus Estimate by 1.1%. It currently has a Zacks Rank #2.
Medpace has a historical growth rate of 27.3%. MEDP’s earnings surpassed estimates in the trailing four quarters, the average surprise being 17.1%.
Alkermes reported first-quarter 2022 adjusted EPS of 12 cents, which surpassed the Zacks Consensus Estimate of a penny. Revenues of $278.6 million outpaced the Zacks Consensus Estimate by 6.2%. It currently sports a Zacks Rank #2.
Alkermes has an estimated long-term growth rate of 25.1%. ALKS’ earnings surpassed estimates in the trailing four quarters, the average surprise being 350.5%.