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Thermo Fisher (TMO) Q3 Earnings Top Estimates, Margins Down

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Thermo Fisher Scientific Inc.'s (TMO - Free Report) third-quarter 2022 adjusted earnings per share (EPS) of $5.08 beat the Zacks Consensus Estimate by 6.3%. The figure however declined 12% year over year.

The adjusted number excludes certain non-recurring expenses, including asset amortization costs and certain restructuring costs.

GAAP EPS was $3.79, reflecting a 20.9% drop on a year-over-year basis.

Revenues in Detail

Revenues in the quarter under review grossed $10.68 billion, up 14% year over year. The top line exceeded the Zacks Consensus Estimate by 8.3%.

Segment Details

Organic revenues in the reported quarter declined 1% year over year, while currency translation lowered revenues by 5%. Products added with acquisitions drove revenues higher by 20%. Core organic revenue growth (considering the impact of PPD revenue, excluding the impacts of COVID-19 testing revenue) was 14%.

Thermo Fisher operates under four business segments — Life Sciences Solutions, Analytical Instruments, Specialty Diagnostics, and Laboratory Products and Biopharma Services.

Revenues at the Life Sciences Solutions segment (27.7% of total revenues) declined 20.4% year over year to $2.96 billion, while Analytical Instruments Segment sales (15.2%) improved 9.8% to $1.62 billion.

Revenues at the Laboratory Products and Biopharma Services segment (52.3%) rose 60.2% to $5.59 billion. The Specialty Diagnostics segment (10%) however recorded a 21.8% year-over-year fall in revenues to $1.07 billion.

Margin Analysis

The gross margin of 41.5% in the third quarter contracted 990 basis points (bps) year over year on a 37.8% rise in the cost of revenues.

In the quarter, selling, general and administrative expenses increased 0.9% to $1.74 billion. Research and development expenses remained flat at $351 million.

The adjusted operating margin for the quarter came in at 22.2%, reflecting a contraction of 760 bps.

Financial Position

The company exited the third quarter of 2022 with cash and cash equivalents of $2.92 billion compared with $1.89 billion at the end of Q2.

Cumulative net cash provided by operating activities was $5.67 billion compared with $6.86 billion a year ago.

Thermo Fisher has a consistent dividend-paying history, with the five-year annualized dividend growth being 15.4%.

Guidance

The company stated that it would come up with its updated 2022 financial guidance on its earnings conference call.

Our Take

Thermo Fisher exited the third quarter with better-than-expected results. The robust year-over-year revenue growth in the Analytical Instruments and the Laboratory Products and Biopharma Services segments appears promising.

However, the year-over-year decline in revenues in the Life Science Solutions and Specialty Diagnostics segment is disappointing. The contraction of both margins on escalating costs and expenses does not bode well either. The year-over-year decline in adjusted earnings is concerning.

Zacks Rank and Key Picks

Thermo Fisher currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Elevance Health, Inc. (ELV - Free Report) , Medpace Holdings, Inc. (MEDP - Free Report) and Accuray (ARAY - Free Report) .

Elevance Health, carrying a Zacks Rank #2 (Buy), reported third-quarter 2022 adjusted EPS of $7.53, which beat the Zacks Consensus Estimate by 6.1%. Revenues of $39.63 billion outpaced the consensus mark by 1.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Elevance Health has an earnings yield of 5.5% against the industry’s (2.3%). ELV’s earnings surpassed estimates in all the trailing four quarters, the average being 4.1%.

Medpace Holdings, having a Zacks Rank #1, reported third-quarter 2022 adjusted EPS of $2.05, which beat the Zacks Consensus Estimate by 39.5%. Revenues of $384 million outpaced the consensus mark by 8.1%.

Medpace Holdings has an estimated growth rate of 22.7% for 2022. MEDP’s earnings surpassed estimates in the trailing four quarters, the average being 22.04%.

Accuray reported fourth-quarter fiscal 2022 adjusted loss per share of 4 cents, which surpassed the Zacks Consensus Estimate by 33.3%. Fourth-quarter revenues of $110 million outpaced the Zacks Consensus Estimate by 4.9%. It currently has a Zacks Rank #2.

Accuray has an estimated growth rate of 100% for fiscal 2023. ARAY’s earnings surpassed estimates in three of the trailing four quarters and lagged the same in one, the average surprise being 20.8%.

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