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Thermo Fisher (TMO) Q4 Earnings Top, Organic Growth Solid

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Thermo Fisher Scientific Inc.'s TMO fourth-quarter 2019 adjusted earnings per share (EPS) of $3.55 beat the Zacks Consensus Estimate by a penny. The figure also improved from the year-ago quarter by 9.2%. On a reported basis, EPS was $2.49, increasing 12.2% year over year.

For the full year, adjusted earnings came in at $12.35 per share, ahead of the Zacks Consensus Estimate by 0.2% and also up 11.1% from the year-ago figure. The adjusted figure also surpassed the company’s guided range of $12.28-$12.34.

Revenues in the quarter under review grossed $6.83 billion, up 4.9% year over year. The top line also bettered the Zacks Consensus Estimate by 0.7%.

Full-year revenues of $25.54 billion exceeded the Zacks Consensus Estimate by 0.2% and improved 4.9% from 2018 as well. Further, this exceeded the company’s projected revenue range of $25.34-$25.50 billion for 2019.

Quarter in Detail

Organic revenues in the reported quarter grew 5% year over year while acquisitions, net of a divestiture, increased revenues by 1%. However,currency translation adversely impacted total revenues by a slight 1%.

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 (26.9% of total revenues) improved 8% year over year to $1.84 billion while Analytical Instruments Segment sales (22.2%) dipped 3.2% to $1.52 billion.

Revenues at the Laboratory Products and Services segment (41.5%) rose 9% to $2.83 billion. The Specialty Diagnostics segment (13.8%) recorded marginally flat revenues from compared with the year-ago quarter’s $0.94 billion.

Gross margin of 46.3% during the fourth quarter contracted 60 basis points (bps) year over year despite a 3.6% rise in gross profits. Adjusted operating margin for the quarter came in at 24.7%, reflecting an expansion of 33 bps.

The company exited 2019 with cash and cash equivalents of $2.34 billion compared with $2.29 billion at the end of 2018. Full-year, net cash provided by operating activities was $4.97 billion compared with $4.54 billion a year ago.

2020 Guidance

The company will provide its 2020 financial guidance during its earnings conference call this morning at 8:30 a.m.

Bottom Line

Thermo Fisher ended the year on a solid note with both fourth-quarter EPS and revenues beating the respective Zacks Consensus Estimate. We are also encouraged that Life Sciences Solutions and Laboratory Products and Services segments witnessed strong year-over-year revenue growth.

During the reported quarter, the company launched the Ion Torrent Genexus next-generation sequencing instrument.

In 2019, the company broadened its global market reach by setting up new customer solution centers in Seoul and Shanghai for life sciences applications; new centers in Beijing and Delhi for improving food quality and safety; and a new pharma and biotech customer center in Shanghai to accelerate development of new drug therapies.

Additionally, in 2019, the company strengthened its pharma services network by acquiring viral vector manufacturer Brammer Bio and the GSK active pharmaceutical ingredient manufacturing site in Ireland. It also expanded production capacity at facilities in North America and Europe to perk up growing demand for biologics and gene therapies.

Meanwhile, gross margin contraction in the fourth quarter is concerning.

Zacks Rank and Key Picks

Thermo Fisher currently has a Zacks Ranks #3 (Hold). Some better-ranked stocks in the broader medical space are SeaSpine Holdings Corporation SPNE, STERIS plc (STE - Free Report) and DexCom, Inc. DXCM, all three carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for SeaSpine’s fourth-quarter 2019 revenues is pegged at $43.6 million, suggesting 14.7% growth rate from the prior-year reported figure. The same for loss per share is anticipated at 44 cents, implying a 16.9% improvement from the year-ago reported number.

The Zacks Consensus Estimate for STERIS’s third-quarter fiscal 2020 revenues is pegged at $749.7 million, hinting at a 7.7% increase from the year-earlier reported figure. The same for adjusted earnings per share stands at $1.43, indicating a 13.5% rise from the year-ago reported figure.

The Zacks Consensus Estimate for DexCom’s fourth-quarter 2019 revenues is pegged at $457 million, suggesting 35.2% growth from the prior-year reported figure. The same for adjusted earnings per share stands at 72 cents, implying a 33.3% improvement from the year-earlier reported figure.

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