Thermo Fisher Scientific Inc. (TMO) Earnings

Management highlights

### Overall Financial Performance - Total Q2 2026 revenue grew 10% year-over-year to $11.99 billion, with 5% organic growth, 5% contribution from acquisitions, and a slight foreign exchange tailwind, beating prior guidance by ~$300 million. - Adjusted operating income grew 15% to $2.73 billion, with adjusted operating margin expanding 90 basis points to 22.8%. Adjusted EPS grew 13% to $6.03, 30 cents ahead of prior guidance. - Year-to-date free cash flow totaled $2.5 billion, with $1.2 billion deployed to shareholders in Q2 ($1 billion in share repurchases, ~$175 million in dividends). ### End Market Performance - All end markets delivered mid-to-low single digit growth with sequential improvement: pharma and biotech (mid-single digit, led by bioproduction and clinical research), academic and government (low single digit, led by chromatography and mass spectrometry), industrial and applied (mid-single digit, led by electron microscopy and chemical analysis), and diagnostics and healthcare (mid-single digit, led by immunodiagnostics). - Geographically: North America grew low single digits, Europe and Asia Pacific grew high single digits, with China growing low single digits (returning to growth). ### Growth Strategy: Innovation - Launched multiple new high-impact technologies across the portfolio, including the next-generation Orbitrap Tribrid Apex mass spectrometer, Orbitrap Excedral mass spectrometer, Vanquish Amplify UHPLC system, and Applied Biosystems PowerFlex Thermal Cycler PCR platform, complemented by expanded AI-powered software. - New product launches strengthened industry leadership and address increasingly complex customer analytical and research challenges. ### Growth Strategy: Commercial and Customer Partnerships - Opened the new flagship U.S. Bioprocess Design Center in Massachusetts, expanding the global network of collaborative innovation centers to accelerate customer drug development. - Announced a strategic collaboration with Precision Health Research Singapore to support population health research and advance precision medicine via integrated proteomics capabilities. ### Capital Deployment and M&A - Disciplined capital strategy prioritizes strategic M&A complemented by capital return to shareholders. - The Clario acquisition (closed March 2026) delivered strong Q2 performance, with integration progressing smoothly and revenue synergy pipelines building; Clario's digital endpoint data solutions strengthen the company's clinical research capabilities for pharma and biotech customers. - The acquired filtration and separation business is also performing well with on-track integration and positive customer feedback. - Announced an agreement to divest the microbiology business, expected to close in Q3 2026; $1 billion in shares were repurchased in Q2 using anticipated net divestiture proceeds. ### Operational and ESG - The company's PPI business system drove strong productivity, profitability, and free cash flow, with AI being deployed across the company to further improve PPI impact. - Continued progress on ESG goals, including execution of the net zero roadmap, increased renewable electricity use, growth in zero-waste certified sites, and expansion of STEM education programs that reach over 185,000 students annually.

Guidance

- Full-year 2026 revenue guidance is raised to $47.4–$48.1 billion, representing 6–8% reported revenue growth over 2025. This incorporates the impact of the pending microbiology divestiture, which reduces full-year 2026 revenue by ~$200 million net of retained channel business. - Full-year organic revenue growth expectation is raised to ~4%, at the upper end of the prior 3–4% guidance range. Organic growth is expected to step up from 3% in H1 to 4% in H2, with similar organic growth rates expected in Q3 and Q4. - Full-year adjusted EPS guidance is raised to $24.93–$25.33, representing 9–11% year-over-year growth, with a $0.25 increase at the guidance midpoint. The divestiture reduces 2026 adjusted EPS by 5 cents. - Acquisitions are now expected to contribute $1.6 billion in full-year revenue and 32 cents in adjusted EPS, up from prior guidance. - Adjusted operating margin expansion guidance is raised to 80 basis points for the full year. - Full-year free cash flow guidance is maintained at $6.9–$7.4 billion, with net capital expenditures expected between $1.9–$2.1 billion. - Full-year share repurchases are expected to total $4 billion (with $3 billion completed in H1 and $1 billion completed in Q2), with ~$700 million expected in dividends for the full year. Average diluted shares outstanding are expected between 370 and 373 million for the full year. - Net interest expense guidance is maintained at ~$660 million, and the adjusted tax rate guidance remains 11.5%. Q3 adjusted EPS is expected to be 35–40 cents higher than Q2 adjusted EPS.

Segment performance

1. Life Sciences Solutions: Q2 reported revenue increased 13% year-over-year, with 3% organic revenue growth, led by strong performance from the bioproduction business. Adjusted operating income increased 13% year-over-year, with an adjusted operating margin of 37.0%, up 20 basis points from the prior year quarter. This segment accounted for approximately 31% of total Q2 revenue. 2. Analytical Instruments: Both reported and organic revenue increased 7% year-over-year, with broad growth across all sub-businesses led by electron microscopy. Adjusted operating income increased 30% year-over-year, with an adjusted operating margin of 23.0%, up 420 basis points from the year-ago quarter. This segment accounted for approximately 26% of total Q2 revenue. 3. Specialty Diagnostics: Reported revenue grew 6% year-over-year, with 5% organic revenue growth, led by the healthcare market channel, immunodiagnostics, and transplant diagnostics businesses. Adjusted operating income increased 9% year-over-year, with an adjusted operating margin of 27.7%, up 70 basis points from Q2 2025. This segment accounted for approximately 17% of total Q2 revenue. 4. Laboratory Products and Biopharma Services: Reported revenue increased 12% year-over-year, with 5% organic revenue growth, led by the research and safety market channel and clinical research business. Adjusted operating income increased 13% year-over-year, with an adjusted operating margin of 14.0%, up 20 basis points from the prior year quarter. This segment accounted for approximately 26% of total Q2 revenue.

Risks & headwinds

The call's safe harbor statement notes that actual results may differ materially from forward-looking statements due to a variety of risks and uncertainties, which are detailed in the company's most recent Form 10-K and Form 10-Q filings under the Risk Factors section. No additional specific or new material operational risks were discussed in detail during the call.

Analyst Q&A

• Q: What is driving the broad-based improvement in customer activity and results this quarter, and what is the outlook for the second half? What explains the expectation that Q3 and Q4 will have similar organic growth rates, rather than Q4 being higher? /

  A: Customer activity strengthened across all end markets in Q2, with particularly notable momentum in pharma and biotech where increased spending has translated to revenue, as expected earlier this year. Pharma and biotech, which makes up ~60% of total revenue, is the primary driver of the raised full-year outlook. The quarterly phasing of similar organic growth in Q3 and Q4 is aligned with original assumptions, with no meaningful change to prior expectations, after stepping up from 3% organic growth in the first half to 4% in the second half. (238 words)

• Q: Can you provide more detail on clinical research performance, Clario's first full quarter, and what is driving the incremental upward adjustment to the full-year outlook? /

  A: Clinical research delivered strong organic revenue and authorization growth, with improving market conditions in line with prior expectations. Clario had a very strong first full quarter of ownership, with solid revenue and earnings performance, and it contributed to the raised full-year acquisition contribution outlook. The incremental upward adjustment to the full-year outlook is driven entirely by stronger pharma and biotech trends. Academic and government returned to growth in Q2 but is still stabilizing, so its full-year outlook was not changed. (142 words)

• Q: What drove the strong outperformance of the analytical instruments segment this quarter, and what is the outlook for China after returning to low single-digit growth? /

  A: The strong performance of analytical instruments is primarily driven by recent product innovation. New launches of high-end mass spectrometry, UHPLC systems, and AI-enabled software saw strong customer adoption, even in the slower academic market, where customers prioritize access to cutting-edge technology. Electron microscopy also delivered strong growth driven by semiconductor and advanced materials demand. China returned to low single-digit growth, driven by pharma/biotech and industrial/applied markets, while academic/government demand remains muted. The company is well-positioned for further improvement as the market stabilizes. (148 words)

• Q: What is driving Thermo Fisher's strong outperformance in bioproduction compared to peers that have reported customer delays and pushouts, and what does the competitive landscape look like for downstream capabilities? /

  A: Bioproduction delivered broad-based strong growth across the entire portfolio, with no significant customer delays reported this quarter. The company benefits from a differentiated end-to-end workflow spanning upstream and downstream, including leading positions in cell culture media, single-use technologies, and growing filtration/purification capabilities from the recent filtration and separation acquisition. The new DynaDrive single-use bioreactor is gaining rapid adoption across CDMOs, which supports long-term consumable revenue growth. The resin business is performing well, and the acquired legacy filtration business is gaining new customer trials leveraging Thermo Fisher's existing strong customer relationships and reputation as a reliable supplier. (171 words)