THERMO FISHER SCIENTIFIC INC. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Performance: Revenue in Q3 was $10.6 billion, adjusted operating income was $2.36 billion, adjusted operating margin 22.3%, and adjusted EPS was $5.28 per share. Performance allowed raising adjusted EPS guidance.
• Growth Strategy: Three pillars: high impact innovation (e.g., launched Iliad, Applied Biosystems MagMAX kit, etc.), trusted partner status (strong customer access and collaboration), and unparalleled commercial engine (customer wins and channel growth).
• PPI Business System: Embedded in culture, enabling strong execution with improved supply chain in Asia-Pacific and streamlined manufacturing in Europe.
• Corporate Social Responsibility: Colleague safety priority, with support for those affected by Hurricane Helene.
• Capital Deployment: Successful M&A (e.g., Binding Site performing well, Olink acquisition integration progressing) and returning capital to shareholders.

Segment Performance

• Life Sciences Solutions: Reported revenue declined 2% in Q3, organic revenue was 4% lower than the prior year quarter. Adjusted operating income decreased 3% with an adjusted operating margin of 35.4%, down 50 basis points versus the prior year quarter.
• Analytical Instruments: Both reported revenue and organic revenue grew 3% versus the prior year quarter. Adjusted operating income decreased 4% and adjusted operating margin was 24.9%, 180 basis points lower year-over-year.
• Specialty Diagnostics: Both reported revenue and organic revenue grew 4% versus the prior year quarter. Adjusted operating income increased 3% and adjusted operating margin was 25.9%, 20 basis points lower than Q3 2023.
• Laboratory Products and Biopharma Services: Both reported revenue and organic revenue were flat versus the prior year quarter. Adjusted operating income declined 18% and adjusted operating margin was 13.5%, 290 basis points slower than Q3 2023.

Guidance

• Raised adjusted EPS guidance to $21.35 to $22.07 range.
• Revenue guidance remains $42.4 billion to $43.3 billion.
• Core organic revenue growth expected to be minus 1% to positive 1% for 2024.
• Adjusted operating income margin expected between 22.5% and 22.8%.
• Net interest cost expected in range of $340 million to $380 million for the year.

Risks

• Macro-economic conditions impacting market growth.
• China market challenges affecting instrument demand.
• Continued impact of COVID-19 runoff on certain segments.
• Unfavorable mix and strategic investments affecting margins in some segments.

Question and Answer

Q: Michael Ryskin asked about the pace of recovery continuing into 2025 and what's holding back faster snapback.

A: Marc Casper responded that market conditions have been modestly improving as expected, Q3 organic growth was flat offsetting COVID headwinds, and 2025 guidance will be updated in January with best view of market conditions.

Q: Rachel Vatnsdal asked about pharma and biotech segment performance, including biotech vs larger pharma.

A: Marc Casper said there's sequential improvement, underlying conditions are improving though below long-term growth expectations, biotech is moving in the right direction with quicker adoption of unified capabilities.

Q: Jack Meehan asked about how the quarter played out with core organic growth flat.

A: Marc Casper said the quarter played out as expected, with no significant patterns in month-by-month performance, and Stephen Williamson mentioned guidance range kept for simplicity with focus on midpoint.

Q: Doug Schenkel asked about what's tracking ahead or below expectation and normalization to 2025 exit rates.

A: Marc Casper said performance has aligned with January expectations mostly, biotech funding improving and China stimulus programs being a future swing factor, with high-end technology adoption strong.

Q: Tycho Peterson asked about drivers in LPS and margins in lab products and services.

A: Stephen Williamson noted underlying growth in pharma services and clinical research offsetting pandemic headwinds, Marc Casper mentioned health care and research safety market channels doing well with customer wins.

Q: Matt Sykes asked about Analytical Instruments segment excluding Astral and microscopy, and replacement cycle.

A: Marc Casper said innovation drives growth in analytical instruments with products like Iliad, Stellar, Innuvion doing well, with routine capital equipment conditions muted, especially in China.

Q: Dan Brennan asked about China instrument demand and stimulus impact.

A: Marc Casper said China instrument demand is a weaker spot, stimulus programs announced will be a 2025 and beyond impact, with strong local relationships positioning Thermo Fisher well in China.