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Thermo Fisher (TMO) Q4 Earnings Beat Estimates, Margins Down

Thermo Fisher Scientific Inc.'s TMO fourth-quarter 2022 adjusted earnings per share (EPS) of $5.40 beat the Zacks Consensus Estimate by 4.1%. However, the figure declined 17% year over year.

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

GAAP EPS was $4.01, down 3.8% drop on a year-over-year basis.

For the full year, adjusted earnings were $23.24 per share, reflecting a 7.5% fall from the year-ago period. However, it beat the Zacks Consensus Estimate by 0.9%.

Our model projected an adjusted EPS of $5.17 cents for Q4 and $23.01 per share for full-year 2022.

Revenues in Detail

Revenues in the quarter under review grossed $11.45 billion, up 6.9% year over year. The top line exceeded the Zacks Consensus Estimate by 10.6%.

The fourth-quarter revenue compares to our estimate of $10.33 billion.

Total revenues for 2022 were $44.92 billion, reflecting a 14.5% rise from the year-ago period. The figure beat the Zacks Consensus Estimate by 2.5%.

Our model projected full-year 2022 revenues of $43.79.

Segment Details

Organic revenues in the reported quarter declined 3% year over year, while currency translation lowered revenues by 4%. Products added with acquisitions boosted revenues by 14%. 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.

Thermo Fisher Scientific Inc. Price and EPS Surprise

 

Thermo Fisher Scientific Inc. Price and EPS Surprise
Thermo Fisher Scientific Inc. Price and EPS Surprise

Thermo Fisher Scientific Inc. price-eps-surprise | Thermo Fisher Scientific Inc. Quote

 

Revenues in the Life Sciences Solutions segment (26.6% of total revenues) declined 26.6% year over year to $3.05 billion, while Analytical Instruments Segment sales (16.4%) improved 8.9% to $1.88 billion.

Revenues in the Laboratory Products and Biopharma Services segment (51.9%) rose 41.8% to $5.95 billion. The Specialty Diagnostics segment (9.7%), however, recorded a 22.9% year-over-year fall in revenues to $1.12 billion.

Margin Analysis

The gross margin of 41.4% in the fourth quarter contracted 910 basis points (bps) year over year on a 26.7% rise in the cost of revenues.

In the quarter, selling, general and administrative expenses fell 6.2% to $1.84 billion. Research and development expenses declined 0.2% to $391 million.

The adjusted operating margin for the quarter came in at 16.7%, reflecting a contraction of 741 bps.

Financial Position

The company exited 2022 with cash and cash equivalents of $8.52 billion compared with $4.45 billion at the end of 2021.

Cumulative net cash provided by operating activities was $9.15 billion compared with $9.31 billion a year ago.

Thermo Fisher has a consistent dividend-paying history, with the five-year annualized dividend growth being 14.9%.

Guidance

Thermo Fisher provided 2023 guidance.

The company expects 2023 revenue to be $45.3 billion. The Zacks Consensus Estimate for the metric is pegged at $43.31 billion.

The company projects adjusted EPS to be $23.70. The Zacks Consensus Estimate for the same is pegged at $22.92.

Our Take

Thermo Fisher exited the fourth 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. During the fourth quarter, the company opened a new state-of-the-art bioanalytical lab in Richmond, Virginia, to support our clinical research business and the increasing demand for analytical services to accelerate drug development. Moreover, the company continued to successfully execute its capital deployment strategy in 2022. The integration of PPD is largely complete and drove strong returns for the shareholders with outstanding execution and business performance throughout the year.

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 Upcoming Releases

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

Here are some medical stocks that are due to report soon.

AMN Healthcare Services, Inc. AMN, carrying a Zacks Rank #2 at present, will release third-quarter 2022 results on Feb 16.

It has an estimated long-term growth rate of 3.3%. AMN’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 10.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cardinal Health CAH, carrying a Zacks Rank of #2, will release fourth-quarter 2022 results on Feb 2.

Cardinal Health has a long-term expected earnings growth rate of 11.7%. Cardinal Health’s earnings yield of 6.87% compares favorably with the industry’s 4.34%.

Medical Systems, Inc. MMSI, carrying a Zacks Rank #2 at present, will release fourth-quarter 2022 results on Feb 23.

It has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average beat being 25.4%.

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