Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Thermo Fisher Scientific Inc (TMO, Financial) reported strong financial results for Q2 2024, with revenue of $10.54 billion and an adjusted operating income of $2.35 billion.
- The company achieved a 4% year-over-year increase in adjusted EPS, reaching $5.37 per share.
- Thermo Fisher Scientific Inc (TMO) raised its 2024 guidance, now expecting revenue between $42.4 billion and $43.3 billion and adjusted EPS between $21.29 and $22.07 per share.
- The company launched several high-impact new products, including the Thermo Scientific Stellar mass spectrometer and new additions to the Thermo Scientific Orbitrap Ascend Tribrid mass spectrometer portfolio.
- Thermo Fisher Scientific Inc (TMO) continues to strengthen its industry-leading commercial engine and trusted partner status with customers, expanding clinical trial supply services and opening new innovation labs.
Negative Points
- Revenue in the pharma and biotech segment declined in the low single digits due to the vaccine and therapy revenue runoff, resulting in a four-point headwind.
- The diagnostics and healthcare segment also saw a decline in revenue in the low single digits, impacted by the runoff of COVID-19 testing-related revenue.
- North America experienced a mid-single-digit decline in revenue, indicating regional challenges.
- The laboratory products and biopharma services segment saw a 1% decrease in both reported revenue and organic growth, driven by the runoff of vaccines and therapies revenue.
- Adjusted operating margin for the laboratory products and biopharma services segment was 12.9%, 120 basis points lower than Q2 2023, reflecting unfavorable volume mix and strategic investments.
Q & A Highlights
Q: Marc, at our Vegas Healthcare Conference in May, you mentioned that you expect the tools market next year would be just below the four to six level it has historically been. Given where you sit now, do you have more confidence in that 2025 market assumption and how Thermo can deliver differentiated performance above that?
A: Mike, thanks for the question. The year is progressing as we expected. We expect that the market will continue to improve modestly in the back half of the year, with each quarter being a little better than the one before. Our performance will also continue to step up, giving us momentum going into 2025. The details will be provided in January 2025.
Q: I want to focus on China. You mentioned that it grew mid-single digits in the quarter. Is this ahead of your expectations? And is this just a temporary bump or something more sustainable?
A: Yes, we delivered mid-single-digit growth in the quarter. The team did a nice job with good execution. The comparison was relatively easy in the quarter. I would still characterize the conditions as muted, but it was a solid result.
Q: Can you talk about the relative improvement you're seeing in biosciences, genetic sciences, and bioprocessing? Any updates on where you think your customers stand in terms of destocking?
A: Nice to see growth in our biosciences business, particularly in the pharma and biotech segments. Bioproduction is progressing as expected with sequential revenue growth in Q2. Orders also showed sequential and year-over-year growth with a favorable book-to-bill ratio. Our clinical sequencing business is also doing well.
Q: Can you talk about how the book-to-bill was in the analytical instruments segment in the quarter and updates on customer spending patterns?
A: Analytical instruments grew 3% in the quarter. Market conditions are playing out as expected, though not at normal levels yet. We have strong momentum in differentiated products like electron microscopy and the Orbitrap Astral. Routine aspects of the portfolio are seeing more muted conditions.
Q: What are you seeing from China stimulus? Have you seen any new orders related to it?
A: There's a lot of activity with customers applying for stimulus funding. We expect the impact to show up in revenue primarily in 2025, with some small effect in Q4 2024. We didn't see any pauses in activity, and the team delivered mid-single-digit growth in the quarter.
Q: Can you walk us through what you've seen from an RFP standpoint and book-to-bill in the quarter for PPD? Have we turned the corner on emerging biotech funding?
A: The team executed well in our clinical research business, delivering positive organic revenue growth despite a substantial headwind from the runoff of vaccines and therapies. We saw an acceleration of authorizations in our biotech customer base in Q2, which bodes well for future revenue.
Q: Where is the recovery occurring more quickly than you may have expected? Where are things lagging?
A: The market is progressing as expected, with a modest improvement in the back half of the year. We expect the market to be flattish or slightly up in Q4. Long-term, I have 100% confidence in the market growing 4% to 6%. Our ability to grow 3% faster than the market remains strong.
Q: How do you think about margins for lab products going forward? Can you still drive 40 bps to 50 bps of margin expansion in 2025?
A: The margin profile in the quarter was impacted by the transition of vaccine-related capacity. As top-line growth returns, we expect strong margin expansion due to adjusted cost bases and volume pull-through.
Q: How do you think about additional capacity expansion in CDMO?
A: We feel good about our position in sterile fill finish and clinical trials supplies. Demand has been strong, and we are expanding the number of lines at our sites. We are transitioning COVID-related activities to normal therapies, which will improve growth in 2025 and 2026.
Q: What are you seeing and hearing from your larger biopharma customers versus smaller and earlier-stage customers?
A: Larger customers are focused on supply chain resiliency and maximizing pipeline productivity. Smaller customers have higher confidence in funding, translating into new clinical trial authorizations. This is a positive development for future growth.
Q: On the EPS beat, why did you only raise the guide by $0.10?
A: $0.06 of the beat was timing-related, with $0.03 expected to be offset in the second half. The rest of the raise reflects strong performance and appropriate positioning for the second half of the year.
Q: Where do you think the academic markets are headed?
A: Encouraged by low single-digit growth in Q2. High-end differentiated products are seeing strong demand. Long-term, academic and government markets are expected to grow low single digits, and our performance aligns with that.
Q: Do you see China stimulus as primarily a function of time, or are there specific triggers needed for demand to materialize?
A: Customers need to apply for funding, which is matched by other sources. We expect the impact to show up in revenue primarily in 2025, with some effect in Q4 2024. We are helping customers prioritize their funding requests for our instrumentation.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
