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    TMO
    Earnings call· Mar 2025(Q1 FY25)

    THERMO FISHER SCIENTIFIC Q1 FY25 earnings call TMO

    Apr 23, 2025 Source

    Executive summary

    Thermo Fisher Scientific Q1 FY25 — Strong Performance Amidst Macro Uncertainty and Updated Guidance

    Thermo Fisher Scientific delivered a strong Q1 FY25, exceeding revenue and EPS expectations through robust execution and strategic capital deployment. The company updated its full-year guidance to reflect recent macroeconomic shifts, including U.S.-China tariffs and U.S. policy changes, which are expected to impact revenue and adjusted EPS. Management is actively implementing mitigation strategies and leveraging its PPI Business System to navigate the dynamic environment, while continuing to invest in high-impact innovation and U.S. manufacturing capabilities.

    Highlights

    5

    • Q1 revenue of $10.36 billion, ahead of expectations.

    • Adjusted EPS grew 1% to $5.15, ahead of expectations.

    • Strong organic revenue growth of 1% despite 2 less selling days and pandemic runoff.

    • Announced acquisition of Solventum's Purification and Filtration business for $4.1 billion.

    • Repurchased $2 billion of shares and increased dividend by 10%.

    Concerns

    5

    • Updated FY25 adjusted EPS guidance lowered by $1.00 at midpoint due to macro changes.

    • $0.70 impact on adjusted EPS from U.S.-China tariffs.

    • $0.30 impact on adjusted EPS from U.S. policy focus changes, including $500 million revenue headwind.

    • China revenue declined mid-single digits.

    • Academic and government revenue declined low single digits.

    Guidance & targets

    21
    CategoryTargetConfidence
    Full-year 2025 Revenue
    $43.3 billion to $44.2 billion
    high materiality
    High
    Full-year 2025 Organic Growth
    1% to 3%
    high materiality
    High
    Full-year 2025 Adjusted Operating Income Margins
    22% to 22.6%
    medium materiality
    High
    Full-year 2025 Adjusted EPS
    $21.76 to $22.84
    high materiality
    High
    Full-year 2025 Adjusted EPS impact from U.S.-China tariffs
    -$0.70
    high materiality
    High
    Full-year 2025 Adjusted EPS impact from U.S. policy focus changes
    -$0.30
    high materiality
    High
    Full-year 2025 Revenue headwind from U.S.-China tariffs
    -$400 million
    high materiality
    High
    Full-year 2025 Operating Income headwind from U.S.-China tariffs
    -$375 million
    high materiality
    High
    Full-year 2025 Revenue headwind from U.S. policy focus changes
    -$500 million
    high materiality
    High
    Full-year 2025 Operating Income headwind from U.S. policy focus changes
    -$150 million
    high materiality
    High
    Full-year 2025 FX impact on revenue
    -$50 million headwind
    medium materiality
    High
    Full-year 2025 FX impact on adjusted operating income
    -$90 million headwind
    medium materiality
    High
    Full-year 2025 FX impact on adjusted EPS
    -$0.19 headwind
    medium materiality
    High
    Full-year 2025 Net Interest Expense
    approximately $330 million
    low materiality
    High
    Full-year 2025 Adjusted Tax Rate
    10.5%
    low materiality
    High
    Full-year 2025 Net Capital Expenditures
    $1.4 billion and $1.7 billion
    medium materiality
    High
    Full-year 2025 Free Cash Flow
    $7 billion to $7.4 billion
    high materiality
    High
    Full-year 2025 Share Buybacks
    $2 billion
    medium materiality
    High
    Full-year 2025 Dividends
    approximately $600 million
    low materiality
    High
    Q2 FY25 Organic Growth
    similar to Q1
    medium materiality
    High
    Q2 FY25 Adjusted EPS
    approximately $0.05 to $0.10 higher than Q1
    medium materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Life Science Solutions
    Reported and organic revenue growth was 2%. Growth driven by bioproduction business. Adjusted operating margin decreased 120 basis points versus prior year due to Olink acquisition, unfavorable mix, and strategic investments.
    		—2%—35.6%
    Analytical Instruments
    Reported revenue grew 2% and organic revenue grew 3%. Growth led by electron microscopy business. Adjusted operating margin decreased 50 basis points versus prior year due to strategic investments, foreign exchange headwinds, and unfavorable mix.
    		—2%—23.2%
    Specialty Diagnostics
    Reported revenue grew 3% and organic revenue grew 4%. Growth led by healthcare market channel, immunodiagnostics, and transplant diagnostics businesses. Adjusted operating margin was flat year-over-year.
    		—3%—26.5%
    Laboratory Products & Biopharma Services
    Reported and organic revenue decreased 1%. Had a 2% impact from pandemic-related revenue runoff, largely offset by growth in Pharma Services and research and safety market channel. Adjusted operating margin was flat year-over-year.
    		—-1%—13%

    Operational metrics

    28
    Adjusted Operating Income
    $2.27 billion
    Q1 FY25

    Ahead of expectations.

    Adjusted Operating Margin
    21.9%10 basis points lower YoY
    Q1 FY25

    Strong productivity largely offset unfavorable mix and FX headwind.

    GAAP EPS
    $3.98up 15% YoY
    Q1 FY25

    Reported GAAP EPS.

    Organic Revenue Growth
    1%approximately $100 million ahead of expectations
    Q1 FY25

    Reported organic revenue growth.

    FX Headwind
    1%
    Q1 FY25

    Headwind to reported revenue.

    FX Headwind
    $0.05
    Q1 FY25

    Higher FX headwind, largely due to noncash transactional FX.

    Selling Days Headwind
    approximately 3%
    Q1 FY25

    Combined impact with pandemic-related revenue runoff.

    Pandemic-related Revenue Runoff Headwind
    approximately 3%
    Q1 FY25

    Combined impact with selling days headwind.

    Organic Revenue Growth
    flatYoY
    Q1 FY25

    Organic revenue performance by geography.

    Organic Revenue Growth
    low single digits
    Q1 FY25

    Organic revenue performance by geography.

    Organic Revenue Growth
    low single digits
    Q1 FY25

    Organic revenue performance by geography.

    Organic Revenue Growth
    mid-single digits decline
    Q1 FY25

    Organic revenue performance by geography.

    Gross Margin
    41.7%
    Q1 FY25

    Total company gross margin.

    Adjusted SG&A
    16.5%
    Q1 FY25

    Adjusted SG&A as a percentage of revenue.

    R&D Expense
    $342 million
    Q1 FY25

    Reflects ongoing investments in high-impact innovation.

    R&D as a percent of Manufacturing Revenue
    7.5%
    Q1 FY25

    R&D spend relative to manufacturing revenue.

    Net Interest Expense
    approximately $100 million
    Q1 FY25

    Q1 net interest expense.

    Adjusted Tax Rate
    10%
    Q1 FY25

    Q1 adjusted tax rate.

    Average Diluted Shares
    $379 million$5 million lower YoY
    Q1 FY25

    Driven by share repurchases, net of option dilution.

    Net Capital Expenditures
    $350 million
    Q1 FY25

    Q1 net capital expenditures.

    Cash and Short-term Investments
    $5.9 billion
    end of Q1 FY25

    Balance at quarter end.

    Total Debt
    $34.2 billion
    end of Q1 FY25

    Balance at quarter end.

    Leverage Ratio
    3.2x
    end of Q1 FY25

    Leverage ratio at quarter end.

    Leverage Ratio
    2.6x
    end of Q1 FY25

    Leverage ratio at quarter end.

    Adjusted ROIC
    11.4%
    Q1 FY25

    Reflecting strong returns on investment.

    Investment in U.S. Manufacturing, R&D
    about $2 billion
    over 4 years

    Increasing investment to strengthen capabilities for customers and capitalize on new opportunities.

    Clinical Research Business Vaccine Studies Impact
    $200 million
    FY25

    Specific impact from policy changes on clinical trials.

    Pricing Actions
    close to 2%vs prior just over a percentage point
    FY25

    Appropriate pricing actions taken in response to inflationary environment and tariffs.

    Industry KPIs

    11
    MetricValueDetails
    FCF conversion ROIC11.4%%
    Revenue EPS guidanceRevenue $43.3B-$44.2B; Adjusted EPS $21.76-$22.84USD
    China revenue exposuremid-single digits decline%
    Pricing price realizationclose to 2%%
    Diagnostics testing demandStrong performance
    M a contribution synergies$4.1BUSD
    Segment organic revenue growthLife Science Solutions: 2%; Analytical Instruments: 3%; Specialty Diagnostics: 4%; Laboratory Products & Biopharma Services: -1%%
    Bioprocessing orders book to billGrowth
    Reshoring US manufacturing tailwind$2BUSD
    Instruments vs consumables services mixGrowth
    Organic core revenue growth by end market1%%

    Product announcements

    4
    ProductTypeDetails
    Thermo Scientific Vulcan Automated Lablaunch
    Thermo Scientific Transcend (next generation)launch
    Olink Reveal proteomics kitslaunch
    CorEvitas patient registrieslaunch

    Deals & partnerships

    2
    SolventumAcquisition of Solventum's Purification and Filtration business.$4.1 billion

    Definitive agreement entered into; subject to customary closing conditions and regulatory approvals. The business will become part of the Life Science Solutions segment upon close.

    Chan Zuckerberg Institute for Advanced Biological ImagingCollaboration to advance the understanding of human cells.

    Leveraging cutting-edge cryo-electron tomography technologies to support the development of the Open Cell Atlas, aimed at creating high-resolution 3D maps of human cells.

    Risks & headwinds

    4
    U.S.-China TariffsFY25

    $0.70 impact on FY25 adjusted EPS; $400 million revenue headwind for FY25; $375 million adjusted operating income headwind for FY25.

    Mitigation: Aggressive mitigation actions, including supply chain adjustments, expected to largely offset impact in 2025 and fully mitigate by 2026.

    U.S. Policy Focus ChangesFY25

    $0.30 impact on FY25 adjusted EPS; $500 million revenue headwind for FY25; $150 million operating income headwind for FY25.

    Mitigation: Appropriate cost management; leveraging extensive U.S. manufacturing capabilities to help customers navigate potential impacts.

    Macroeconomic UncertaintyOngoing

    Unquantified, but noted as causing uncertainty and remaining fluid.

    Mitigation: Operating with agility, actively managing business to mitigate impact and capitalize on new opportunities, leveraging PPI Business System.

    Foreign Exchange HeadwindQ1 FY25, FY25

    $0.05 impact on Q1 adjusted EPS; $50 million revenue headwind for FY25; $90 million adjusted operating income headwind for FY25; $0.19 adjusted EPS headwind for FY25.

    Mitigation: Mitigation actions, including supply chain changes, cost base management, and appropriate pricing actions, partially offsetting impact.

    What to watch in Q2 FY25

    5

    U.S.-China Tariff Mitigation Effectiveness

    Next year (2026)
    Current$0.70 adjusted EPS headwind for FY25, $375M operating income headwind for FY25.
    TargetRapid reduction in financial impact, full mitigation by 2026.

    Why it matters

    Critical for assessing the company's ability to offset significant tariff impact🌐s and protect profitability.

    We expect this impact will reduce very rapidly next year when the full benefits of our mitigation actions are realized.

    Q&A highlights

    5

    Asked about the rationale for wider guidance range, upside/downside scenarios, and levers to manage changes given the dynamic macro environment.

    Marc Casper explained the company's agility in navigating macro changes, highlighting strong Q1 performance and the majority of the business being on track. He outlined upside scenarios, such as policy changes or a more robust biotech environment, and downside risks like further tariff increases or a dampening macro. He emphasized the company's differentiated operational capabilities and scale to capitalize on opportunities and mitigate risks.

    “If things change, we're going to capitalize on opportunities that we never saw coming. We will navigate risks effectively. We'll roll back actions that are unnecessary as some of these things don't happen. So we'll be very agile.”

    asked by Michael Ryskin · answered by Marc Casper

    2 min read6 chapters

    Detailed Narrative

    01

    Q1 Performance Highlights

    The company reported Q1 revenue of $10.36 billion and adjusted EPS of $5.15, both exceeding prior expectations. Organic revenue grew 1%, despite a 3% headwind from two fewer selling days and pandemic-related revenue runoff. This performance was attributed to strong execution and operational discipline across all dimensions, with the majority of the business segments performing as expected.

    02

    Macroeconomic Headwinds & Guidance Update

    Thermo Fisher updated its full-year 2025 guidance to reflect recent macroeconomic changes, primarily U.S.-China tariffs and shifts in U.S. policy focus. These factors are expected to reduce adjusted EPS by $1.00 at the midpoint, with $0.70 from tariffs and $0.30 from policy changes, leading to a new adjusted EPS range of $21.76 to $22.84. Revenue guidance midpoint remained unchanged, with volume impacts offset by pricing actions and favorable FX.

    03

    Mitigation Strategies & Operational Agility

    Management emphasized its rapid response to macro changes, leveraging the PPI Business System to aggressively manage the supply chain, counteract tariffs, and control costs. The company expects to largely offset the impact of these changes in 2025 and fully mitigate them by 2026 through supply chain adjustments and pricing actions. This agility is seen as a significant competitive advantage in the current dynamic environment.

    04

    Strategic Investments & U.S. Manufacturing

    Thermo Fisher is increasing its investment in U.S. manufacturing, R&D, and analytical services, totaling approximately $2 billion over four years. This strategic move aims to capitalize on new opportunities arising from policy shifts and strengthen its capabilities as a domestic life sciences player, particularly in Pharma Services, where there is significant demand for its U.S. footprint.

    05

    Innovation and Customer Partnerships

    The company highlighted several new product launches, including the Thermo Scientific Vulcan Automated Lab for semiconductor manufacturing and the Transcend liquid chromatography platform for various testing applications. New Olink Reveal proteomics kits and CorEvitas patient registries were also introduced. Collaborations, such as with the Chan Zuckerberg Institute, underscore its commitment to high-impact innovation and trusted partner status with customers.

    06

    Capital Deployment

    In addition to repurchasing $2 billion of shares in January and increasing its dividend by 10%, Thermo Fisher announced the definitive agreement to acquire Solventum's Purification and Filtration business for $4.1 billion. This acquisition is expected to broaden bioproduction capabilities and enhance its position in the high-growth bioprocessing market, with completion anticipated by year-end 2025, subject to regulatory approvals.

    AI-generated summary of the company’s earnings call. Not investment advice.