Earnings Preview: Thermo Fisher (TMO)

Thermo Fisher Scientific (TMO) is expected to report its second-quarter fiscal 2010 results before the market opens on Tuesday, July 27, 2010. Following first quarter results, the company had raised its revenue and adjusted EPS guidance for fiscal 2010 to $10.65-$10.80 billion and $3.40-$3.50, respectively.

The current Zacks Consensus Estimate for the second-quarter EPS is 84 cents, which represents an increase of 13.5% from the year-ago quarter. Thermo Fisher has surpassed expectations over the trailing four quarters with a four-quarter positive surprise of 6.79%. This means that the company has beaten the Zacks Consensus Estimate by this magnitude over the last four quarters. Based on this favorable trend, there is a high probability that the company will exceed estimates in the upcoming quarter. In addition, the Zacks Consensus Estimate for revenue is $2.67 billion, representing an annualized growth of 7.7%.

Previous Quarter Highlights

Thermo Fisher reported its first quarter fiscal 2010 EPS of 84 cents, beating the Zacks Consensus Estimate of 75 cents and the year-ago earnings of 62 cents. The company recorded revenues of $2.68 billion, an increase of 19% compared with the first quarter of 2009. Growth was fueled by acquisitions and a favorable foreign currency translation.
Thermo Fisher’s two segments – Analytical Technologies and Laboratory Products and Services recorded revenues of $1.11 billion (18% annualized growth) and $1.70 billion (19%), respectively.

The company witnessed an expansion in margins in the first quarter. Gross margin increased 150 basis points year over year to 42.2%. Adjusted operating and net margins increased 200 bps and 150 bps year over year to 17.5% and 13.1%, respectively.

Agreement of Analysts

Estimates for the second quarter are toward the negative side over the past month, which indicates some potential for downward pressure on the stock. Out of the 13 analysts covering the stock, 3 have lowered their earnings estimates with no positive revisions. During the past week, estimate was lowered by 1 analyst.

Estimate revisions for fiscal 2010 reflect a similar negative bias. Over the last 30 days, 3 of the 14 analysts have lowered their forecasts with one positive revision. During the past week, estimate has been lowered by 1 analyst.

The bearish sentiment for the upcoming quarter reflects the economic concerns, which impact the company. The capital spending environment is constrained in the biopharma and healthcare markets. The industrial market during the first quarter appeared stable with improved capacity utilization and a pick-up in spare part sales. However, some industries such as metals continued to lag. Although these incidents point toward a slowly recovering economy, the benefits of investments will be realized only after a few quarters.

Magnitude of Estimate Revisions

There have been no estimate revisions for the June quarter over the past 7 days. This implies analysts are expecting the company to report in line. However, estimates for the quarter and fiscal 2010 have gone down by a penny over the past month. The current Zacks Consensus Estimate for 2010 is $3.47, reflecting a year-over-year growth of 13.8%.


After a drop in revenues during 2009, Thermo Fisher is back on the growth trajectory with strong first quarter results. A gradual improvement in the economic scenario along with its focus on emerging markets with strong potential should drive its top line in the forthcoming period. However, we remain concerned about the company’s exposure to foreign exchange risk, since it derived about 39% of its fiscal 2009 revenues from international operations. Moreover, any kind of economic turbulence resulting from financial constraints or deferrals in buying decisions of customers could negatively impact the company’s sales.

We are currently Neutral on the stock which corresponds to a Zacks Rank #3 (hold).

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