10-QPeriod: Q2 FY2015

THERMO FISHER SCIENTIFIC INC. Quarterly Report for Q2 Ended Jun 27, 2015

Filed July 31, 2015For Securities:TMO

Summary

Thermo Fisher Scientific Inc. (TMO) reported its financial results for the quarter and six months ending June 27, 2015. For the three months ended June 27, 2015, total revenues were $4.27 billion, a slight decrease of 1% compared to the prior year's quarter, largely impacted by unfavorable currency translation. However, excluding the effects of currency translation, divestitures, and acquisitions, revenues grew 6% due to increased demand, particularly from the pharmaceutical and biotech industries. Net income for the quarter significantly increased to $511.6 million ($1.27 per diluted share) from $278.5 million ($0.69 per diluted share) in the prior year's quarter. This substantial improvement was driven by higher operating income, which benefited from one-time charges in the prior year related to the Life Technologies acquisition and improved operational efficiencies. For the six-month period, revenues remained relatively flat year-over-year at $8.19 billion, with growth in key segments like Life Sciences Solutions offset by currency headwinds and some segment declines. Net income for the six months increased to $896.7 million ($2.23 per diluted share) from $821.6 million ($2.05 per diluted share) in the comparable period last year.

Financial Highlights

57 data points
Beta

Revenue

$4.27B

45.5% Gross Margin

Net Income

$511.60M

12.0% Net Margin

EPS (Diluted)

$1.27

Total Assets

$41.77B

Cash & Equivalents

$768.40M

Free Cash Flow

$669.60M

Financial Statements
Beta
Revenue$4.27B
Cost of Revenue$1.91B
Gross Profit$1.94B
R&D Expenses$174.60M
SG&A Expenses$1.15B
Operating Expenses$3.68B
Operating Income$595.80M
Interest Expense$102.90M
Net Income$511.60M
EPS (Basic)$1.28
EPS (Diluted)$1.27
Shares Outstanding (Basic)398.40M
Shares Outstanding (Diluted)401.50M

Key Highlights

  • 1Total revenues for the three months ended June 27, 2015, were $4.27 billion, a 1% decrease from $4.32 billion in the prior year, largely due to unfavorable currency translation ($268 million impact). Excluding currency effects, revenues grew 6% organically.
  • 2Net income for the three months ended June 27, 2015, increased significantly to $511.6 million, or $1.27 per diluted share, compared to $278.5 million, or $0.69 per diluted share, in the same period last year.
  • 3For the six months ended June 27, 2015, total revenues were $8.19 billion, a slight decrease of 0.4% from $8.23 billion in the prior year. Excluding currency effects, revenues grew 4% organically.
  • 4The Life Sciences Solutions segment showed strong revenue growth of 11% for the six-month period, reaching $2.15 billion, driven by increased demand for biosciences and bioprocess production products.
  • 5Operating income margin improved to 14.0% in the second quarter of 2015 from 8.1% in the second quarter of 2014, primarily due to lower acquisition-related charges compared to the prior year and productivity improvements.
  • 6The company's balance sheet shows total assets of $41.77 billion as of June 27, 2015, down from $42.85 billion at the end of 2014. Long-term obligations decreased to $10.66 billion from $12.35 billion.
  • 7Thermo Fisher continues to execute strategic acquisitions, including the announced acquisition of Alfa Aesar for approximately $400 million and the completed acquisition of Advanced Scientifics for approximately $289 million in early 2015.

Frequently Asked Questions

The substantial increase in net income was primarily driven by a significant rise in operating income. This was largely due to the fact that the second quarter of 2014 included substantial charges ($170 million) related to the acquisition of Life Technologies, which were not present in the current year's quarter. Additionally, productivity improvements and organic revenue growth in local currencies contributed to the improved profitability.

The strengthening U.S. dollar against other currencies is having a significant adverse effect on reported revenues and operating income. In the second quarter of 2015, currency translation resulted in a decrease in revenues of $268 million. The company expects this trend to continue to negatively impact reported results for the remainder of 2015.

Thermo Fisher maintains a solid liquidity position. As of June 27, 2015, the company had $770 million in cash and cash equivalents and short-term investments. They also have access to a $2.0 billion revolving credit facility. The company believes its cash, future operating cash flow, and available borrowing capacity will be sufficient to meet its cash requirements for at least the next 24 months. They also completed a significant debt offering in July 2015.

Thermo Fisher is involved in various lawsuits and claims, including those related to intellectual property. Notably, in July 2015, 454 Life Sciences (Roche Group) filed complaints alleging patent infringement and breach of contract related to sequencing workflows. Additionally, there are ongoing intellectual property litigations inherited from the Life Technologies acquisition, with some cases still in appeals or requiring further proceedings. The company accrues for probable losses but notes that unfavorable outcomes could materially affect its financial position and results.