Thermo Fisher Scientific Reports Q3 Revenue and EPS Results

Third Quarter Highlights

• Adjusted earnings per share (EPS) grew 11% to a third quarter record of $1.19.
• Revenue increased 5% to a record $3.09 billion for the third quarter.
• Adjusted operating income rose 5% to $576 million.
• Year-to-date free cash flow increased 39% to $1.20 billion.
• Launched new immunoassays, analyzers and controls for specialty diagnostics, such as drugs-of-abuse testing, at AACC clinical laboratory expo.
• Opened new molecular biology Center of Excellence to serve global life sciences customers and strengthen presence in high-growth Eastern European markets.
• Completed acquisition of transplant diagnostics leader One Lambda, strengthening offering of in vitro specialty diagnostics for improving patient care. 
• Deployed $400 million to repurchase 7.1 million shares of common stock.

Adjusted EPS, adjusted operating income, adjusted operating margin and free cash flow are non-GAAP measures that exclude certain items detailed later in this press release under the heading “Use of Non-GAAP Financial Measures.” Results for the company’s Laboratory Workstations business are reported as a discontinued operation for all periods presented and are not included in the company’s 2012 guidance.

“We delivered another quarter of excellent revenue and earnings growth thanks to solid execution by our teams and strong results from our growth initiatives,” said Marc N. Casper, president and chief executive officer of Thermo Fisher Scientific. “Our innovative products, presence in emerging markets and commercial capabilities uniquely position us to help our customers meet their goals in the current economic environment.

“In the quarter, we expanded our Thermo Scientific specialty diagnostics offering for clinical laboratories with the launch of our new QMS™ Tacrolimus immunoassay in Europe and a new generation of our clinical analyzer, the Indiko® Plus®, in the U.S. In our biosciences business, we established a new molecular biology Center of Excellence in Lithuania to meet growing demand from life sciences and biotech customers globally.

“From a capital deployment perspective, we’re pleased to have completed our acquisition of One Lambda, which enhances our specialty diagnostics offering with tests that improve care for transplant patients. In addition, we continue to buy back our shares, and repurchased $400 million of our stock in the quarter.”

For the third quarter of 2012, adjusted EPS grew 11% to $1.19, versus $1.07 in the third quarter of 2011. Revenue for the quarter grew 5% to $3.09 billion in 2012, versus $2.93 billion in 2011. On a pro forma basis, as if Phadia were owned for the entire third quarter of 2011, organic revenue grew 4%, with currency translation lowering revenue by 3% and acquisitions, other than Phadia, increasing revenue by 1%. Adjusted operating income for the third quarter of 2012 increased 5% compared with the year-ago quarter, and adjusted operating margin was 18.7% in both periods.

GAAP diluted EPS for the third quarter of 2012 was $0.79, versus $0.69 in the same quarter last year. GAAP operating income for the third quarter of 2012 increased 11% to $352 million, compared with $316 million in 2011. GAAP operating margin was 11.4%, compared with 10.8% in the third quarter of 2011.

Annual Guidance for 2012
Thermo Fisher is raising its full year 2012 guidance based on strong year-to-date performance, completion of the One Lambda acquisition and slightly improved foreign exchange. As a result, the company now expects to generate revenue of $12.32 to $12.40 billion in 2012, resulting in 7% revenue growth year-over-year. The company is also raising its adjusted EPS guidance to a new range of $4.81 to $4.88, leading to 16% to 17% adjusted EPS growth over 2011.

Casper added, “Our excellent performance in the last nine months positions us to deliver a strong 2012, and gives us a solid foundation going into 2013.”

The 2012 guidance does not include the impact of any future acquisitions or divestitures and is based on recent foreign exchange rates. In addition, the adjusted EPS estimate excludes amortization expense for acquisition-related intangible assets and certain other items detailed later in this press release under the heading “Use of Non-GAAP Financial Measures.”

Segment Results
Management uses adjusted operating results to monitor and evaluate performance of the company’s three business segments, as highlighted below.

Analytical Technologies Segment
In the third quarter of 2012, Analytical Technologies Segment revenue increased 1% to $1.01 billion compared with the third quarter of 2011. Segment adjusted operating income decreased 2% in the third quarter of 2012, and adjusted operating margin was 18.9%, versus 19.5% in the 2011 quarter.

Specialty Diagnostics Segment
Specialty Diagnostics Segment revenue in the third quarter increased 15% to $707 million in 2012, compared with revenue of $616 million in the third quarter of 2011. Segment adjusted operating income increased 13% in the third quarter of 2012, and adjusted operating margin decreased to 24.1%, versus 24.4% in the 2011 quarter.

Laboratory Products and Services Segment
In the third quarter of 2012, Laboratory Products and Services Segment revenue increased 5% to $1.51 billion, compared with revenue of $1.44 billion in the third quarter of 2011. Segment adjusted operating income increased 7% in the third quarter of 2012, and adjusted operating margin was 14.2%, versus 13.9% in the 2011 quarter.

Use of Non-GAAP Financial Measures
In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures, including adjusted EPS, adjusted operating income and adjusted operating margin, which exclude restructuring and other costs/income and amortization of acquisition-related intangible assets. Adjusted EPS also excludes certain other gains and losses, tax provisions/benefits related to the previous items, benefits from tax credit carryforwards, the impact of significant tax audits or events and discontinued operations. We exclude the above items because they are outside of our normal operations and/or, in certain cases, are difficult to forecast accurately for future periods. We also use a non-GAAP measure, free cash flow, which excludes operating cash flows from discontinued operations and deducts net capital expenditures. We believe that the use of non-GAAP measures helps investors to gain a better understanding of our core operating results and future prospects, consistent with how management measures and forecasts the company’s performance, especially when comparing such results to previous periods or forecasts.

For example:
We exclude costs and tax effects associated with restructuring activities, such as reducing overhead and consolidating facilities. We believe that the costs related to these restructuring activities are not indicative of our normal operating costs.

We exclude certain acquisition-related costs, including charges for the sale of inventories revalued at the date of acquisition and significant transaction costs. We exclude these costs because we do not believe they are indicative of our normal operating costs.

We exclude the expense and tax effects associated with the amortization of acquisition-related intangible assets because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have lives of 5 to 20 years. Our adjusted EPS estimate for 2012 excludes approximately $1.37 of expense for the amortization of acquisition-related intangible assets for acquisitions completed through the end of the third quarter of 2012. Exclusion of the amortization expense allows comparisons of operating results that are consistent over time for both our newly acquired and long-held businesses and with both acquisitive and non-acquisitive peer companies.

We also exclude certain gains/losses and related tax effects, benefits from tax credit carryforwards and the impact of significant tax audits or events (such as the one-time effect on deferred tax balances of enacted changes in tax rates), which are either isolated or cannot be expected to occur again with any regularity or predictability and that we believe are not indicative of our normal operating gains and losses. For example, we exclude gains/losses from items such as the sale of a business or real estate, gains or losses on significant litigation-related matters, gains on curtailments of pension plans, the early retirement of debt and discontinued operations.

We also report free cash flow, which is operating cash flow, net of capital expenditures, and also excludes operating cash flows from discontinued operations to provide a view of the continuing operations’ ability to generate cash for use in acquisitions and other investing and financing activities.

Thermo Fisher’s management uses these non-GAAP measures, in addition to GAAP financial measures, as the basis for measuring the company’s core operating performance and comparing such performance to that of prior periods and to the performance of our competitors. Such measures are also used by management in their financial and operating decision-making and for compensation purposes.

The non-GAAP financial measures of Thermo Fisher’s results of operations and cash flows included in this press release are not meant to be considered superior to or a substitute for Thermo Fisher’s results of operations prepared in accordance with GAAP. Reconciliations of such non-GAAP financial measures to the most directly comparable GAAP financial measures are set forth in the accompanying tables. Thermo Fisher’s earnings guidance, however, is only provided on an adjusted basis. It is not feasible to provide GAAP EPS guidance because the items excluded, other than the amortization expense, are difficult to predict and estimate and are primarily dependent on future events, such as acquisitions and decisions concerning the location and timing of facility consolidations.