First Quarter 2013 Highlights:
• Adjusted operating margin expanded 40 basis points to 19.3%
• Launched innovative new products at Pittcon that strengthened analytical technologies offering, including major upgrade of gold-standard Chromeleon chromatography data system
• Deployed $90 million in the quarter to repurchase 1.3 million shares
• After quarter-end, announced agreement to acquire Life Technologies, creating an unrivaled industry leader serving research, specialty diagnostics and applied markets
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.”
“We’re pleased with our solid first quarter results, with good performance on the top line,” said Marc N. Casper, president and chief executive officer of Thermo Fisher Scientific. “We also extended our track record of strong adjusted EPS growth, delivering a 17% increase year over year. Although the macro environment played out at the lower end of our expectations, our teams executed well to continue our growth momentum into 2013.
“It was a great quarter for product innovation, with a strong showing at Pittcon that reinforced our leadership in analytical technologies. Among the highlights, we introduced the next generation of our premier chromatography software, Chromeleon 7.2. This upgrade allows mass spectrometry and chromatography systems to be controlled on one data platform for the first time and facilitates the flow of information, for example, between research labs. For applied markets, we launched the iCAP 7000 elemental analyzer and the picoSpin 45 miniature NMR spectrometer, both of which extend the use of research-grade technologies to a broader customer base.
“From a geographic perspective, our industry-leading scale in Asia-Pacific continues to drive growth. This is particularly evident in China, where our depth of capabilities is helping our customers there improve healthcare, the environment and food safety.
“Finally, the recent announcement of our agreement to acquire Life Technologies will take our leadership position to a new level, creating an unrivaled leader in our industry. We look forward to closing the transaction and executing a successful integration to create significant value for our customers and shareholders alike.”
First Quarter 2013
For the first quarter of 2013, adjusted EPS grew 17% to a record $1.37, versus $1.17 in the first quarter of 2012. Revenue for the quarter grew 4% to $3.19 billion in 2013, versus $3.06 billion in 2012. Organic revenue grew 3%, with currency translation lowering revenue by 1% and acquisitions increasing revenue by 3%. Adjusted operating income for the first quarter of 2013 increased 7% compared with the year-ago period, and adjusted operating margin expanded to 19.3%, compared with 18.9% in the first quarter of 2012.
GAAP diluted EPS for the first quarter of 2013 was $0.93, versus $0.75 in the same quarter last year. GAAP operating income for the first quarter of 2013 increased 7% to $387 million, compared with $362 million in 2012. GAAP operating margin increased to 12.1%, compared with 11.8% in the first quarter of 2012.
Annual Guidance for 2013
Casper added, “We’re updating our 2013 guidance based on our solid first quarter performance and our decision to suspend share buybacks in light of our pending acquisition of Life Technologies.”
The company is updating its revenue guidance range from $12.80 to $13.00 billion to a new range of $12.84 to $13.00 billion, resulting in 3% to 4% growth year over year. It is also updating full year 2013 adjusted EPS guidance from $5.32 to $5.46 to a new range of $5.27 to $5.39, reflecting the suspension of share buybacks and tightening of its revenue range. This would lead to 7% to 9% growth over 2012.
The 2013 guidance does not include the acquisition of Life Technologies or the impact of related financing activities. As previously stated, the guidance does not include any other future acquisitions or divestitures, and is based on current 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.”
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 first quarter of 2013, Analytical Technologies Segment revenue was $978 million, compared with revenue of $980 million in the first quarter of 2012. Segment adjusted operating income decreased 2% in the first quarter of 2013, and adjusted operating margin was 18.0%, versus 18.2% in the 2012 quarter.
Specialty Diagnostics Segment
Specialty Diagnostics Segment revenue in the first quarter increased 10% to $806 million in 2013, compared with revenue of $732 million in the first quarter of 2012. Segment adjusted operating income increased 19% in the first quarter of 2013, and adjusted operating margin increased to 27.5%, versus 25.5% in the 2012 quarter.
Laboratory Products and Services Segment
In the first quarter of 2013, Laboratory Products and Services Segment revenue increased 5% to $1.54 billion, compared with revenue of $1.48 billion in the first quarter of 2012. Segment adjusted operating income increased 3% in the first quarter of 2013, and adjusted operating margin was 14.1%, versus 14.3% in the 2012 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.