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F500-2023-097-Thermo Fisher Scientific

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<ul> 
 	<li>Thermo Fisher kicked off 2023 with its acquisition of diagnostics company The Binding Site in an all-cash transaction of $2.8 billion.</li> 
 	<li>In December 2022, the U.S. Food and Drug Administration granted emergency use authorization for Thermo Fisher’s test to detect monkeypox.</li> 
 	<li>As competitors like Novartis and Biogen announced plans to cut back on R&amp;D projects in early 2023, Thermo Fisher showed signs of continued innovation. New product releases include an instrument to analyze trace elements like toxins in food and beverages as well as an automated digital tool to increase productivity in molecular research.</li> 
</ul>

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F500-2022-092-Thermo Fisher Scientific

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<span data-sheets-value="{&quot;1&quot;:2,&quot;2&quot;:&quot;Thermo Fisher Scientific, which sells equipment, software, and services for scientific research, had a stellar 2020, lifted by huge demand for its products, such as PCR tests, during the pandemic. The lab supplier collected $6.6 billion in revenue during the year from sales of instruments and other products to more than 200 customers trying to develop COVID-19 vaccines and treatments. Overall revenue rose 26% to $32 billion, compared with the prior year, while profits soared 73% to $6.4 billion. Even with the COVID vaccine rush behind them, the company is thinking big with its $17.4 billion acquisition of contract research business PPD, which it announced in April.&quot;}" data-sheets-userformat="{&quot;2&quot;:12673,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:2,&quot;11&quot;:4,&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:12}">Thermo Fisher Scientific, which sells equipment, software, and services for scientific research, had a stellar 2020, lifted by huge demand for its products, such as PCR tests, during the pandemic. The lab supplier collected $6.6 billion in revenue during the year from sales of instruments and other products to more than 200 customers trying to develop COVID-19 vaccines and treatments. Overall revenue rose 26% to $32 billion, compared with the prior year, while profits soared 73% to $6.4 billion. Even with the COVID vaccine rush behind them, the company is thinking big with its $17.4 billion acquisition of contract research business PPD, which it announced in April.

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F500-2021-95-Thermo-Fisher-Scientific-DR2A0394

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G500-2020-498-Thermo-Fisher-Scientific

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This year's Fortune 500 marks the 66th running of the list.

F500-2020-119-Thermo-Fisher-Scientific

This manufacturer of analytical instruments, equipment, software, and services for the scientific research industry has more than 75,000 employees around the world.

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Thermo Fisher Scientific is a global provider of life sciences solutions, analytical instruments, specialty diagnostics, laboratory products, and biopharma services. Founded in 1956, the company has a strong presence in North America, Europe, and the Asia-Pacific region. The company’s operations are structured into four main sections: life sciences solutions, analytical instruments, specialty diagnostics, and laboratory products and biopharma services.

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Q4 2024

Thermo Fisher Scientific (TMO): Company Profile, Stock Price, News, Rankings

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Thermo Fisher Scientific

thermo fisher scientific

Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific twenty twenty five First Quarter Conference Call. I would like to introduce our moderator for the call, Mr. Rafael Tejada, Vice President, Investor Relations. Mr. Tejada, you may begin the call.

Good morning, and thank you for joining us. On the call with me today is Mark Casper, our Chairman, President and Chief Executive Officer and Stephen Williamson, Senior Vice President and Chief Financial Officer. Please note this call is being webcast live and will be archived on the Investors section of our website, thermofisher.com, under the heading News, Events and Presentations until 07/22/2025. A copy of the press release of our first quarter earnings is available in the Investors section of our website under the heading Financials. So before we begin, let me briefly cover our Safe Harbor statement.

Various remarks that we may make about the company's future expectations, plans and prospects constitute forward looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors, including those discussed in the company's most recent annual report on Form 10 ks, which is on file with the SEC and available in the Investors section of our website under the heading Financials SEC Filings. While we may elect to update forward looking statements at some point in the future, we specifically disclaim any obligation to do so even if our estimates change. Therefore, you should not rely on these forward looking statements as representing our views as of any date subsequent to today. Also, during this call, we will be referring to certain financial measures not prepared in accordance with Generally Accepted Accounting Principles or GAAP.

A reconciliation of these non GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our first quarter twenty twenty five earnings and also in the Investors section of our website under the heading Financials. So with that, I'll now turn the call over to Mark.

Thank you, Raf. Good morning, everyone, and thanks for joining us today for our first quarter call. As you saw in our press release, we delivered very strong performance in the quarter. I'm proud of our team's ongoing focus to enable the success of our customers while demonstrating incredibly strong commercial execution and operational discipline. Our continued success is a result of our growth strategy, our PPI business system and our proven capital deployment approach.

And of course, all of this is against the backdrop of a more uncertain macro environment. So big thanks to the team for their efforts. In my remarks today, I'll first cover Q1, which was a strong quarter with clean execution across all dimensions. In the second part of my remarks, I will cover the expected impact of the uncertainty in the macro environment, and I'll provide a high level view of our updated guidance for the year that incorporates the expected net impact of current tariffs and the changes driven by the current policy focus of the U. S.

Administration. So to turn into Q1, let me recap the financials. Our revenue in the quarter was $10,360,000,000 Our adjusted operating income was $2,270,000,000 Q1 adjusted operating margin was 21.9%, and we grew adjusted EPS by 1% to $5.15 per share. Our team's excellent execution and strong focus on our customer success enabled us to deliver revenue performance ahead of our expectations, and then we translated that revenue performance into earnings that were also ahead of expectations. Turning to our performance by end market.

As a reminder, there were two less days in the quarter than the same period last year. In pharma and biotech, we delivered low single digit growth during the quarter, which included a two point headwind from the runoff of vaccine and therapy related revenue. Performance in this quarter was led by our bioproduction and pharma services businesses as well as our research and safety market channel. In academic and government, revenue declined low single digits in the quarter, driven by the macro conditions in The U. S.

And China for this end market. In industrial and applied, we grew low single digits during the quarter, highlighted by strong growth in our electron microscopy business. Finally, in Diagnostics and Healthcare, we grew low single digits during the quarter, reflecting strong performance in our Healthcare market channel and in our transplant diagnostics and immunodiagnostics businesses. Wrapping up on our end markets, while there were more it was more uncertainty than originally expected, our team delivered on our financial commitments for the quarter. In terms of our growth strategy, we made terrific progress in the quarter.

As a reminder, our strategy consists of three pillars: high impact innovation, our trusted partner status with customers and our unparalleled commercial engine. So starting with the first pillar of our growth strategy, high impact innovation. We had an excellent start to the year, launching several outstanding new products that are strengthening our industry leadership by enabling customers to advance their important work. Let me first highlight a couple of new products and analytical instruments that demonstrate our continued market leadership. In electron microscopy, we introduced the Thermo Scientific Vulcan automated lab, a fully integrated AI enabled solution that combines robotics and electron microscopy, helping to advance process development and control in semiconductor manufacturing.

The Vulcan system speeds up transmission electron microscopy workflows, reduces labor and delivers consistent high quality data. This innovation improves manufacturing yields and enhances productivity and seamlessly connects lab and fabrication operations, a major step forward for our semiconductor customers. In chromatography and mass spectrometry, we introduced the next generation Thermo Scientific Transcend, a new ultra high performance liquid chromatography platform, helping high volume laboratories simplify sample preparation and increase efficiency in clinical research for enzotoxicology, food safety and environmental testing applications, including for PFAS. Turning to our genetic sciences business, we introduced OLINK Reveal proteomics kits that enable the identification of proteins related to inflammation and immune response, helping to advance precision medicine. It was a terrific quarter for innovation, and we're excited about the strong pipeline of launches slated for Q2, including those that will debut at ASMS.

Our high impact innovation is enabling an even brighter future for our company. During the quarter, we also continued to strengthen our industry leading commercial engine and deepen our trusted partner status with our customers to accelerate their innovation and enhance their productivity. In our clinical research business, we continued to strengthen our leadership in real world evidence to help our customers gain insights about the safety and effectiveness of current and future treatments. We launched new CoreVitas patient registries in alopecia and lupus to enhance our customers' ability to inform treatment decisions and ultimately improve patient outcomes. And in electron microscopy, we announced a new collaboration with the Chan Zuckerberg Institute for Advanced Biological Imaging to advance the understanding of human cells by leveraging cutting edge cryo electron tomography technologies.

This effort supports the development of the Open Cell Atlas, a groundbreaking initiative aimed at creating high resolution three d maps of human cells to drive biological discovery. It's another example of how Thermo Fisher is enabling large scale collaborative research efforts that push the boundary of science forward. Our trusted partner status and industry leading commercial capabilities enabled our enable our customers' success. They also provide us a unique opportunity for us to engage with our customers, helping them solve current challenges and plan for the future. As always, our PPI business system played a significant role in our success, enabling outstanding execution during the quarter.

PPI engages and empowers all of our colleagues to find a better way every day. PPI is helping us to drive share gains and improve quality, productivity and customer allegiance. It's a significant competitive advantage for Thermo Fisher as we navigate through the current macroeconomic uncertainty. Let me now turn to capital deployment. We continue to successfully execute our proven capital deployment strategy, which is a combination of strategic M and A and returning capital to our shareholders.

In February, we announced that we entered into a definitive agreement to acquire Solventum's purification and filtration business for $4,100,000,000 The business is a leading provider of purification and filtration technologies used in the production of biologics as well as in medical technologies and industrial applications. Silventum's innovative products are highly complementary to our leading cell culture media and single use technologies, broadening our bioproduction capabilities to better serve the high growth bioprocessing market. The transaction is expected to be completed by the end of twenty twenty five and is subject to customary closing conditions and regulatory approvals. We look forward to welcoming our new colleagues to Thermo Fisher. In terms of return of capital, during the quarter, we repurchased $2,000,000,000 of shares and increased our dividend by 10%.

Let me now turn to our guidance. We've all seen a tremendous pace of change in the world since we provided our guidance on January 30. The two main elements of the macro changes since then are tariffs and the changes driven by the current policy focus of the U. S. Administration.

As you would expect, we've been operating with agility to assess the changes as they come and we're actively managing our business to mitigate the impact and capitalize on new opportunities. As a result, we're able to offset a large amount of the impact of the macro changes in 2025 and more fully offset them when the full impact of our mitigation actions is realized next year. While these recent macro changes are causing uncertainty and remain fluid, we thought it would be most helpful to the investment community to offer our best estimate of the impact of the known changes as of today and embed them in our guidance. Our updated guidance range for the year is revenue in the range of $43,300,000,000 to $44,200,000,000 and adjusted EPS in the range of $21.76 to $22.84 Steven will take you through the details in his remarks. While the guidance has changed for the expected impact of the macro factors and the mitigating actions, it's important to note that the rest of the guidance remains fully on track relative to what we shared on our last earnings call.

As you know, during periods of change, we define a clear set of guiding principles on how to successfully manage the company. These principles have three elements. First, everything we do starts with our customers and ensuring that we're enabling their success. Second, we inspire our colleagues to bring their best every day to fulfill our mission. And third, you know we hold ourselves to an incredibly high standard to deliver differentiated short term performance, all while identifying opportunities to enhance our long term competitive position, which creates an even brighter future for our company.

To enable that differentiated short- and long term performance in this environment, we're leveraging our PPI business system to aggressively manage our supply chain to counteract tariffs and to appropriately manage our cost base. You've heard us talk about our commercial intensity, and we're pivoting our commercial teams to the areas with the best opportunities to accelerate our share gain momentum. We're ensuring that our trusted partner status is driving tangible benefits for our customers. And one way we're doing this is by continuing to invest further to strengthen our capabilities for our customers. This includes increasing our investment in U.

S. Manufacturing, R and D, in the range of about $2,000,000,000 As the largest domestic life sciences player in every major market around the world, we're uniquely positioned to help customers navigate this environment. I'm encouraged by the fact that both our colleagues and our customers have never been more enthusiastic about our company. Our customer lead score is at an all time high, and colleague engagement and retention is incredibly strong. So to summarize our key takeaways from the quarter.

We delivered a very strong quarter driven by our proven growth strategy and PPI business system. Our trusted partner status and proven ability to enable our customer success is a significant competitive advantage. Looking ahead, we're acting with speed and agility to navigate the current environment, and we're incredibly well positioned to minimize the impact and maximize new opportunities, creating an even brighter future for our company. With that, I'll now hand the call over to our CFO, Steven Williamson. Steven?

Thanks, Mark, and good morning, everyone. I'll take you through an overview of our first quarter results for the total company, then provide color on our four business segments, and I'll conclude by providing our updated 2025 guidance. Before I get into the details of our financial performance, let me provide you with a high level view of how the first quarter played out versus our expectations at the time of our last earnings call. In Q1, we had another quarter of excellent execution, and this enabled us to deliver Q1 financials ahead of what we'd assumed in our prior guidance. Organic revenue growth was approximately $100,000,000 or 1% ahead, and adjusted EPS was $0.04 ahead.

This was driven by $09 of very strong operational performance, partially offset by $05 of higher FX headwind, largely due to noncash transactional FX. So a clean beat for the quarter. The team's execution was excellent, and we delivered a strong start to the year. I'm going now provide you some additional details on our performance, starting with earnings per share. In the quarter, adjusted EPS grew 1% to $5.15 GAAP EPS in the quarter was $3.98 up 15% from Q1 last year.

On the top line, Q1 reported revenue was flat year over year. The components of our reported revenue include 1% organic revenue growth, a slight contribution from acquisitions and a 1% headwind from foreign exchange. For context, within our revenue growth for the quarter, we had a headwind of approximately 3% from the combined impact of two less selling days and the runoff of the pandemic related revenue. Turning to our organic revenue performance by geography. In Q1, North America was flat year over year.

Europe grew low single digits, and Asia Pacific also grew low single digits, with China declining mid single digits. With respect to our operational performance, we delivered $2,270,000,000 of adjusted operating income in the quarter, and adjusted operating margin was 21.9%, ten basis points lower than Q1 last year. In the quarter, we delivered very strong productivity. This enabled us to fund strategic investments to further advance our industry leadership and largely offset the impact of unfavorable mix and a headwind from foreign exchange. Total company gross margin in the quarter was 41.7%.

Moving on to the details of the P and L. Adjusted SG and A in the quarter was 16.5% of revenue. Total R and D expense was $342,000,000 in Q1, reflecting our ongoing investments in high impact innovation. R and D as a percent of manufacturing revenue was 7.5% in the quarter. Looking at our results below the line, our Q1 net interest expense was approximately $100,000,000 The adjusted tax rate was 10%.

And average diluted shares were $384,000,000 lower year over year, driven by share repurchases net of option dilution. Turning to free cash flow and the balance sheet. Q1 cash flow from operations was $720,000,000 and free cash flow was $370,000,000 after investing $350,000,000 of net capital expenditures. During Q1, we deployed $2,100,000,000 of capital to shareholders through $2,000,000,000 of share buybacks, which were completed in January and approximately 150,000,000 of dividends. Also during the quarter, as Mark mentioned, we announced the definitive agreement to acquire Sorventum's purification and filtration business for approximately $4,100,000,000 in cash.

We expect the transaction to be completed by the end of twenty twenty five, and the business will become part of our Life Science Solutions segment upon close. We ended the quarter with $5,900,000,000 in cash and short term investments and $34,200,000,000 of total debt. Our leverage ratio at the end of the quarter was 3.2 times gross debt to adjusted EBITDA and 2.6 times on a net debt basis. Concluding my comments on our total company performance, adjusted ROIC was 11.4%, reflecting the strong returns on investment that we're generating across the company. Now I'll provide some color on the performance of our four business segments.

As a reminder, in Q1, we had two less selling days than the prior year quarter. This impacted revenue growth in each segment by approximately one to two percentage points. In Life Science Solutions, Q1 reported revenue in this segment increased 2% versus the prior year quarter, and organic revenue growth was also 2%. Growth in this segment was driven by our bioproduction business. Q1 adjusted operating income for Life Science Solutions decreased 1%, adjusted operating margin was 35.6%, down 120 basis points versus the prior year quarter.

During Q1, we delivered very strong productivity, which is more than offset by the expected impact of the OLink acquisition, unfavorable mix and strategic investments. In the Analytical Instruments segment, reported revenue grew 2% year over year and organic revenue growth was 3%. The growth in the quarter was led by electron microscopy business. In this segment, Q1 adjusted operating income was flat year over year and adjusted operating margin was 23.2%, down 50 basis points versus the year ago quarter. In Q1, we delivered strong productivity and volume pull through, which is more than offset by strategic investments, foreign exchange headwinds and unfavorable mix.

Turning to Specialty Diagnostics. In Q1, reported revenue grew 3% year over year and organic revenue increased 4%. In Q1, growth in this segment was led by our Healthcare market channel and our immunodiagnostics and transplant diagnostics businesses. Q1 adjusted operating income for Specialty Diagnostics increased 3% and adjusted operating margin was 26.5%, flat year over year. During the quarter, we delivered good productivity and volume pull through, which was offset by foreign exchange headwinds and unfavorable mix.

And finally, in Laboratory Products and Biopharma Services segment, both reported revenue and organic revenue decreased 1% versus the prior year quarter. The runoff of pandemic related revenue had about 2% impact on revenue growth in this segment in Q1. This was largely offset by good growth in our pharma services business and our research and safety market channel. In this segment, Q1 adjusted operating income decreased 2% and adjusted operating margin was 13%, which is flat to Q1 twenty twenty four. In the quarter, we delivered very strong productivity, which is offset by unfavorable mix and strategic investments.

So turning to guidance. As Mark outlined, we're updating our twenty twenty five full year guide to reflect the continued strength of the business, including the very strong start to the year in Q1 and to reflect the expected impact of recent changes in the macroeconomic environment. While these recent macro changes are causing uncertainty and remain fluid, we thought it would be most helpful to the investment community to offer our best estimate of the impact of the known changes as of today and embed them in our guide. Let me start with a high level summary of the change to the midpoint of the guide. I'll then provide more detail around each one of the changes so that you have the right context.

Adjusted EPS is $1 lower at the midpoint than our previous guidance. 0.7 is driven by the tariffs between U. S. And China. We expect this impact will reduce very rapidly next year when the full benefits of our mitigation actions are realized.

Non China related tariffs are assumed to have no net impact to the adjusted EPS for the full year 2025. Our mitigation actions offset the gross impact of the new costs within the year. And finally, the impact of changes driven by the current policy focus of the U. S. Administration has a $0.30 impact in 2025.

Revenue dollars are unchanged at the midpoint. The volume related impacts are offset by our mitigating price actions and more favorable FX. And we now expect organic revenue growth to be 2% at the midpoint of the range for the year. The guidance is prepared using tariff rates that are in place today and assumes no change in the current U. S.

Policy focus. So we're updating the guide to reflect the change in the macro environment and our highly impactful mitigation actions. It's important to note that all the rest of our guidance remains on track for the year. Let me now give you the detailed context behind each of these macro change factors, starting with The U. S.-China tariffs.

The tariff rates here are so substantial that they're likely to significantly reduce the volume of trade between the two countries. They expect this will impact the sales of our products in China that are produced by our facilities in The U. S. In our guidance, we're assuming this is a $400,000,000 revenue headwind for the year. These tariffs are also expected to increase the cost of China sourced parts and subassemblies.

The pull through on the lower volumes and higher costs, net of the aggressive mitigation actions, is assumed to be a headwind of adjusted operating income in 2025 of $375,000,000 versus that prior guide. The mitigation actions take time to complete, so we don't get all the benefit from them in 2025. Once they are complete, we expect them to fully mitigate the impact of these tariffs. Moving on now to non China related tariffs. These recently raised tariffs are increasing our costs where we directly import items into The U.

S. They'll also likely increase the cost of many items that we buy in The U. S. That have an overseas content. A partial offset to the impact of these tariffs is foreign exchange.

The increase in tariffs have caused a significant weakening of the U. S. Dollar. At current rates, this increases our revenue guide for the year by $600,000,000 The bottom line benefit of the FX change is more muted given the mix of currencies and onetime transactional FX caused by the recent rapid change in the rates. We're driving offsetting mitigation actions here as well, a combination of supply chain changes, actively managing our cost base and appropriate pricing actions.

As a result, as I mentioned earlier, there's no net adjusted EPS impact for 2025 from the non China related tariffs. Then in terms of the changes in U. S. Policy focus, the largest impact is likely to be on our U. S.

Academic and government customers. We now expect that purchases to be more muted in 2025, especially for instruments and equipment, as we evaluate the impact of potential changes to government funding and work out how to access new funding sources to continue their critical work. We're baking into our guidance a lower level of clinical trials work also related to vaccine studies. Net of appropriate cost management, these changes to U. S.

Policy focus reduced our guidance midpoint by $500,000,000 of revenue, dollars 150,000,000 of operating income and $0.30 of adjusted EPS. The tariffs and policy changes are also creating some very relevant medium- and long term opportunities, and we're working to maximize these upsides, including leveraging our extensive U. S. Manufacturing capabilities to help our customers navigate their own potential tariff impact. This will have minimal impact in 2025, but it's expected to be an important contributor going forward.

So bringing all this together, our updated guidance range for the year now reflects revenue in the range of $43,300,000,000 to $44,200,000,000 organic growth in the range of 1% to 3% and adjusted operating income margins in the range of 22% to 22.6%. It's worth noting that the tariff related changes to the guide reduced our adjusted operating income margin by 120 basis points. This is driven by FX and also the tariff costs, partially offset by incremental pricing actions. We're taking the right actions in protecting the profit dollars, but it has an impact on our reported margins. And then finally, adjusted EPS in the range of $21.76 to $22.84 This reflects excellent performance in the current conditions.

From a range standpoint, we've assumed a plus or minus 1% organic revenue growth range around the midpoint. This range is provided to give you a view on the potential outcomes based on the world as it is today and the current tariff levels and the current policy focus areas being unchanged. There are scenarios for 2025 that could be low in this guidance range if the macroeconomic outlook meaningfully dampens, and there are scenarios that could play out above this range that would be largely in line with our original guidance. As I think about the implications for beyond 2025, given the robust mitigation actions we're putting in place, I see the financial impact of these macro driven changes to our guide reducing fairly rapidly. We'll quickly realize the full benefit of our supply chain actions, our academic customers will adapt their funding sources, and we'll capitalize on the new opportunities that the macro changes are creating.

So now I'll move on to an update to some of the modeling elements for the full year. Given the recent changes in rates, we now expect FX to be a year over year headwind to revenue of $50,000,000 and $90,000,000 headwind to adjusted operating income. This includes an estimated $60,000,000 of onetime transactional FX. In terms of adjusted EPS, we now expect FX to be a headwind of zero one nine dollars for the year. Below the line, we now expect approximately $330,000,000 of net interest expense in 2025.

The adjusted tax rate assumption for the year is expected to be 10.5% versus our prior guide of 11.5%, reflecting the changes to our earnings guidance. We continue to expect between $1,400,000,000 and $1,700,000,000 of net capital expenditures in 2025 and free cash flow in the range of $7,000,000,000 to $7,400,000,000 for the year. In terms of capital deployment, we're assuming $2,000,000,000 of share buybacks, which were already completed in January. We continue to estimate the full year average diluted share count will be between $378,000,000 and $379,000,000 shares. We'll return approximately $600,000,000 of capital to shareholders this year through dividends.

And our guidance does not include any future acquisitions or divestitures, so it does not include any impact from the pending acquisition of Sorbentum's purification and filtration business. And finally, I wanted to touch on phasing for Q2. We expect organic growth in Q2 to be similar to Q1 and adjusted EPS in Q2 to be approximately $05 to $0.10 higher than Q1. So to conclude, in a more uncertain world, we delivered on our commitments in Q1. And while the world is more uncertain, what is unchanged is our approach.

We're acting with agility and navigating appropriately, enabling the success of our customers, our colleagues and our shareholders. With that, I'll turn the call back over to Raf.

Thank you, Stephen. Operator, we're ready for the Q and A portion of the call.

Thank you. We will now begin today's question and answer session. Session. Our first question today comes from the line of Michael Ryskin with Bank of America. Please go ahead, Michael.

Great. Thanks for taking the question and thanks for the detailed comments, Mark and Steven. That was really helpful. I want to start on, Sunit, you both touched on sort of the approach to the guide methodology going forward given all the uncertainty in the broader market and especially on the policy side. Just trying to think about, obviously things have changed a lot in the last three months.

It feels like they're changing every day, every week. We noticed that for the guide both for revenues and EPS, you're giving a wider range than you have in the past. But just could you talk a little bit upside downside sort of what the world looks like for the lower end versus what the world looks like for the higher end? And just if things keep changing as they have been, levers you have to offset things if things deteriorate further or maybe just sort of what your actions would be if things improve a little bit? Just think about various scenarios going forward.

Mike, thanks for the question. Super helpful question. So maybe I'll start with a little bit of framing and then think about some scenarios, right? So I think that you start with we had a really good quarter to start the year, right? And it was clean across all dimensions, top line, bottom line, execution of the growth strategy.

I was actually really excited about customer leads and things that we don't talk as much as the best ever. Turnover rates of colleagues, the lowest that we've recorded. So things are good, right, from that perspective. Right? And the majority of our businesses actually are right on track in terms of what I would expect.

The macro is, as you said, is quite changing and dynamic. And you know, if I think about how challenging it was to just go through and assess what would be the impact of us or just what we have at this moment, we made the view that it's better to actually articulate that so that, you know, people can model it. Right? And do we think that's gonna be exactly right? Of course not.

But do we think it's directionally correct? Yeah. We do. And what's hard to visualize is we are fully mobilized on mitigation actions, navigating the environment that we see right now. And if you think about, really, most of these changes started around April 10, and we sit here, you know, less than two weeks later, and we're in full mobilization mode.

If things change, we're gonna capitalize on opportunities that we never saw coming. We will navigate risks effectively. We'll roll back actions that are unnecessary if some of these things don't happen. So we'll we'll be very agile, and I, you know, I feel good about our ability to do that. Actually, I think we're incredibly differentiated based on our ability to do that.

So what are the what are the broad scenarios? So the upside scenario is changes in the policies between US and China so that you don't have sort of this dramatic reduction of demand based in China for US made products. It's a small minority of what we produce for China is actually made in The U. S, but our assumption is effectively it goes to zero until we can mitigate supply chains, which we can do quite aggressively, but this takes some time to move production to other sites. So that's the most obvious scenario that would drive short term actions.

It was actually a good sort of commentary from the FDA commissioner about what he's trying to do. And I know the biotech community is all good about those changes, so you could envision a more robust biotech environment. Those are kind of both scenarios. There's probably some other ones I'm not thinking about. The the negative is, you know, if tariff rates or other things like that or the macro gets affected by these things, that'd be the negative scenario.

And many levers that we can pull, but it's hard to know exactly what the impact would be because we don't know the magnitude of the challenge that we face. So hopefully, helps you think about it. And the important reminder, in a period of volatility, there's no place that's better to be than life science Tools, right, in terms of you think about this level of change and in the scheme of things, very small changes to our outlook. We're still growing nicely, and our plan is to grow EPS. So it's a nice haven in a little bit challenging environment.

Okay. Thanks so much, Mark. That's really helpful. And then for my follow-up, I want to touch a little bit on sort of the long term beyond 2025. I think you guys addressed the tariff situation really well, saying that you'll be able to mitigate things, and it's really not going be an issue next year.

But thinking about NIH, U. S. Government funding policies there, obviously, that's an important market. So any thoughts I know it's really early, but any thoughts on what your view is of the underlying tools market growth rate, that 4% to 6%? Is that still viable going forward in the future?

Do you think that there will be enough offsets and ability to find new funding sources? Or does this sort of dampen that longer term outlook for the market?

So Mike, I think right now, we're focused on the super short term, right? Because obviously, we're addressing that. I'm super optimistic about the long term health of our industry because if you go about what's driving it, right, what's driving it is we're getting older, there's big demand for health care and the scientific breakthroughs, they're awesome, right? The pipelines in the pharmaceutical and biotech industry are compelling, right? And those things generate the fundamental underlying growth.

So when I think about the long term, I feel very good about the long term growth, right? What underlies that is obviously GDP growth. So if the GDP growth in the world is better, that actually puts an upward pressure on growth in the long term. If GDP growth is depressed, that puts a downward pressure. Would affect every part of the economy, but that's always a driver that we don't talk so much about.

On the academic funding, when I think about sort of U. S. NIH, when you're thinking about a few points of our total revenue, you have a one time reset if this never changes in policy, but ultimately, it grows from there. When I actually think about what is the practical aspects of the government environment or the academic environment, I should say, The next step actually is what does the appropriations happen in the budget? Congress has historically been strong supporters of NIH.

We'll see how that plays out. And then from there, it'll go going forward. So hopefully that's helpful. I'm excited for what the future holds. And right now, just going to navigate the environment that we're in.

Thank you. The next question comes from Matt Sykes with Goldman Sachs. Please go ahead, Matt.

Good morning. Thanks for taking my questions and really do appreciate all the detail you've given so far. I guess for my first question, just given how close you are to your customers, as we think about the large biopharma end market, could you maybe talk about any changes in order behavior or patterns where there's been a pull forward of inventories just to get ahead of tariffs? And if you haven't seen that yet, do you expect that to happen? And how do you work with your customers to ensure not a significant amount of supply chain disruption in that event?

Yes. So Matt, it's a great question, and thanks for it. Given how short the announcement implementation of the tariffs, I don't really believe customers had any opportunity to pull forward, right? It would have been we didn't see something like funky in the first quarter in terms of some bolus of things happening later in the quarter. We sort of go ahead of the normal process.

And the tariffs are in effect. So I don't see really any meaningful changes in the patterns that we're expecting. And so hopefully, that's helpful.

Great. And then just for my follow-up, when you talk about manufacturing flexibility and the ability to mitigate, could you maybe at a high level just kind of talk about, how flexible different types of products are? Meaning like, is it easier to flex an instrument manufacturing, facility versus, say, consumables or reagents? And how do you think about sort of the order of priorities in terms of flexing that manufacturing? I just think we all want to get a sense for timing of truly how flexible you can be given the diverse set of products that you offer.

Yes, Matt. When you think about what we've said in that guide and how fast we're able to mobilize, you can see the short time duration it takes to actually get the full impact of that. And it's complex. It takes a lot of hard work. The team's doing an awesome job of, a, thinking about the implications and then, b, putting the right action plans in place and then, c, actually executing.

So we're at the C stage and executing. And it's different by different businesses, by different product types, and we have flexibility in our system that you see the net impact is that. So I think that's the best way to put it. The team is just working with the benefit of PPI businesses and to actually execute on that.

So the other thing that will one thing that will be challenging, I think, for the analysis of the industry is scale is just an enormous advantage here. Right? Because if you're narrow and you ship from the world from a single site for your products, you might be massively disadvantaged. You might be advantaged. You may change.

Your ability to be flexible, incredibly hard. We have scale facilities in every major geography. They don't do everything that we do, but the capabilities are robust. We have a lot of twin factories where the factories do the same thing in different geographies. So our ability to move with speed here, enormous.

And that actually is a great share gain opportunity for us as well, right? So I feel very good about our competitive position, especially how strong the PPI business system is on our operational execution. And I hope that's helpful.

Thank you. Our next question comes from the line of Jack Meehan with Nephron Research. Please go ahead, Your line is now open.

Thank you. Good morning. And first, appreciate the very comprehensive guidance update that you guys provided. Mark, one follow-up, one to ask on the policy side is related to pharmaceutical tariffs. Was curious what you're hearing from customers.

And then just talk about the risks and opportunities there for Thermo Fisher. I'll leave it open ended, but then I have a follow-up.

Jack, thanks for the question. So we interact, obviously, with our pharmaceutical and biotech customers continually. Obviously, there's nothing been formalized on the tariffs at this point. I think there's both advocacy that those customers are doing and planning as well. One of the things that we're doing is we're seeing a lot of interest in leveraging our scale U.

S. Manufacturing capabilities within our pharma services business. So there's quite a bit of demand for our footprint here. And part of the reason that I talked about the investment, which is a 2,000,000,000 investment over the four year period ahead of us, is really to actually have added capacity for pharma services, for analytical services or laboratories, and additional r and d done in The U. S.

And I think it's we just believe that there's gonna be more activity here, whether there's tariffs or not, and that's the direction of travel. And we're going to enable our customer success. And once again, we'll be able to capitalize on that opportunity to help our customers be extraordinarily successful.

Great. And you kinda walked me to where I wanted to go, which is on the pharma services business. So that got a few callouts in the script. We'd just like to get your thoughts on what inning you think this business is now in, kinda in the post COVID recovery, confidence that continues? And when you have these discussions with customers, any is it more API related or fill finish just like where you're seeing the demand for help?

Yeah. So it's the biggest area it's across the board, but the biggest area really is in fillfinish, right? As well as interestingly enough, for a product on the tableting side of the things as well because there's an interest in having more done in The U. S. So they say drug product is seeing the fastest thing because it takes a long time to move drug substance actually in terms of that happening.

Thermo Fisher Scientific (TMO) Q1 2025 Earnings Call Transcript

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