THERMO FISHER SCIENTIFIC INC. quarterly report, Q2 FY2023

Thermo Fisher Scientific Inc. — Q2 2023 Form 10-Q

Reporting period: Quarter and six months ended July 1, 2023. Thermo Fisher supplies life-sciences research, analytical, diagnostic, laboratory and biopharma products and services through four reportable segments. Unless noted otherwise, amounts are in U.S. dollars.

Financial performance

MetricQ2 2023Q2 2022First six months 2023First six months 2022
Revenue$10.687B$10.970B$21.397B$22.788B
GAAP operating income$1.578B$2.001B$3.141B$4.822B
GAAP operating margin14.8%18.2%14.7%21.2%
Adjusted operating margin (non-GAAP)22.2%23.7%22.0%26.6%
Net income attributable to Thermo Fisher$1.361B$1.664B$2.650B$3.879B
Diluted GAAP EPS$3.51$4.22$6.83$9.83
Adjusted EPS (non-GAAP)$5.15$5.51$10.18$12.76
  • Quarterly revenue declined 3% year over year; six-month revenue declined 6%. Organic revenue growth was negative 3% and negative 6%, respectively.
  • Q2 product revenue was $6.271B, down from $7.003B; service revenue rose to $4.416B from $3.967B.
  • For the first six months, operating cash flow was $2.269B (prior year $3.730B), and free cash flow, a non-GAAP measure, was $1.537B (prior year $2.598B). Investing activities used $3.585B, including $2.751B for acquisitions; financing activities used $4.049B.
  • At July 1, cash and cash equivalents were $3.133B, versus $8.524B at year-end 2022. Total debt was approximately $34.008B; $4.814B was classified as short-term/current maturities. The $5.0B revolving facility had no borrowings outstanding, and the company reported compliance with debt covenants.

Material changes and business drivers

  • Life Sciences Solutions revenue fell 25% in Q2, primarily from lower COVID-related demand; segment income fell 38%. Specialty Diagnostics revenue was roughly flat as underlying businesses partly offset weaker COVID-testing demand.
  • Analytical Instruments revenue grew 9% in Q2, with strength across businesses, particularly electron microscopy. Laboratory Products and Biopharma Services revenue grew 5%, supported mainly by clinical research and pharma services.
  • Management said COVID-19 testing product sales were $0.08B in Q2 2023 versus $0.63B in Q2 2022, and $0.22B versus $2.31B for the first six months.
  • Management cited lower COVID-related revenue, strategic growth investments and currency effects as pressures on margins, partly offset by productivity improvements and pricing. The company also described challenging macroeconomic conditions and a slow recovery in China; academic and government demand was strong.

Outlook, unusual items and risks

  • No clear full-year revenue or EPS guidance is provided in the supplied filing text. Management expected 2023 GAAP tax rate of 5%–7%, adjusted tax rate of approximately 10%, cash income-tax payments of approximately $1.40B and net capital expenditures of approximately $1.7B.
  • Restructuring and other costs were $183M in Q2 and $295M in the first six months, including severance, facility consolidations and asset impairments. Actions affected approximately 3% of the workforce. As of August 4, the company identified about $85M of additional restructuring charges, primarily expected in 2023.
  • The January acquisition of The Binding Site had a purchase price of $2.699B. A separate agreement to acquire CorEvitas for approximately $0.91B in cash was expected to close by year-end 2023, subject to customary conditions and regulatory approvals.
  • GAAP tax expense was unusually low: the six-month effective rate was 3.5%, with management citing tax-planning benefits, including a $91M net benefit from an intercompany debt refinancing-related foreign-exchange loss and a $144M benefit from an intra-entity transaction.
  • Risks include uncertain demand and customer spending, macroeconomic and China conditions, currency movements, acquisition integration and expected benefits, regulatory matters, and environmental, product-liability and other litigation exposures. The company said unfavorable outcomes could exceed current accruals; it did not identify material changes to disclosed environmental or litigation accruals.

Key facts for investors to verify

  • Whether demand stabilizes as COVID-related sales continue to normalize, and how segment trends evolve—especially in Life Sciences Solutions and Specialty Diagnostics.
  • Whether operating cash flow and free cash flow recover from the first-half decline and how working-capital timing affects cash generation.
  • Debt maturities, refinancing costs and interest expense, which rose year over year amid acquisition and share-repurchase financing.
  • Actual restructuring charges versus the additional approximately $85M identified, and the resulting savings and margin impact.
  • CorEvitas closing, purchase accounting and integration, as well as the expected contribution from The Binding Site.
  • Full-year performance against the disclosed tax and capital-expenditure expectations; the filing text does not provide clear full-year revenue or EPS guidance.