Thermo Fisher Scientific, Inc. TMO reported better-than expected third-quarter 2015 financial results. Adjusted earnings per share (EPS) in the quarter came in at $1.80, 2 cents ahead of the Zacks Consensus Estimate and higher than the year-ago quarter number by 5%. On a reported basis, second-quarter EPS from continuing operations of $1.19 showed a 2.6% improvement year over year.

Revenues for the reported quarter reached $4.12 billion, down 1.2% year over year. Despite 4% organic growth andacquisitions, net of divestitures, that increased revenues slightly, currency translation reduced revenues by 6% in the quarter.However, the top line managed to steer ahead of the Zacks Consensus Estimate of $4.09 billion.

Thermo Fisher currently operates in four business segments viz. Life Sciences Solutions, Analytical Instruments, Specialty Diagnostics, and Laboratory Products and Services.

Barring the Life Sciences Solutions Segment and Laboratory Products and Services Segment, both of which edged up 0.9% year over year to $1.08 billion and 0.6% to $1.64 billion respectively, the company reported disappointing quarterly sales in the other two segments. Analytical Instruments Segment sales were $779 million (down 0.9%) and Specialty Diagnostics Segment recorded $777 million (down 4.3%). The year-over-year results were negatively affected by the impact of unfavorable foreign exchange rates.

Gross margin of 48.3% during the third quarter was down 72 basis points (bps) year over year on declining year-over-year sales performance. However, Thermo Fisher witnessed a 1.8% increase in adjusted operating income leading to an expansion of 63 bps year over year in adjusted operating margin to 22%.

The company exited the quarter with cash and cash equivalents and short-term investment of $505.4 million compared with $770.4 billion at the end of second-quarter 2015. Year to date, operating cash flow was $1,588.8 million versus the year-ago figure of $1,665.9 million.

Guidance

Despite delivering a gloomy top line hurt by severe foreign exchange headwind, Thermo Fisher increased its 2015 revenue and earnings guidance reflecting strong operational confidence. Considering the current foreign exchange rates and the addition of Alfa Aesar, the company currently expects full year revenues in the range of $16.81−$16.91 billion, up from the earlier guided $16.72−$16.86 billion. The current Zacks Consensus Estimate for revenues is pegged at $16.80, approximately at the lower end of the expected range.

The company has also raised the lower-end of its adjusted EPS guidance for the full year to the new range of $7.33 to $7.41 (earlier $7.28 to $7.41), which translates into 5% to 6% growth over 2014. The current Zacks Consensus Estimate for EPS is pegged at $7.37, within the expected range.

Bottom Line

Thermo Fisher reported a better-than-expected third-quarter 2015 with adjusted EPS and revenues exceeding the respective Zacks Consensus Estimate. However, the year-over-year top-line results were negatively affected by the impact of unfavorable foreign exchange rates. Despite a disappointing top line, Thermo Fisher increased its full year 2015 revenue and earnings guidance. This reflects its strong operational performance as well as a robust scope for improvement even amid the current challenging scenario.

Thermo Fisher remains optimistic about its recent developments which include a set of new products including new immunodiagnostic tests and instruments, and a high-throughput HPLC. It has also obtained CE marks for clinical use of HPLC, mass spectrometry and related software in Europe. Other new product launches like Ion S5 and Ion S5 XL to enable targeted next-generation sequencing are expected to drive growth. In China markets, Thermo Fisher continued to make excellent progress and delivered strong results driven by strong customer demand in biopharma, environmental and food safety markets.

 Zacks Rank

Thermo Fisher currently carries a Zacks Rank #2 (Buy). Some other top-ranked stocks in the medical instrument sector are Masimo Corporation MASI, EDAP TMS SA EDAP and Cesca Therapeutics Inc. KOOL, all carrying a Zacks Rank #1 (Strong Buy).

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