NEW YORK – Thermo Fisher Scientific said on Wednesday as part of its Q3 earnings report that it is further lowering its 2023 revenue guidance, citing "the current macroeconomic environment." The company had previously lowered its guidance in July following an underperforming Q2.
As a result, Thermo Fisher now expects full-year revenues of $42.7 billion, compared to its prior estimate of $43.4 billion to $44.0 billion. Core organic revenue growth is estimated to be 1 percent for the year, down from a previous estimate of 2 percent to 4 percent. In addition, the firm expects adjusted EPS of $21.50 now, down from a prior range of $22.28 to $22.72.
Investors did not react favorably to the update. In afternoon trading on the New York Stock Exchange, Thermo Fisher's shares were down more than 7 percent to $423.53.
"Coming out of the second quarter, we assumed core market growth to be in the 0 to 2 percent range for the year, driven by two factors — cautious customer spending and low economic activity in China," Thermo Fisher Chairman, President, and CEO Marc Casper told investors in a conference call recapping the company's Q3 financial results. "Those same two factors increased in impact, and we now expect core market growth to be slightly negative for the year."
"Factoring in the current macroeconomic conditions, as well as the related increase in [foreign exchange rate] headwinds, we are revising our revenue and adjusted EPS guidance for 2023," he added.
The company’s revised revenue guidance is about $850 million lower than its prior outlook. According to CFO Stephen Williamson, $200 million of this shift is driven by unfavorable foreign exchange rates. In terms of adjusted EPS, Williamson said the firm now expects foreign exchange rates to have a year-over-year effect of $.28, which is $.17 more compared to the previous guidance.
Williamson said the updated guidance continues to assume the company will book $300 million in 2023 testing revenues. Meanwhile, management now expects total vaccine and therapies-related revenue to be $1.60 billion less than the prior year, amounting to an impact of over 4 percent on core organic revenue growth.
During the call, Thermo Fisher management also offered an outlook on the company’s 2024 financials.
"At this point in time, a good starting assumption is that core organic revenue growth in 2024 is similar to 2023, at approximately 1 percent growth," Williamson told investors, adding that the company continues to expect core market growth to be negative in 2024, similar to that of 2023.
More specifically, he said Thermo Fisher's pandemic-related revenues, including testing, vaccines, and therapies, are likely to be around $300 million in 2024, leading to a shortfall of approximately $1.30 billion or 3 percent of total revenues compared to 2023. Mergers and acquisitions are expected to increase the company’s revenues by $175 million year over year.
Williamson said it is safe to assume a more challenging first half of the year in 2024 followed by "moderate growth" in the second half. In addition, based on current exchange rates, the company expects exchange rates to dampen revenue by approximately $375 million in 2024.
Overall, the company estimates a slight increase in adjusted EPS, delivering around $21.75 in 2024, Williamson noted.
"This is not a bottoms-up view by country, by geography, and by comp business unit, but rather, based on experience and based on what we're seeing," Casper said. "We wanted our analyst community to be aligned with what we are seeing today because there is quite a big disconnect in the numbers that are out there for 2024 relative to the numbers that we articulated today."
Commenting on the economic outlook in China in 2024 during the Q&A portion of the call, Casper told investors that the Chinese economy "is definitely a challenge and the conditions are worsening."
However, Casper, who visited China in August as chair of the US-China Business Council, said he is "pleasantly surprised" to learn that the Chinese government is "actively working to boost business confidence and create a stronger environment for foreign investment," which he said bodes well for the future.
Casper also commented on the planned acquisition of proteomics company Olink, announced shortly after the close of the third quarter, calling Olink "a terrific fit" for the company.
"It is a leader in a business that has gone through that phase of being well adopted, so the technology risk is not here anymore, but it has not been globally commercialized," he said. "It has not reached nearly its full potential, and [it is] incredibly complementary to our leading position in mass spectrometry and proteomics."
Casper said the company expects to deliver $125 million in adjusted operating income through the acquisition in year five, driven by revenue synergies and cost efficiencies. Additionally, he said the company anticipates Olink to be a mid-teens revenue growth business for Thermo Fisher "well into the future."
For the three months ended Sept. 30, the Waltham, Massachusetts-based company reported total revenues of $10.57 billion, down 1 percent from $10.68 billion a year ago and below the average Wall Street estimate of $10.61 billion.
Organic revenue dropped 3 percent, and core organic revenue grew 1 percent. Meanwhile, COVID-19 testing revenue was $50.0 million.
By geographical regions, Williamson said revenues in North America declined by mid-single digits in Q3 while those in Europe grew in the low-single digits. Asia-Pacific revenues decreased in the low-single digits but China revenues declined in the high-single digits.
Looking at business segments, revenues from the life sciences solutions business unit fell 18 percent to $2.43 billion in Q3 from $2.96 billion in Q3 of 2022. This represents a 19 percent decrease in organic revenue compared to the prior-year quarter. The decline was driven predominantly by the runoff of pandemic-related revenues, Williamson explained.
Revenues from the analytical instruments segment rose 8 percent to $1.75 billion from $1.62 billion in the year-ago quarter, amounting to 8 percent organic growth. The growth in this segment was led by the electronic microscopy business, he said.
Revenues from the laboratory products and biopharma services segment grew 2 percent to $5.72 billion from $5.59 billion, leading to 1 percent organic growth that was led by the pharma services business.
Revenues from the specialty diagnostics segment were almost flat at $1.08 billion compared to $1.07 billion in Q3 2022, resulting in a 6 percent year-over-year organic revenue decline. According to Williamson, the firm saw "strong underlying growth" in the segment, led by the immunodiagnostics, microbiology, and transplant diagnostics businesses. However, this growth was offset by lower pandemic-related revenue compared to the year-ago quarter.
By customer base, Casper said revenues from pharma and biotech customers declined 1 percent for the quarter year over year, while revenues from academic and government customers grew in the high-single digits. In addition, revenues from customers in the diagnostics and healthcare industries declined approximately 20 percent compared to the prior-year quarter.
Thermo Fisher's Q3 net income rose to $1.72 billion, or $4.42 per share, from $1.50 billion, or $3.79 per share, a year ago. On an adjusted basis, the company reported EPS of $5.69 for the quarter, beating the Wall Street estimate of $5.63.
The company's R&D costs were down 9 percent at $319.0 million, from $351 million a year ago. SG&A expenses also declined 9 percent, to $1.58 billion from $1.74 billion.
Thermo Fisher ended the quarter with cash and cash equivalents of $6.15 billion.