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Thermo Fisher Reports 12 Percent Revenue Drop for 'Disappointing' Q1

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In the midst of "disappointing" first-quarter earnings, Thermo Fisher Scientific reported relatively less negative news for its mass spectrometry business and said that there has been strong activity around the instruments as researchers race to grab new funding stemming from the various stimulus packages around the globe.

This week Thermo Fisher said that for the three months ended March 28, revenues declined 12 percent to $2.26 billion from $2.55 billion, with currency translation contributing 5 percentage points to the drop.

Net income shrank 35 percent year-over-year to $148.9 million from $229.7 million during Q1 2008.

The company's Analytical Technologies division, which houses its mass-spec operations, posted a 14 percent drop in revenues to $938.8 million from $1.1 billion during the year-ago period.

The Laboratory Products and Services division posted receipts of $1.4 billion, down 9 percent from $1.6 billion in Q1 2008.

While Thermo Fisher did not break out sales figures for its mass specs, Marijn Dekkers, its president and CEO, said during a conference call accompanying its earnings release that the decrease in organic revenues for capital instruments was in the mid-teens, consumables shrank in the low-single digits, and service revenues were flat.

In its instruments business, those with industrial applications, such as quality control and environmental testing, were hit the hardest, he added without elaborating. Instruments such as mass specs and chromatography performed better, but were still "under quite some pressure," Dekkers said.

Marc Caspar, executive vice president and chief operating officer at Thermo, said during the call that as a result of stimulus packages in the US, Europe, and China, the firm expects to see a revenue bounce of between $100 million and $200 million resulting from grants targeted at new research programs as well as grants for high-end instrumentation purchases.

In the first case, the company expects to see benefits starting late this year. In the latter, Thermo Fisher expects funding to begin in July and continue into Q2 2010. The company, Caspar added, is already seeing "significant activity" as scientists scurry to meet fast-approaching deadlines, and the firm has responded to more than 200 quote requests for its mass specs.

Overall, however, Dekkers called the first-quarter results "disappointing" as the broader economic environment dragged down the company. More customers are holding off on capital-equipment and instrument purchases, he said. And as an indication of "how unprecedented this economy is," Dekkers said, the firm during the quarter saw weak consumable sales, which traditionally have been able to weather challenging economic times.

"We were surprised to learn from our customers that they were bringing consumable levels down. In some cases, they were even de-stocking their spare parts for instruments," he said. "Apparently, cash is very important to them and they are doing everything they can to preserve it."

The economy is "difficult at best and we don't see many signs of improvement for the rest of the year," Dekkers added.

Among the steps Thermo Fisher has taken in response is a review of discretionary spending, a re-evaluation of open job positions, and implementation of contingency plans across all its businesses.

Since the start of the fourth quarter in 2008, the company has also reduced its work force by 4 percent with emphasis on those businesses most affected by the downturn, company officials said during the conference call.

In addition, the company has implemented short-term furloughs at a number of sites. And while it normally shuts down between eight and 10 factories each year, saving the company between $1 million and $3 million annually, Thermo Fisher expects that number to rise this year, Dekkers said.

During the first quarter, the firm spent $58.2 million in R&D, down from $62 million a year ago. Thermo Fisher said it had $1.6 billion in cash and cash equivalents.

For full-year 2009 the firm lowered its revenue guidance by $400 million from previous projections to between $9.6 billion to $9.9 billion, down 6 percent to 9 percent from 2008.

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