Q3 2024 Earnings Summary
- Thermo Fisher anticipates a return to organic growth in Q4 and is well-positioned to deliver differentiated performance in 2025, with end markets modestly improving and the company executing well on its growth strategy.
- The company is poised to benefit from stimulus programs in China in 2025, leveraging its strong relationships and long-standing presence in the country to capitalize on market opportunities as the Chinese economy improves.
- Innovation in high-end technologies, particularly in analytical instruments, is driving strong adoption and differential performance for Thermo Fisher, with products like the Orbitrap Astral Mass Spectrometer and the Iliad Scanning Transmission Electron Microscope contributing to growth.
- The market recovery is only modest and sequential, with no major acceleration expected in the near term, indicating continued growth challenges.
- Economic activity in China remains muted, and despite government stimulus programs, the impact is yet to materialize, potentially delaying significant contributions from this key market.
- The runoff of pandemic-related revenue continues to be a headwind and is expected to persist into 2025, potentially hindering overall growth.
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Organic Revenue Growth | Q3 2024 | 1% higher than Q2 revenue | 0.54% increase (Q3: 10,598Vs. Q2: 10,541) | Missed |
Adjusted EPS | Q3 2024 | Just over 24% of the full-year $21.29–$22.07 range (i.e. approximately $5.11–$5.29) | 4.25 | Missed |
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2025 Outlook
Q: Will the gradual recovery continue into 2025?
A: Marc Casper noted that the end markets are modestly improving throughout the year and expects the fourth quarter to return to organic growth. For 2025, he anticipates it will be the final year of the runoff of pandemic-related activity, which will still be a headwind but less than in 2024. While he is excited for 2025, detailed guidance will be provided in January. -
Pharma and Biotech Segments
Q: How are pharma and biotech customer groups performing?
A: Marc Casper stated that the pharma and biotech segments are seeing sequential improvement. Confidence in biotech is improving, with funding modestly increasing and meaningfully better than in 2023. Large pharma shows a normal distribution of performance, with some companies doing extraordinarily well. Customers are adjusting to the Inflation Reduction Act (IRA), leading to a more muted growth environment. -
China Outlook
Q: What is the impact of China's economic activity and stimulus plans?
A: Marc Casper mentioned that China has not progressed in terms of economic activity and remains muted. The government announced stimulus programs, including equipment stimulus and loan programs, which are expected to positively affect their industry in 2025 and beyond. He also highlighted their strong position in China due to deep customer relationships and government engagement. -
PPD Recovery and Growth
Q: What is the outlook for PPD and its recovery into 2025?
A: Marc Casper indicated that their clinical research business, including PPD, is performing well and delivered growth in the quarter despite headwinds from the runoff of vaccines and therapies. They have a slightly larger position serving biotech than pharma within clinical research, with biotech customers more quickly adopting unified capabilities. While not providing specific 2025 guidance, he expressed optimism about their momentum. -
Margin Expansion and Operating Leverage
Q: Can we expect outsized margin improvement as growth improves?
A: Stephen Williamson explained that long-term, they expect 7% to 9% top-line growth, enabling 40 to 50 basis points of margin expansion. There could be some incremental benefit from the return to volumes in businesses where volumes were challenged and costs were appropriately addressed. They will provide detailed guidance in January. -
Bioproduction Trends
Q: How is the bioproduction business performing?
A: Marc Casper shared that bioproduction played out as expected in the quarter, with strong momentum in orders, both sequentially and year-over-year. Revenue continues to progress in the right direction sequentially, and bioproduction will become less of a headwind going forward and ultimately a tailwind in the not-distant future. -
Analytical Instruments Demand
Q: What is the demand outlook for analytical instruments?
A: Marc Casper noted that their Analytical Instruments segment had 3% organic growth in the quarter as expected. Innovation is driving adoption, with products like Astral and microscopy performing well. Routine capital equipment demand is muted, particularly in China, which remains a challenged market. -
Life Science Solutions Performance
Q: How did the Life Science Solutions segment perform?
A: Marc Casper stated that the segment performed in line with their expectations for the quarter. The third quarter had the largest impact from the COVID roll-off in this segment, which was anticipated. Strong momentum was seen in their clinical sequencing business, which is doing really well. -
Pricing Environment and Margins
Q: What is the pricing environment and its impact on margins?
A: Stephen Williamson mentioned that they achieved just over 1% price realization for the quarter, ahead of the normal run rate of 0.5% to 1%. Marc Casper added that the pricing environment is back to normal, with modest annual increases. Investments in sterile fill-finish capacity are ongoing, which will put pressure on margins in the short term but support growth in 2025 and beyond. -
Pharma R&D Spend Impact
Q: Why isn't increased pharma R&D spend translating to better revenues?
A: Marc Casper explained that while customers are excited about their pipelines and R&D investment is looking good, headwinds in bioproduction and the runoff of pandemic-related activities in clinical research and Pharma Services are muting growth. He believes that the optimism in R&D investment will ultimately translate into their space. -
Lab Products and Services Performance
Q: How is the Lab Products and Services segment performing?
A: Marc Casper stated that the channel is doing really well, with both the health care market channel and the research and safety market channel delivering nice growth and winning new customers. Stephen Williamson noted that underlying growth in Pharma Services and clinical research offset the significant pandemic headwinds, resulting in a net neutral organic growth. -
Month-by-Month Quarter Dynamics
Q: Did the quarter's pacing reveal any notable trends?
A: Marc Casper mentioned that growth was largely in line with their expectations. The pacing through the quarter was as expected, with no significant patterns. At the very end of the quarter, academic and government spending wasn't as strong as normally seen, but this was not material in the scale of the company. -
Capacity Expansion and Competition
Q: How are you approaching capacity expansion amid market dynamics?
A: Marc Casper discussed ongoing investments in sterile fill-finish capacity, with new lines coming online during 2025 and 2026 to support customer demand. This puts pressure on margins in the short term due to training and qualification costs but will lead to higher utilization in 2025. They also expanded capacity in Bend, Oregon, and Cincinnati, Ohio, to meet customer demand in oral solid dose development. -
China Stimulus Impact
Q: Will China's stimulus have a meaningful impact in 2025?
A: Marc Casper expects that China's stimulus programs will be a 2025 activity, with perhaps a small impact in Q4. Customers are applying for funding, and there is optimism about upcoming investments. He believes they are well-positioned to capitalize on economic improvements in China.