Q4 2023 Earnings Summary
- Thermo Fisher expects to continue gaining market share and growing 2 to 3 percentage points faster than the market, targeting overall growth of 7% to 9% over the long term, reflecting confidence in the industry's and company's future prospects.
- Despite challenging market conditions in 2023, the company delivered above-market growth in several segments, including Analytical Instruments, clinical research, and pharma services, demonstrating broad-based strength and positioning for continued outperformance.
- Thermo Fisher is optimistic about the long-term opportunities in bioproduction and China, expecting normalization and growth in these areas as the year unfolds, supported by strong customer relationships and increasing activity in the biotech sector.
- The company delivered only 1% core growth in 2023, significantly below the previously stated growth guidance of 7% to 9%, raising concerns about the achievability of future growth targets.
- Challenges in the China market persisted in 2023, with no meaningful improvement expected in 2024, potentially impacting revenue growth in that region.
- The bioproduction market remains muted, and the company did not see an expected inflection in Q4 2023; normalization is anticipated but timing is uncertain, which could affect near-term results.
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Guidance Adjustments
Q: What's changed in your more conservative 2024 outlook?
A: Stephen explained that their market outlook hasn't changed significantly. The guidance now includes updated FX rates, increasing revenue but reducing margins by 20 basis points. They shifted an estimated $0.20 EPS benefit from Q1 2024 to 2025 due to accounting changes in Pharma Services, impacting reported core growth. -
Long-Term Growth Targets
Q: Is the 7–9% growth target still achievable?
A: Marc reaffirmed confidence in achieving 7% to 9% growth over the long term. Despite delivering 1% core growth in 2023, he believes the industry will grow 4% to 6%, and Thermo Fisher is well-positioned to outpace it by 3 points. -
China Market Outlook
Q: What's your view on China sales and future growth?
A: Marc noted that China faced challenging market conditions in 2023. They don't expect significant improvement this year but foresee better conditions long term due to potential government stimulus. He's bullish on China's future as a growth market. -
Margin Expectations
Q: Will investments lead to better future margins?
A: Stephen mentioned they are investing in innovation and incurring costs in 2024 for future growth. They've reset incentive compensation to normal levels, impacting margins this year but positioning them for strong flow-through as volumes normalize. -
Bioproduction Destocking
Q: Where are you in the destocking process?
A: Marc stated that bioproduction represents just under 10% of revenue. They saw a sequential pickup in orders in Q4, but underlying activity remains muted. He expects normalization as the year unfolds and remains confident in long-term fundamentals. -
Analytical Instruments Demand
Q: What's the status of AI backlog and lead times?
A: Marc reported double-digit growth in Analytical Instruments. Backlogs cleared in the first half of 2023, and lead times are now normal. High demand continues for breakthrough technologies in electron microscopy and mass spectrometry. -
Pharma Services Performance
Q: How did PPD and CRO perform, guidance implications?
A: Marc highlighted spectacular performance in their clinical research business last year. With vaccine revenue rolling off and tough comparisons, growth will be more moderate this year. Long term, it's a strong, high single-digit growth business with synergies. -
Q1 Margin Outlook
Q: What's impacting Q1 margins and EPS?
A: Stephen explained that lower pandemic revenue and incentive comp reset are dragging margins by just under 200 basis points. Margins will improve each quarter as revenue grows. -
China Legislation Impact
Q: Thoughts on BIOSECURE act and China relations?
A: Marc believes the legislation could benefit non-Chinese companies serving U.S. government entities. He notes relations are improving, and Thermo Fisher is well-positioned in China, a market they've served for 40 years. -
Business Segments Growth
Q: Which parts will grow above market?
A: Marc pointed to strong performances in Analytical Instruments, clinical research, and pharma services. He expects to continue gaining share and performing better than a market that's down slightly in low single digits.