Thermo Fisher Scientific Inc. (NYSE:TMO) Q4 2023 Earnings Call Transcript

Douglas Schenkel: Okay, I will leave it there. Thanks so much.

Operator: The next question today comes from the line of Vijay Kumar from Evercore ISI. Please go ahead. Your line is now open.

Vijay Kumar: Hi Marc, good morning and thanks for taking my question. My first one Marc, when I look at the annual guidance here, the core is flattish at the midpoint. But excluding the vaccine headwinds, it’s about three points. That’s a pretty solid guide. The three things that have come up is China, the CRO business, and analytical tech. Can you just remind us what China and what PPD did in fiscal 2023 and is the guide assuming those three pieces, China, CRO and analytical tech, is that at 3%, about 3%, below 3%? Thank you.

Marc N. Casper: So Vijay, thanks for the question. So when I think about the performance of our businesses, certainly last year and certainly as we look to the future, last year, just spectacular performance in our clinical research business. Really, the team, unbelievably good job in terms of the results. I think that in a way, we probably undersold the details, not the numbers as much as what actually was going on because there’s so many different things we were communicating. But if I think about clinical research, it’s a little over two years after the acquisition, phenomenal acquisition. Customers love the business performing well, colleagues doing a great job. And it’s been a big success. The business in the pandemic played the largest role in supporting the clinical trials on vaccines, and at the same time, delivered by far the fastest, I’ll call it, underlying growth, excluding all of the COVID activity, just crushed it.

And that means for this year, we have both a roll-off, which we’ve given transparency to on a big chunk of the vaccine revenue, which is fine. And we have generated a really substantial comparison, which is cool. Like we — that’s a good challenge to have in terms of the great performance. So we would expect that the business’ growth would be much more moderate this year just based on the comparisons. But the future, meaning looking out into 2025 and beyond, this is a really strong business, long-term, high single-digit growth business plus the synergies it’s driving. So I feel really great about that. And then a quick comment just on China and which is unrelated to clinical research but sort of the other element of your question. China, market conditions were challenged in 2023.

First quarter was really strong, lots of stimulus, all of those good things. But then — so that was China effectively. We’re not calling for a meaningful improvement in China this year. Rather, we lap the comparisons as the year unfolds. So it becomes a little bit less of a headwind. We all know that at some point, the Chinese government will create some mechanism of stimulus. Whether that’s direct or confidence or whatever it does, we don’t know when that will happen. But at some point, it will improve the market conditions because the needs for what we do is very high. So I’m bullish on the long term being better in China than what we’ve been experiencing currently, and it will take some time to get there. Thanks, Vijay. Go ahead.

Vijay Kumar: Stephen, just one quick one for you. On Q1, I think operating margin, slightly under 21%. I think the EPS is around $4.70-ish. Is that just the outsized impact from incentive comp reset, just want to understand the Q1 margin cadence?

Stephen Williamson: Yes. So when I think about the margin in Q1, that’s definitely an element when you look at it year-over-year and kind of sequentially as well. So when I think about it year-over-year — so there’s — obviously, we have a significant drag from the lower pandemic revenue and the reset of the incentive comp. That’s just under 200 basis points in total and then about 100 basis points contribution from the core business despite the lower dollars of revenue. And the key driver there being the impact of the cost actions that we’ve taken over the past year. So to give you a way to frame the margin in Q1. And then yes, the margin profile grows each quarter as the revenue dollars grow during the year in terms of the profile for the year ahead. Thanks Vijay.

Vijay Kumar: It’s helpful. Thank you guys.

Rafael Tejada: Operator we have time for one more question.

Operator: Thank you. Our final question today comes from the line of Tejas Savant from Morgan Stanley. Please go ahead. Your line is now open.

Tejas Savant: Hey guys, good morning. And thanks for the time here. Marc, just a follow-up on your China commentary there, more in terms of the long-term opportunity. You’ve talked in the past about that being an important market for you growing at the higher end of your outlook for the company. Recently, there’s been a thawing in relations over the last month or so. I think you’ve kind of alluded to that as well and some high-level government engagement. But then a little while ago, we got word of this Biosecure Act legislation. Can you just help us think through sort of what that entails for you, perhaps an opportunity to be more front footed and gain share in the near-term on the services side versus kind of the long-term risk of a potential blowback from the Chinese side in terms of U.S. MNCs operating in that market? That would be super helpful. Thank you.