Thermo Fisher Scientific (TMO)

Q3 2011 Earnings Call

October 26, 2011 8:30 am ET

Executives

Marc N. Casper - Chief Executive Officer, President, Director, Member of Strategy & Finance Committee and Member of Science & Technology Committee

Peter M. Wilver - Chief Financial Officer and Senior Vice President

Kenneth J. Apicerno - Vice President of Investor Relations and Treasurer

Analysts

Ross Muken - Deutsche Bank AG, Research Division

Paul R. Knight - Credit Agricole Securities (USA) Inc., Research Division

Jonathan P. Groberg - Macquarie Research

Amit Bhalla - Citigroup Inc, Research Division

Isaac Ro - Goldman Sachs Group Inc., Research Division

Nandita Koshal - Barclays Capital, Research Division

Peter Lawson - Mizuho Securities USA Inc., Research Division

Doug Schenkel - Cowen and Company, LLC, Research Division

Jon Davis Wood - Jefferies & Company, Inc., Research Division

Tycho W Peterson - JP Morgan Chase & Co, Research Division

Derek De Vries - BofA Merrill Lynch, Research Division

Quintin J. Lai - Robert W. Baird & Co. Incorporated, Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific Third Quarter 2011 Earnings Conference Call. My name is Tahicia, and I will your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to introduce our moderator for the call, Mr. Kenneth Apicerno, Vice President, Investor Relations. Mr. Apicerno, you may begin your call.

Kenneth J. Apicerno

Good morning, and thank you for joining us. On the call with me today is Marc Casper, our President and Chief Executive Officer; and Pete Wilver, Senior Vice President and Chief Financial Officer.

Please note, this call is being webcast live and will be archived on the Investors section of our website, thermofisher.com, under the heading Webcasts and Presentations until November 18, 2011. A copy of the press release of our third quarter 2011 earnings and future expectations is available on our website under the heading Financial Results.

So before we begin, let me briefly cover our Safe Harbor statement.

Various remarks that we may make about the company's future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the company's Form 10-Q for the quarter ended July 2, 2011, under the caption Risk Factors, which is on file with the Securities and Exchange Commission and available in the Investors section of our website under the heading SEC Filings. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today.

Also during this call we'll be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our third quarter 2011 earnings and future expectations, and also in the Investors section of our website under the heading Financial Information.

So with that, I'll now turn the call over to Marc.

Marc N. Casper

Thanks, Ken. Good morning, everyone, and thank you for joining us on our earnings call for the third quarter of 2011. Let me start by saying that we had another quarter of excellent earnings growth, with a 23% increase in adjusted EPS over 2010. We reported double-digit adjusted EPS performance every quarter this year, and our teams did an outstanding job in executing their operating plans to deliver on our goals again this quarter. As I've been saying for the past couple of years, Thermo Fisher is committed not only to delivering strong growth in adjusted EPS, but to do so consistently. Our results in Q3 clearly continued that trend. In fact, on a year-to-date basis, adjusted EPS is up 19%.

Our 3 drivers of adjusted EPS growth haven't changed. They are: 1, top line growth through new product innovation, expansion in emerging markets and our efforts to leverage our unmatched commercial reach to gain share; 2, our focus on operational excellence through PPI and PPI Lean, as well as low-cost region sourcing and manufacturing; and 3, our ability to effectively deploy our capital to create shareholder value.

All of these added up to a third quarter record of $1.7 in adjusted EPS. Before I cover our EPS drivers in more detail, let me point out that we also delivered excellent adjusted operating margin expansion in the quarter, with an increase of 120 basis points to 18.4% over the same quarter last year. This margin improvement was a significant contributor to our strong EPS performance in Q3.

So turning to the top line, the first key contributor to our EPS growth. We achieved a 13% increase in revenues for the quarter to $2.97 billion. Let me give you some color on what we're seeing in our businesses.

Starting with our business in serving the industrial sector. We performed well across our portfolio, with strong revenue and bookings consistent with what we've been seeing all year. Our process instruments for materials and mineral applications performed very well in Q3. We also had another strong quarter for our handheld analyzers, continuing the great momentum we've had here for quite some time.

Across our Specialty Diagnostics businesses serving the healthcare industry, growth was driven by our various share gain initiatives. We saw a strong demand again this quarter for our clinical diagnostic products, driven by sales of our biomarker tests to detect sepsis and our test kits for drugs of abuse. We were also pleased to see good growth in the quarter in our Microbiology business, as well as our healthcare customer channel. Our new immuno diagnostics business, formerly Phadia, is off to a great start as well, with growth in excess of 10%. I'll give you an integration update in a few moments.

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