Thermo Fisher Scientific’s stock reacted with a slight decrease yesterday following the presentation of its financial results. However, the laboratory equipment supplier was able to exceed analysts‘ expectations in the final quarter. The investors‘ reaction was rather due to the cautious annual forecast.

Behind Thermo Fisher Scientific Before we dive into the details of the numbers, let me introduce you to the US company: Thermo Fisher Scientific was founded in 1956 and according to its own statements, is the world’s leading company in the service of (medical) science.

The company’s portfolio includes complex measurement devices (chromatographs), instruments, software, and services for use in the laboratory. Thermo Fisher also distributes specialty diagnostics and is a leading provider of laboratory consumables and chemicals worldwide.

The company’s customers include the pharmaceutical and biotech industry, clinical diagnostic and research laboratories, hospitals, universities and government agencies, as well as companies in the fields of environmental analysis and industrial process control.

The long-term business development is truly impressive: From 2012 to 2023, the US company increased its revenues from $12.57 billion to $42.9 billion. At the same time, net profit multiplied from $1.17 billion to $5.95 billion.

Slight decline in revenue in the fourth quarter However, the company hit a speed bump recently: In the fourth quarter, Thermo Fisher Scientific reported a slight decline in revenue to $10.89 billion. This was 4.9% below the previous year’s quarter, but $160 million above analysts‘ expectations (Source: Seekingalpha).

A quick look at the individual business segments: Revenue in the Life Sciences Solutions segment (22.7% of total revenue) declined by 18.9% to $2.46 billion year-on-year, while revenue in the Analytical Instruments segment (18.7% of total revenue) increased by 8.4% to $2.03 billion.

Revenue in the Laboratory Products and Biopharma Services segment (52.5% of revenue) decreased by 3.7% to $5.71 billion. The Specialty Diagnostics segment (10.2% of revenue) remained at about the same level as the previous year with revenue of $1.10 billion.

Improved operating profit margin Meanwhile, the company’s operating profit amounted to $1.85 billion. As a result, the operating profit margin improved from 16.3% to 17%. The bottom line was a profit of $5.67 per share. This represents an increase of 5% compared to the previous year’s quarter and was 2 cents above consensus estimates.

Management with a cautious forecast However, the management remains cautious about the current forecast: For 2024, the company is targeting revenues of $42.1 to $43.3 billion, which is roughly in line with the previous year’s level. This is a sign that the declining demand for services for the production of therapeutics and vaccines will continue. The slowing growth in the key market of China is also affecting demand for contract research services and laboratory equipment.

For adjusted earnings, a profit of $20.95 to $22 per share is expected. This puts the stock currently trading at 25 times expected earnings. According to analysts, earnings are expected to start increasing again from 2025. By 2027, experts expect earnings per share to reach $31.53 (Source: Seekingalpha), which would lower the price-earnings ratio to 18.