Thermo Fisher Scientific Inc. (TMO) Q2 2025 Earnings Call Transcript
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Overview
The earnings call reveals strong financial performance with revenue and margin growth, positive biopharma trends, and strategic deals like the Sanofi acquisition. Despite challenges in China and academic sectors, management's optimism about long-term growth and share gains, alongside effective margin expansion strategies, suggests a positive outlook. The Q&A session reinforced confidence in growth, though some responses lacked detail. Overall, the company's strong position in biopharma and strategic initiatives indicate a likely positive stock price movement.
Key Financial Performance
Revenue Revenue in Q2 2025 grew 3% year-over-year to $10.85 billion. The growth was driven by active management of the company, strength in the Pharma Services and bioproduction businesses, and a sequential improvement in the clinical research business. However, there were declines in academic and government revenue (mid-single digits) and industrial and applied revenue (low single digits) due to muted demand and headwinds in China.
Adjusted Operating Income Adjusted operating income grew 1% year-over-year to $2.38 billion. This was achieved despite a 5% headwind from tariffs and related FX, which impacted operating income dollars. Strong productivity and cost management helped offset these challenges.
Adjusted Operating Margin Adjusted operating margin was 21.9%, 40 basis points lower than Q2 2024. The decline was primarily due to the impact of tariffs and related FX, which caused a 140 basis point headwind. However, the rest of the business contributed 100 basis points of margin improvement.
Adjusted EPS Adjusted EPS was $5.36 per share, exceeding guidance. The year-over-year increase was supported by strong operational execution, including $0.08 from lower-than-expected tariff impacts and $0.05 from cost management.
Life Sciences Solutions Revenue Revenue in this segment increased 6% year-over-year, with 4% organic growth. Growth was led by the bioproduction business, which had excellent performance. Adjusted operating margin for this segment was 36.8%, up 10 basis points year-over-year.
Analytical Instruments Revenue Revenue in this segment declined 3% year-over-year, with organic growth down 4%. The decline was attributed to the impact of tariffs and muted demand for equipment and instrumentation. Adjusted operating margin was 18.8%, down 580 basis points year-over-year.
Specialty Diagnostics Revenue Revenue grew 2% year-over-year, with flat organic growth. Growth was led by the transplant diagnostics business. Adjusted operating margin was 27%, up 30 basis points year-over-year.
Laboratory Products and Biopharma Services Revenue Revenue increased 4% year-over-year, with 3% organic growth. Growth was driven by the Pharma Services business and the research and safety market channel. Adjusted operating margin was 13.8%, up 90 basis points year-over-year.
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Operating Highlights
Launch of new products: Introduced next-generation Thermo Scientific Orbitrap mass spectrometers (Astral Zoom and Excedion Pro) and Thermo Scientific Krios 5 cryo-transmission electron microscope. Expanded DynaDrive single-use bioreactor portfolio for bioproduction.
Market expansion: Expanded strategic partnership with Sanofi to acquire a sterile fill-finish site in Ridgefield, New Jersey, and invest in expanding production to meet U.S. manufacturing demand.
Operational efficiencies: Implemented $300 million in additional cost reductions, leveraging the PPI Business System to manage costs, adjust supply chains, and incorporate AI for process improvements.
Strategic shifts: Amended agreement with Solventum to focus on Purification & Filtration business, excluding drinking water filtration, to accelerate regulatory clearance. Actively managing tariff impacts and reshoring efforts to support U.S. drug production.
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Risk or Challenges
Tariffs and Policy Environment: The company is facing challenges due to tariffs and broader policy impacts, particularly in the U.S.-China trade environment. This has led to a 5% headwind to adjusted operating income and a 140 basis point reduction in reported margins for Q2.
China Market Headwinds: Revenue in China declined high single digits due to macroeconomic and policy challenges, impacting the company's overall performance in the Asia Pacific region.
Academic and Government Market: Revenue in this segment declined mid-single digits due to customer hesitancy in an uncertain environment, leading to muted demand for equipment and instruments.
Analytical Instruments Segment: This segment experienced a 4% decline in organic revenue growth, driven by the impact of tariffs and muted demand for equipment and instrumentation.
Unfavorable Mix and Strategic Investments: Unfavorable product mix and ongoing strategic investments have partially offset productivity gains, impacting margins in several business segments.
Macroeconomic Environment: The company is navigating a muted macroeconomic environment, which has led to lower growth expectations and increased cost management efforts.
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Guidance & Outlook
Revenue Guidance for 2025: Thermo Fisher Scientific has increased its revenue guidance for 2025 to a range of $43.6 billion to $44.2 billion, reflecting continued active management of the business.
Adjusted EPS Guidance for 2025: The company has raised its adjusted EPS guidance to a range of $22.22 to $22.84, a $0.23 increase at the midpoint.
Organic Revenue Growth Outlook for 2026-2027: Thermo Fisher expects organic revenue growth in the range of 3% to 6% for 2026 and 2027, with growth anticipated to accelerate over the next two years.
Long-Term Organic Revenue Growth Expectation: The company expects to deliver 7% or more organic revenue growth once the near-term scenario plays out.
Adjusted Operating Margin Expansion for 2026-2027: Thermo Fisher anticipates 50 to 70 basis points of adjusted operating margin expansion during 2026 and 2027.
Adjusted Operating Income Growth for 2026-2027: The company expects mid- to high single-digit adjusted operating income growth during this period.
Capital Deployment Strategy: Thermo Fisher plans to continue its strategy of strategic M&A and returning capital to shareholders, including the acquisition of Solventum's Purification & Filtration business and Sanofi's sterile fill-finish site.
Cost Management Initiatives: The company has added $300 million of cost reductions for 2025 and plans to continue aggressive cost management in 2026 and 2027.
Tariff and Trade Policy Impact: The U.S.-China tariff situation has improved, and the company has incorporated this into its revised guidance. However, the second-half outlook remains cautious due to the fluidity of the trade policy environment.
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Shareholder Return Plan
Dividends: During the quarter, we returned $160 million of capital through dividends. For the full year, we plan to return approximately $600 million of capital to shareholders through dividends.
Share Repurchases: We have assumed $2 billion of share buybacks, which were already completed in January. The full year average diluted share count is expected to be between 378 million and 379 million shares.
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Key Q&A
Q:Can you break down the 7%+ long-term growth outlook and explain the conviction behind this number?
A:Marc N. Casper explained that the 7%+ long-term growth outlook is based on the assumption of 4% market growth and 2-3% share gains. He highlighted the stabilization of academic and clinical research sectors, the need for improved healthcare globally, and the excitement among biotech and pharmaceutical executives about their pipelines. He emphasized focusing on short-term performance while maintaining confidence in long-term growth.
Q:What are the drivers of the 50-70 basis points of margin expansion over the next couple of years?
A:Stephen Williamson stated that the margin expansion is driven by the PPI Business System, improved tools including AI capabilities, and effective execution by the team. Despite headwinds from tariffs and FX, the business delivered 100 basis points of margin expansion in Q2, demonstrating strong earnings growth.
Q:How are macro factors influencing biopharma spending decisions, and are there any emerging trends?
A:Marc N. Casper noted broad strength in biopharma with mid-single-digit growth, the best in 9 quarters. He observed strong performance in bioproduction, pharma services, and research and safety markets. Conversations with customers, including small biotech and large pharma, revealed a positive tone, with companies navigating the environment confidently and focusing on their pipelines.
Q:What is the outlook for the Analytical Instruments business in the second half of the year and 2025?
A:Stephen Williamson mentioned that the Analytical Instruments business faces challenges from muted academic and government conditions and the Chinese economy. The team is focused on gaining share and leveraging innovation. The guidance assumes continued tariff impacts and pessimistic demand in China, but improvements in these areas could positively impact demand.
Q:What is the medium-term outlook for reshoring and its impact on bioproduction?
A:Marc N. Casper highlighted a heightened interest in expanding U.S. manufacturing capacity, with reshoring being a tailwind over the next few years. He noted that bioproduction is performing well, and reshoring efforts, such as the Sanofi deal, will add capacity and drive growth.
Q:What are the expectations for the academic and government funding environment?
A:Marc N. Casper expressed optimism about bipartisan support for academic and government funding in life sciences. He expects the funding environment to stabilize, with potential for flat or slightly down funding. Customers remain cautious, and the guidance reflects a soft U.S. academic and government market in the second half of the year.
Q:What is the long-term growth outlook for the clinical research and CRO business?
A:Marc N. Casper stated that clinical research is expected to return to growth, supported by strong authorizations momentum. Long-term, the business is projected to grow at high single digits due to increased reliance on partners by biotech and pharma. The company is well-positioned to capitalize on these trends.
Q:What is the impact of the Sanofi deal and the outlook for sterile fill-finish capacity?
A:Marc N. Casper explained that the Sanofi deal adds a third U.S. site for sterile fill-finish, providing cost-effective capacity expansion. The acquisition will support strong demand and enhance the company's ability to meet customer needs.
Q:What is the basis for the 7%+ long-term growth outlook and the expected share gains?
A:Marc N. Casper emphasized the company's unique capabilities in serving pharma and biotech, including research labs, clinical trials, and production. He expressed confidence in achieving 2-3% share gains and highlighted the holistic support provided to the industry as a key driver of long-term growth.
Q:What is the status of the China tariff impact and its effect on guidance?
A:Stephen Williamson noted that the China tariff impact was less severe than expected in Q2, contributing to a $75 million top-line beat. The guidance assumes no further changes in the tariff environment, providing a cushion for potential future impacts.
Q:Review of Unclear Management Responses
A:Management appeared to avoid giving a direct answer to the question about the specific factors influencing the 4% market growth assumption for the 7%+ long-term growth outlook. While Marc N. Casper expressed confidence in the growth drivers, he did not provide detailed evidence or data to support the assumption, leaving the response somewhat vague.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
FX
Financial
Investors
PPI System
Purification Filtration
Research Division
Sanofi
Solventum Purification
acquisition
basis point
capital deployment
cash
cost
detail
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environment
finance
guide
headwind
income
investment
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margin basis
outlook
partner status
policy
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TMO Transcript
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Thermo Fisher's earnings call highlights strong financial performance, with increased revenue and EPS guidance for 2025 and expected organic growth acceleration in 2026-2027. Strategic M&A, cost management, and improved tariff situations are positive factors. The Q&A session reinforced confidence in growth, despite challenges in China. The overall sentiment is positive due to optimistic guidance and strategic initiatives, suggesting a likely stock price increase in the coming weeks.
Thermo Fisher Scientific Inc. (TMO) Q2 2025 Earnings Call Transcript
Positive7-23
The earnings call reveals strong financial performance with revenue and margin growth, positive biopharma trends, and strategic deals like the Sanofi acquisition. Despite challenges in China and academic sectors, management's optimism about long-term growth and share gains, alongside effective margin expansion strategies, suggests a positive outlook. The Q&A session reinforced confidence in growth, though some responses lacked detail. Overall, the company's strong position in biopharma and strategic initiatives indicate a likely positive stock price movement.
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Frequently Asked Questions
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