Thermo Fisher Scientific Inc. — 2024 Q1
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific 2024 First Quarter Conference Call. My name is Angela, and I will be coordinating your call today. [Operator Instructions] I would like to introduce our moderator for the call, Mr. Rafael Tejada, Vice President, Investor Relations. Mr. Tejada, you may begin the call.
Good morning, and thank you for joining us. On the call with me today is Marc Casper, our Chairman, President and Chief Executive Officer; and Stephen Williamson, Senior Vice President and Chief Financial Officer.
Thank you, Raf. Good morning, everyone, and thanks for joining us today for our first quarter call. As you saw in our press release, we had a great start to the year. We delivered another quarter of strong financial performance. I'm proud of our team's ongoing focus on enabling the success of our customers while demonstrating incredibly strong commercial execution and operational discipline and our continued success as a result of our proven growth strategy and our PPI Business System.
high-impact innovation, our trusted partner status with customers and our unparalleled commercial engine. Starting with the first pillar, high-impact innovation. We had an excellent start to the year, launching a number of new products across our businesses during the first quarter. Let me first highlight a number of products in analytical instruments that demonstrate our continued market leadership.
Thanks, Marc, and good morning, everyone. I'll take you through an overview of our first quarter results for the total company then provide color on our 4 business segments, and I'll conclude by providing our updated 2024 guidance.
Operator, we're ready for the Q&A portion of the call.
[Operator Instructions] We have the first question from Doug Schenkel with Wolfe Research.
Simply put, it was a better start than expected to the year. Marc, can you share color on: one, how did the quarter progress; and two, how does that progression. And really momentum heading into the second quarter, how do those things inform your thinking on the outlook for the balance of the year?
Doug, thanks. So I thought just in the spirit of continuous improvement in PPI that I would frame a few of the key points for the Q&A session and then get to your questions. So indulge me for a second. So when I think about the key points. One, I will start with the long term. We serve an awesome industry that has a bright future, right? And when you think about what drives the bright future, very durable growth driven by the great science, the strong pipelines and the unmet medical needs.
Okay. That's super helpful. And thank you for the high-level thoughts as well. If I could maybe just kind of double-click into an area of focus for all of us. Lab products and services was stronger than expected, relative to certainly what I had in my model and from what I can tell is in consensus.
Doug, I'll tee up kind of the view versus the consensus first, and I'm not going to talk about the kind of business dynamics. So we don't guide by segment in terms of our organic growth. And for us, it came in -- as Marc said, the markets came in as we had expected in aggregate. And that's the same thing for the segment, and we executed well. So it wasn't a huge outperformance part of the beat that was kind of pretty much across the board for the company.
Yes. And then when you get into the dynamics, the one thing I would call out is in our CRO capabilities, clinical research, the former PPD business, really excellent execution in the first quarter, drove really very strong performance, very proud of what the team accomplished.
The next question is from Michael Ryskin with Bank of America.
Great. Congrats on the quarter. Marc, I want to pick up on something you just mentioned. You called out continued improvement in biotech funding environment. And earlier, you talked about the stimulus in China, 2 positive developments on the end market in 1Q. But I think you also acknowledged it's still relatively early going for those. And there have been a few false starts in end markets, of course, of 2023.
Yes. So Mike, I think it's a great question, I liked the way you framed it as well. So we're not -- nothing about false starts. The way that I think about it is and super clear on the word choice. What was assumed in our original guidance was a modest pickup.
Okay. That's really helpful. And Doug asked about lab products and services. Let me focus on Analytical Instruments. You called out electron microscopy continue to do very well there. But -- and you do have really tough comps. But maybe you could focus a little bit on chromatography mass spec. What are you seeing there from an end market perspective? There's been a lot of concern about pharma CapEx budgets and sort of how they're trending in 2024. So any early comments you can say about that part of the portfolio?
Yes. So Mike, when I think about Analytical Instruments, we had a really good quarter. And it's against a very, very strong comparison, which is why I called it out because compared to the high teens growth last year, it's important to flag it.
The next question is from Jack Meehan with Nephron Research.
Wanted to keep digging in on the pharma businesses here. So the first question is on clinical research. You called out strong growth. Just a clarification. Is this inclusive of the COVID headwinds you've talked about before? The tone sounds more positive. Any comments around what you're seeing would be great.
Yes. There's no adjustments on any of that. It's just business just grew through that. And when I think about the year, when I think about the guidance that some busy assumptions are better than the guidance. We reminded our investors that we had the largest role in clinical research on supporting the pandemic response. We also had, in parallel, incredible growth in the business, and really just an excellent start and excellent execution to deliver strong growth in the quarter.
Awesome. And then on the pharma services side, there's been a little bit of a competitive shake up with Novo's proposed acquisition of Catalent. Can you just talk about your win rates at Patheon and how you feel about the runway for future tech transfers?
Yes. So Jack, when I think about pharma services, the business has performed very well. And when I think about the industry dynamics that have gone on, in an area that we're the market leader, [ start until finish ] where we put the medicine or vaccine in its final dosage form. Effectively, you have one of the pure-play competitors being taken out of the CDMO business effectively or less so.
The next question is from Rachel Vatnsdal with JPMorgan.
Perfect. Congratulations on the quarter. So I wanted to dig into the comments around China stimulus a little bit more. Just on one hand, the language around the stimulus is fairly broad, but this tranche also appears to be 2.5x the dollar amount of the stimulus package that benefited last year.
So Rachel, thanks for the question. I share the enthusiasm about the government's efforts to stimulate the economy, get things going. So it's an interesting time in that respect. So...
And just back to Mike's comment about what the view on is this start, these starts, false start, I think it's a good thing that China is trying to find ways to stimulate the economy. And I think this is one element of it, and we look forward to other things happening as well as just the way the China is managing the economy. As Marc said, go ahead.
Yes, yes. So when I think about actually the way things play out, and a lot of this is about signaling as far as I can tell from my own experience of work in China for many years. It's a multiyear program as opposed to the last one, which was shorter term.
Perfect. Really appreciate all that detail. I just wanted to stick on China for my follow-up then. Obviously, we've seen some of these headlines around Biosecure Act. We've heard some of your customers talking about trying to derisk some of their supply chains and go with more Western manufacturers, just given where we're at from that headline perspective.
So the way that I think about Biosecure is I kind of put it into the context of there's a level of geopolitical tensions that exist around the world, including between the U.S. and China. It's never exactly clear whether these things become enacted or not. It's our job to help our customers navigate those shifting landscapes. I think at the highest level, actually relations are falling between the countries a bit. There will always be challenges.
The next question is from Dan Brennan with TD Cowen.
Marc and Stephen, maybe just on China. I know some -- there's already been some discussion points here, Marc. But could you just give us a sense how the low single-digit decline in the quarter kind of compared to expectations? And just remind us what to assume for the full year? And kind of any color you can share about just demand trends across your business segments in China.
So when I think about China, that actually played out as we expected. The team delivered on the expectations for the quarter. And as you know, our guidance, we don't guide by geography or by business. It's really the aggregate overall. But actually, the first quarter played out as the team expected and executed well. When you kind of go down to the subsegments of China, now you're going to the tiny portion of our revenue. Nothing really significant of note in terms of things better or worse than what we've been seeing or what we would expect. So that's will be a high-level deal. Looking forward to returning to China early in the summer. So get some firsthand perspectives on that as well.
Got it. And then maybe just on bioprocessing. I know the consumable portion of your business, Marc is, call it, 10% of our revenues, but there's obviously a tremendous focus there right now. Could you give any color on how that business performed in the quarter? And any color you can provide on like this ongoing destock issue. Whether or not you've seen orders start to grow again sequentially.
Yes, Dan, thanks for the question on bioproduction. It's definitely a factor. Where it got in the queue of the question, it says that the emphasis is reducing on that so as becoming a little bit more predictable. Really, Q1 was in line with expectations. Organic growth did decline as we expected in the quarter due to the strong comparisons from a year ago. But when I look at orders, that's now 2 quarters in a row with really good sequential bookings growth, nice improvement in book-to-bill. And when I look at the things that have been said externally about the quarter, I feel really good about our performance in terms of how we execute it. So working out, in line with what we thought would happen. Thanks, Dan.
The next question is from Matt Sykes with Goldman Sachs.
Maybe just revisiting the AI segment and maybe just compare, contrast the end markets and where you're seeing some of the greatest strength. It sounds like industrial applied remains strong, but just would love to hear you kind of go through biopharma, applied industrial and academic, government and sort of the phasing of growth over the course of this year in those end markets for AI.
Sure. So when I think about the business, one of the things, Matt, is we really don't manage it by end segment because effectively, you produce a certain amount of products, and then you ship them to specific customers. So you can have quarters where you ship more to an industrial customer, the exact same product as a biopharma customer. And therefore, it kind of skews things. So that's my caveat of that.
Got it. And then just for my follow-up. Just on LPS and the margins, I know when you had acquired PPD, you talked about potential for long-term margin expansion in that business. Could you just maybe talk about some of the levers you've got within LPS. Understanding that revenue improvement would help a lot, but just any levers to get that margin within LPS to expand that over time.
I'll start, and then maybe Stephen will add a few additional thoughts. So when I think about margins and obviously, you have different businesses there. The clinical research business, formerly PPD, incredibly strong operational execution, right? So when you actually look at utilization rates, modification, all of the things that ultimately drive margins, they're doing a great job and executing really well.
I think on the pharma services side, it's the capacity coming online and switching over. There's cost to do that as you're ramping up the facility, bringing on the colleagues to be able to operate that facility. Those are all factors that come into that, but those are the right drivers. Thanks, Matt.
The last question we have time for today is from Luke Sergott with Barclays.
So I want to dig back in into the Biosecure Act, a follow-up on what Rachel was asking about. But I wanted to know, Marc, what you guys are hearing from your customers and multinationals that operate over there and what they're saying to you regarding their assumptions on China retaliating and maybe excluding them from the region. I know it seems pretty unlikely, and it's probably going to be limited, but is this something that is on their radar or some of those conversations that you're having?
Yes. I can't really speculate. It wouldn't be prudent on how -- whether this thing will even come to pass. And if it comes to pass, what is the response to it. Our job is to do a great job of supporting our customers globally to comply with the global regulations, both the actual regulations and the spirit of the regulations of the various countries, and we'll do a good job navigating it. So that's how I would think about it, Luke.
Yes. Okay. And then, Stephen, for you on the life science margins. So very, very strong here from Life Science Solutions. I understand that the destocking is less of an issue, but how much of the step-up in the quarter was from the restocking? Just kind of walk through it and double-click on the drivers there. And should we consider this as kind of the jump-off point? Or it will be around this range for the rest of the year? Anything from a modeling perspective?
So Luke, the really good margin profile in the segment. And it's really about addressing the cost base in that business given the lower volumes, both from the pandemic unwind and the kind of the bioproduction aspect to it. So it's really just fundamentally investing the costs that we have in that business. Team's done a great job of doing that, and that's the way to think about that.
So thank you, Luke, and thanks, everyone, for the questions. So let me wrap up. Very pleased to deliver a very strong quarter. Incredibly well positioned to deliver differentiated performance as we continue to create value for all of our stakeholders, build an even brighter future for our company. I look forward to updating you on our second quarter results in July and discussing our very bright future as well as outlook at our upcoming Investor Day on September 19.
Thank you. This concludes today's call. Thank you all for joining. You may now disconnect your lines.