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Thermo Fisher Scientific Inc. (TMO), a prominent player in the Life Sciences Tools & Services industry according to InvestingPro, reported robust financial results for the second quarter of 2025, surpassing Wall Street expectations with an EPS of $5.36 against a forecast of $5.23. Revenue reached $10.85 billion, exceeding predictions of $10.68 billion. The positive earnings surprise propelled the stock up 12.02% to $479.02 in pre-market trading, demonstrating strong investor confidence. Based on InvestingPro’s Fair Value analysis, the stock appears to be trading near its fair value.
Key Takeaways
- Thermo Fisher exceeded both EPS and revenue forecasts.
- The company raised its full-year guidance for revenue and EPS.
- Stock surged 12.02% in pre-market trading.
- New product innovations received strong customer feedback.
- Cost reduction strategies are enhancing operational efficiency.
Company Performance
Thermo Fisher continues to show resilience and growth, with a 3% year-over-year increase in revenue and a 1% rise in adjusted operating income. The company’s strategic focus on innovation and cost management is paying off, as evidenced by its strong financial performance this quarter. With a healthy gross profit margin of 41.44% and an impressive Altman Z-Score of 6.18 indicating strong financial stability, the company maintains a robust financial position. Discover more detailed financial metrics and insights with a InvestingPro subscription, which includes comprehensive analysis of over 1,400 US stocks.
Financial Highlights
- Revenue: $10.85 billion, up 3% year-over-year.
- Earnings per share: $5.36, surpassing forecasts by 2.49%.
- Adjusted Operating Income: $2.38 billion, up 1%.
- Adjusted Operating Margin: 21.9%.
Earnings vs. Forecast
Thermo Fisher’s EPS of $5.36 exceeded the forecast of $5.23 by 2.49%, while revenue of $10.85 billion surpassed expectations by 1.59%. This positive surprise reflects the company’s effective management and strategic initiatives.
Market Reaction
Following the earnings announcement, Thermo Fisher’s stock surged 12.02% in pre-market trading to $479.02. This upward movement reflects investor optimism and confidence in the company’s future prospects, especially given the raised guidance and strong performance. Analyst consensus remains strongly bullish, with price targets ranging from $450 to $767. The stock currently trades at a P/E ratio of 25x, which InvestingPro notes is relatively high compared to near-term earnings growth expectations.
Outlook & Guidance
Thermo Fisher has increased its full-year revenue guidance to a range of $43.6 billion to $44.2 billion and adjusted EPS to between $22.22 and $22.84. The company anticipates organic revenue growth of 3% to 6% in the near term, with long-term expectations set at over 7%. InvestingPro highlights that management has been aggressively buying back shares and has maintained dividend payments for 14 consecutive years, demonstrating strong shareholder commitment. For access to additional ProTips and detailed financial analysis, including the comprehensive Pro Research Report, visit InvestingPro.
Executive Commentary
CEO Mark Casper highlighted the company’s proactive management and commitment to delivering strong earnings growth. He emphasized Thermo Fisher’s competitive advantage as a trusted partner in the industry and its ability to support customer success.
Risks and Challenges
- Declines in the academic and government sectors could impact future growth.
- Macroeconomic pressures and potential tariff impacts pose challenges.
- Market saturation in certain segments may limit expansion opportunities.
Q&A
During the earnings call, analysts inquired about reshoring trends in pharmaceutical manufacturing and the challenges posed by academic and government funding declines. Thermo Fisher’s strong performance in pharma services and clinical research was also a focal point of discussion.
Full transcript - Thermo Fisher Scientific (TMO) Q2 2025:
Conference Call Operator: Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific twenty twenty five Second Quarter Conference Call. After the prepared remarks, you will have the opportunity to ask any questions, which you can do so by pressing star followed by the number one on your telephone keypad. I would like to introduce our moderator for the call, Mr. Rafael Tajada, Vice President, Investor Relations. Mr.
Tajada, you may begin the call.
Rafael Tajada, Vice President, Investor Relations, Thermo Fisher Scientific: Good morning, and thank you for joining us. On the call with me today is Mark Casper, our Chairman, President and Chief Executive Officer and Stephen Williamson, 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 News, Events and Presentations until 10/21/2025. A copy of the press release of our second quarter earnings is available in the Investors section of our website under the heading Financials. 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 most recent annual report on Form 10 ks and subsequent quarterly report on Form 10 Q, which are on file with the SEC and available in the Investors section of our website under the heading Financials, 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 will 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 second quarter twenty twenty five earnings and also in the Investors section of our website under the heading Financials. So with that, I’ll now turn the call over to Mark.
Mark Casper, Chairman, President and Chief Executive Officer, Thermo Fisher Scientific: Thank you, Raf. Good morning, everyone, and thanks for joining us today for our second quarter call. As you saw in our press release, we delivered excellent operational performance in the quarter, reflecting active management of our company and the strength of our proven growth strategy and PPI business system. Our trusted partner status is more relevant than ever and is resonating strongly with our customers. This is allowing us to continue to drive market share gains and highlight our unique ability to enable their success in all market environments.
So turning to the details of Q2. Let me first recap the financials. Our revenue in the quarter grew 3% to $10,850,000,000 Our adjusted operating income grew 1% to $2,380,000,000 Q2 adjusted operating margin was 21.9% and adjusted EPS was $5.36 per share. These results were ahead of our guidance. During the quarter, our team aggressively mobilized to take the actions to navigate the policy environment and minimize the impact of tariffs for 2025 and beyond.
Stephen will provide some more details on our progress. I’ll now cover our performance by end market. In pharma and biotech, we delivered mid single digit growth this quarter, representing a nice sequential step up. Performance in the quarter was led by our bioproduction and pharma services businesses as well as our research and safety market channel. It was also good to realize a sequential improvement in our clinical research business, which delivered slightly positive growth in the quarter.
Current to academic and government, revenue declined mid single digits in the quarter, reflecting some customer hesitancy in a more uncertain environment, resulting in muted demand for equipment and instruments. In Industrial and Applied, performance played out as we expected, with growth declining in the low single digits during the quarter. In Q2, we delivered good growth in our research and safety market channel. And finally, in Diagnostics and Healthcare, revenue declined in the low single digits during the quarter as we navigated headwinds in China. A highlight of the quarter was strong growth in our transplant diagnostic business.
Wrapping up on the end markets, our team managed the current environment well, helping us deliver on our financial commitments for the quarter. I’m going to keep my comments a little shorter today, so I can leave time to discuss a couple of topics that seem to be mine on top of mind in the investment community. So let me give you an update on how we executed our growth strategy in Q2, which drives value creation for our investors. As a reminder, our strategy consists of three pillars: high impact innovation, our trusted partner status with customers and our unparalleled commercial engine. As you all have heard me share before, we consistently deliver really outstanding innovation.
We have some great launches this quarter. We launched several state of the art solutions at this year’s ASMS conference, highlighted by two next generation thermo scientific Orbitrap mass spectrometers, the Astro Zoom and the Excedian Pro. As you know, we’re an industry leader in the space and these cutting edge analytical instruments will enable researchers to further advance precision medicine and drive significant insights to help pioneer new therapies for complex diseases like Alzheimer’s and cancer. Customer feedback has been incredibly positive, with one calling the AstroZoom a paradigm shift for proteomic technology and noting that the Excedient Pro provides immediate value to their biotechnology work and will serve as their next generation platform. Also during the quarter, we launched the Thermo Scientific Cryos5 cryo transmission electron microscope, which further enhances our leadership in electron microscopy and empowers researchers to uncover critical biological insights and to support the development of new therapeutics.
Additionally, we expanded our DynaDryv single use bioreactor portfolio for bioproduction with the first of its kind bench scale system helping biopharma customers increase workflow efficiencies and seamlessly scale up manufacturing of new therapies. Our trusted partner status, which we built over many years, is another example of why our growth strategy is working and why we’re so well positioned for the future. You can clearly see this momentum in our performance with pharma and biotech. Our accelerated drug development solution is a terrific example of how we’re delivering great value to our customers. Accelerated drug development is the integration of our pharma services and clinical research capabilities with the ultimate goal of taking time and cost out of the drug development process.
During the quarter, it was great to see the Tufts Center for the Study of Drug Development validate the power and benefit of our unique capabilities. And I’m pleased to state that the customer uptake is very strong with clinical research authorizations growing strongly in the quarter. Because of the unique relationship we have with our customers, we are partnering with them to tailor how we help them navigate and thrive in the current environment. For some customers, this means expanding US capacity for drug production and supporting their reshoring efforts. For others, it’s about accelerating clinical research timelines by aggressively adopting AI into our processes.
And then there are customers where it’s all about identifying ways to help them drive productivity. Wrapping up my comments on our growth strategy, we’re uniquely positioned to win in this environment. Let me provide a few comments on capital deployment. We continue to successfully execute our proven capital deployment strategy, which is a combination of strategic M and A and returning capital to our shareholders. As you recall, in February, we announced that we had entered into a definitive agreement to acquire Silventum’s purification and filtration business.
Last month, we amended our agreement to remove Silventum’s drinking water filtration business from the transaction, which allowed us to both accelerate the regulatory clearance process and narrow the scope of the acquisition to the business lines most synergistic with Thermo Fisher. We have received all regulatory clearances and we’re on track to close the transaction before year end. We’re excited to welcome our new colleagues to the company and bring the benefits of Silventum Purification and Filtration Technologies to our customers. And then shortly after the quarter closed, we announced an expansion of our strategic partnership with Sanofi to enable additional U. S.
Drug product manufacturing. Under the agreement, we will acquire Sanofi sterile fillfinish site in Ridgefield, New Jersey and continue to manufacture a portfolio of therapies for Sanofi. We will also invest in expanding production at the site to meet the growing demand for U. S. Manufacturing capacity from our pharma and biotech customers.
This is a great example of the power of our trusted partner status and capital deployment strategy at work. As always, our PPI business system was a key enabler of our strong execution in the quarter and drives competitive advantage for Thermo Fisher. We’re leveraging PPI to adjust our supply chains in the tariff environment and to aggressively manage our cost base. And we continue to further strengthen the PPI business system by incorporating AI to enhance how we serve customers, streamline internal processes and reduce cost. PPI is enabling execution excellent execution today and will continue to do so in the future.
So let me now turn to our guidance. We’re increasing our guidance for the full year on the top and bottom line. We now expect revenue in the range of $43,600,000,000 to $44,200,000,000 and adjusted EPS in the range of $22.22 to $22.84 per share, a $0.23 increase at the midpoint. This reflects continued active management of the business. Steven will take you through the details in his remarks.
Let me now turn to a couple of questions that seem to be top of mind for investors. The first is, what is our early thinking on the potential impacts of The US policy focus and tariffs on the near term growth outlook for Thermo Fisher? Second, in that scenario, how are we managing the company to create meaningful shareholder value? Given our strong conviction of the long term growth drivers of our industry, we thought it’d be most helpful to you if we zoomed in on the near term, say the 2026, 2027 timeframe to focus these questions. We believe that a reasonable assumption is that our end markets will gradually build from the lower growth environment that we’re currently navigating.
This would lead to a 2026 and 2027 scenario where we will deliver 3% to 6% organic revenue growth. Today, we’re currently at the low end of this range and we believe that our growth will accelerate over the next two years. Given that top line scenario, here is how we’re focused on driving shareholder value creation. First, we’ll collaborate even more closely with our customers. As you’ve heard me say before, our trusted partner status is a meaningful differentiator for us with our customers.
They’re relying on us to enable their success as they adapt to the environment. Second, we’re actively managing the company. You see that in our results and the 2025 financial outlook. Strong cost management was a focus at the beginning of the year, embedded in our original guidance, And we’ve meaningfully stepped up the action as the year has progressed, adding an additional $300,000,000 of cost reduction since the initial guide. And we will continue that intense focus in 2026 and 2027.
This will result in us delivering strong adjusted operating income growth of mid to high single digits. And when you factor in our disciplined capital deployment strategy, we have the opportunity to further compound our returns. The final point I want to make is that the long term drivers of the industry remain very compelling. We expect the environment to improve over the next couple of years. And during that time, we’ll deliver very strong earnings growth.
When I look to the future, once this near term scenario plays out, we expect to deliver 7% plus organic revenue growth. So to summarize our key takeaways from the quarter, we delivered excellent operational performance driven by our proven growth strategy and PPI business system, beating our guidance and raising our outlook for 2025. Our trusted partner status and proven ability to enable our customer success is a significant competitive advantage. We’re actively managing the company in this environment. We’re gaining share and driving greater productivity and cost reduction.
And I remain incredibly confident in the near and long term outlook for the company. With that, I’ll now hand the call over to our CFO, Steven Williamson. Steven?
Stephen Williamson, Senior Vice President and Chief Financial Officer, Thermo Fisher Scientific: Thanks, Mark, and good morning, everyone. I’ll take you through an overview of our second quarter results for the total company, then provide color on our four business segments, and I’ll conclude by providing our updated 2020 guidance. Before I get into the details of our financial performance, let me provide you with a high level view of how the second quarter played out versus our expectations at the time of the last In Q2, our team executed really well, and we delivered ahead of what we’d assumed in the midpoint of our prior guidance on both the top and bottom line. This performance reflects very active management of the company both to minimize the tariff and broader policy impacts and enable the success of our customers.
On the top line, Q2 organic revenue growth was approximately $75,000,000 ahead of what we’ve included in the prior guidance, driven by sales in China being less impacted by tariffs than had been assumed. In aggregate, the rest of the business performed in line with our expectations, which is an excellent outcome given the macro environment. Then
Mark Casper, Chairman, President and Chief Executive Officer, Thermo Fisher Scientific: on
Stephen Williamson, Senior Vice President and Chief Financial Officer, Thermo Fisher Scientific: the bottom line, we delivered $0.13 of adjusted EPS, ahead of what was included in the prior guide for Q2, reflecting excellent operational execution. Zero eight of the beat was from lower impact to tariffs than had been assumed in the prior guide, and $05 of the beat was from strong cost management enabled by the PPI business system. So excellent operational performance in Q2. Let me now provide you with some additional details on the quarter, starting with earnings per share. In the quarter, adjusted EPS was $5.36 GAAP EPS in the quarter was $4.28 up 6% from Q2 last year.
On the top line, Q2 reported revenue grew 3% year over year. The components of our reported revenue growth included 2% organic revenue growth, a slight contribution from acquisitions and a 1% tailwind from foreign exchange. Within our revenue growth for the quarter, we had a 1% headwind from the runoff of the pandemic related revenue. Turning to our organic revenue performance by geography. In Q2, North America and Europe both grew low single digits, and Asia Pacific declined low single digits, with China declining high single digits.
With respect to our operational performance, we delivered $2,380,000,000 of adjusted operating income in the quarter, an increase of 1% year over year, and adjusted operating margin was 21.9, 40 basis points lower than Q2 last year and flat sequentially to Q1 twenty twenty five. In Q2, the year over year impact of tariffs and related FX was a 5% headwind to adjusted operating income dollars and a headwind to reported margins in the quarter of 140 basis points. This is partially offset by the rest of the business, which drove 100 basis points of margin improvement in the quarter, demonstrating our ability to drive strong earnings growth in a more muted top line environment. We delivered very strong productivity, which enabled us to fund strategic investments to further advance our industry leadership and offset the impact of unfavorable mix. Total company adjusted gross margin in the quarter was 41.3%, which is 80 basis points lower than Q2 last year.
Tariffs and related FX reduced adjusted gross margins by approximately 150 basis points. This was partially offset by 70 basis points of improvement across the rest of the business. Moving on to the details of the P and L. Adjusted SG and A in the quarter was 16.2% of revenue. R and D expense was $352,000,000 in Q2, reflecting our ongoing investments in high impact innovation.
And R and D as a percent of our manufacturing revenue was 7.4% in the quarter. Looking at our results below the line, our Q2 net interest expense was $107,000,000 As expected, the adjusted tax rate in Q2 was 10%. And average diluted shares were $378,000,000 $5,000,000 lower year over year driven by share repurchases net of option dilution. Turning to free cash flow on the balance sheet. Year to date cash flow from operations was $2,100,000,000 and free cash flow was $1,500,000,000 after investing $645,000,000 of net capital expenditures.
During the quarter, we repaid approximately $700,000,000 of senior notes and returned $160,000,000 of capital through dividends. We ended the quarter with $6,400,000,000 in cash and short term investments and $35,200,000,000 of total debt. Our leverage ratio at the end of the quarter was 3.2 times gross debt to adjusted EBITDA and 2.7 times on a net debt basis. In concluding my comments on our total company performance, adjusted ROIC was 11.3%, reflecting the strong returns on investment that we’re generating across the company. Now I’ll provide some color on the performance of our four business segments.
In Life Science Solutions, Q2 reported revenue in this segment increased 6% versus the prior year quarter, and organic revenue growth was 4%. Growth in this segment was led by our bioproduction business, which had another quarter of excellent growth. Q2 adjusted operating income for Life Science Solutions increased 6%, and adjusted operating margin was 36.8%, up 10 basis points versus the prior year quarter. During Q2, we delivered very strong productivity, which was partially offset by the expected impact of the Olinc acquisition, unfavorable mix and strategic investments. In the Analytical Instruments segment, reported revenue declined 3% and organic growth was 4% lower versus the year ago quarter.
This was driven by the impact of tariffs and the policy focus of the U. S. Administration, which is leading to a more muted demand for equipment and instrumentation. In this segment, Q2 adjusted operating income decreased 26% and adjusted operating margin was 18.8%, down five eighty basis points versus the year ago quarter. The majority of the margin change was driven by the impact of tariffs and related FX.
Outside of that impact, strong productivity was more than offset by lower volumes and strategic investments. Turning to Specialty Diagnostics. In Q2, reported revenue grew 2% year over year, and organic revenue was flat compared to the year ago quarter. In Q2, growth in this segment was led by our transplant diagnostics business. Q2 adjusted operating income for specialty diagnostics increased 3% and adjusted operating margin was 27%, 30 basis points higher than Q2 twenty twenty four.
During the quarter, we delivered good productivity, which was partially offset by unfavorable mix and strategic investments. Finally, Laboratory Products and Biopharma Services segment, reported revenue increased 4% and organic revenue grew 3% versus the prior year quarter. In Q2, growth in this segment was led by our pharma services business and our research and safety market channel. The run off of pandemic related revenue had over a 1% impact on the revenue growth in this segment in Q2. Q2 adjusted operating income in the segment increased 11%, and adjusted operating margin was 13.8%, 90 basis points higher than Q2 twenty twenty four.
In the quarter, we delivered very strong productivity, which is partially offset by unfavorable mix and strategic investments. So turning to guidance. As Mark outlined, we’re increasing our 2025 full year guide to reflect the Q2 beat and our continued active management to the company. Let me provide you with the details. We’re raising our revenue guidance to an expected range of 43,600,000,000.0 to $44,200,000,000 Organic revenue growth is still expected to be in the range of 1% to 3%.
We’re increasing our outlook for adjusted operating margin in 2025 to a new range of 22.5% to 22.7%. And we’re raising our adjusted EPS guidance to a new range of $22.22 to $22.84 The increase of the midpoint of the guidance range reflects 120,000,000 higher revenue than the prior guide, 30 basis points of improved adjusted operating margin and $0.23 of higher adjusted EPS. This incorporates the Q2 beat as well as an additional $0.10 of adjusted EPS in the second half of the year to reflect additional cost actions we’re taking to continue to actively manage our cost base. And it’s important to note that our organic outlook for the second half of the year remains on track to the prior guidance. The U.
S.-China tariff situation has improved significantly versus our prior guidance assumptions. We reflected the Q2 benefit of that in our revised guidance. Given the fluidity of the tariff and trade policy environment, we thought
Mark Casper, Chairman, President and Chief Executive Officer, Thermo Fisher Scientific: it was appropriate to keep the
Stephen Williamson, Senior Vice President and Chief Financial Officer, Thermo Fisher Scientific: tariff impact outlook for the second half unchanged at this point. Should global tariffs remain as they are today, we’ll likely have upside to the new guidance. We’re actively managing the company to appropriately navigate the macro environment. Our growth strategy is enabling customer success and driving share gain, and we’re using the PPI business system to effectively address tariffs and aggressively manage our cost base. Our initial guide for the year included very strong earnings growth enabled by aggressive cost management, and since then, we’ve added an additional $300,000,000 of cost actions for 2025.
Through PPI, we’re constantly finding ways to be more productive and to leverage the scale of the company. This includes increasing the utilization of our shared services and our functional centers of excellence. PPI drives strong earnings growth and also creates room in the P and L to continue to invest for the future. I’ll now move on to an update of some of the modeling elements for the full year. FX rates continued to fluctuate in the quarter, driven by changes in tariffs and trade policy.
In Q2, the year over year FX impact on revenue improved $60,000,000 versus our prior guide, but the adjusted EPS impact worsened by $08 largely due to onetime transactional FX caused by intra quarter volatility in rates, which, if FX rates stay as they are today, will not reoccur in 2026. So for the full year, we now expect FX to be a year over year tailwind to revenue of $10,000,000 and a headwind to adjusted operating income and adjusted EPS of $80,000,000 and $0.27 respectively. Below the line, we now expect net interest expense to be between $360,000,000 and $370,000,000 in 2025, and we continue to expect an adjusted tax rate of 10.5% for the full year. We continue to expect between $1,400,000,000 and $1,700,000,000 of net capital expenditures in 2025 and free cash flow in the range of $7,000,000,000 to $7,400,000,000 for the year. In terms of capital deployment, we’re assuming $2,000,000,000 of share buybacks, which were already completed in January.
We continue to estimate the full year average diluted share count will be between $378,000,000 and $379,000,000 shares, and we’ll return approximately $600,000,000 of capital to shareholders this year through dividends. Our guidance does not include any future acquisitions or divestitures, so it does not include any impact from the pending acquisitions of Silventum’s purification and filtration business and the sterile fillfinish site from Sanofi. In terms of phasing for Q3, we expect organic growth in Q3 to be about one point higher than Q2 and adjusted EPS to be approximately $0.10 to $0.15 higher than Q2. And then finally, wanted to touch on the financial scenario for the next couple of years that Mark outlined earlier. We’re managing the company under the assumption that we’ll deliver between 36% organic revenue growth in that period.
That includes a continuation of the strong share gains that we’ve been delivering. In that top line environment, using the proven levers of the PTI business system, we expect to generate approximately 50 to 70 basis points of adjusted operating margin expansion and mid to high single digit adjusted operating income growth.
Rachel Wartenstahl, Analyst, JPMorgan: And we
Stephen Williamson, Senior Vice President and Chief Financial Officer, Thermo Fisher Scientific: have a number of exciting opportunities to supplement this organic performance with effective capital deployment. We’re very well positioned to continue to drive very strong earnings performance under this level of assumed top line growth. And there are scenarios where we can be above this assumed level of growth, and should this occur, we’ll be in a great position to drive even better performance. So to conclude, we continue to actively manage the company and are effectively navigating the macro environment. Our customers are working on incredibly relevant science to address huge unmet needs in the world, and we’re uniquely positioned to enable their success.
With that, I’ll turn the call back over to Mark.
Mark Casper, Chairman, President and Chief Executive Officer, Thermo Fisher Scientific: Thanks, Steven. Before we open the call for questions, I’d like to take a moment to share an update about our leadership team that involves great news for two people whom I hold in very high regard and work very closely with. First, Steven Williamson, our Chief Financial Officer, has decided to retire next year at the March. This was thoughtfully planned on his part, and I know that he and his wife, Jane, are very excited for his upcoming retirement. Stephen has had an extraordinary impact on Thermo Fisher Scientific.
Since taking on the CFO role in 2015, he has been instrumental in driving our company’s financial performance and strategic growth, and he has built deep relationships with our investors and colleagues. I’ve had the privilege of working closely with Stephen for nearly twenty five years. He’s been a true partner, insightful, thoughtful and always focused on the long term success of our company. I deeply appreciate his guidance, his unwavering commitment, his steady leadership and the impact that he has had on our success. While I certainly miss him, the entire company is incredibly grateful for his contributions and we wish him the very best in his well deserved upcoming retirement.
Next, I am very pleased to share that as part of a long planned transition, Jim Meyer, currently our Vice President of Financial Operations and member of the company leadership team, will become our Chief Financial Officer effective 03/01/2026. Jim is an accomplished finance leader with deep company knowledge and a strong track record across our organization. He joined Thermo Fisher in 2009 and has held senior finance roles across several of our major businesses. And in his current role, he leads the finance support for all of our operating businesses. Over the past few years, I’ve had the opportunity to work closely with Jim.
He’s exceptionally qualified to take on this role and will continue to drive Thermo Fisher’s long term growth and outstanding financial performance. Stephen and Jim will work together closely over the coming months to ensure a seamless handoff, and I look forward to continuing to partner with them during this transition. With that, I will turn the call over to Raf for questions.
Rafael Tajada, Vice President, Investor Relations, Thermo Fisher Scientific: Thanks, Mark. Operator, we’re ready for the Q and A portion of the call.
Conference Call Operator: Thank you. We will now begin the question and answer session. Our first question today comes from Michael Ryskin with Bank of America. Please go ahead.
Michael Ryskin, Analyst, Bank of America: Great. Thanks for taking the question. Congrats, Steven, the retirement. And you guys certainly gave us plenty to talk about in this call. Mark, maybe I’ll start with a high level one.
What you talked about in terms of the new outlook, I think the 7% plus in the long term. Sounds like that’s the new long term outlook, the LRP. In the past, you’ve sort of talked about here’s what the market’s going to grow, here’s Thermo taking share above that due to PPI and trusted partner status. If you sort of break that 7% plus down a little bit, give us a little more clarity on that. And then, sort of part of that, you know, you talked about the strong conviction in the long term drivers of the industry.
And and sort of how do you arrive at that number? Given everything that’s happened in the first half of twenty twenty five, the uncertainty we still see in the market, what gives you the conviction that seven plus is the right number going forward for the long term?
Mark Casper, Chairman, President and Chief Executive Officer, Thermo Fisher Scientific: Mike. Thanks for the question. So when I think about trying to create a financial framing scenario, there’s been many questions over the last coming months, very appropriate, about what’s the growth outlook for the industry, what’s the growth outlook for us, what are all the policy impacts, etcetera. So that’s all in background. And what we wanted to make sure that all of our investors understood is that we’re not waiting for anything to happen.
Right? We’re going to actively manage the business and deliver very strong earnings growth. We’ve been doing that since the second half of twenty twenty four. Certainly, was embedded in our guidance. And as we’ve highlighted in our remarks, we have been stepping that up to be able to deliver a strong view on the bottom line.
When I think about the scenario that we are in, what we are really assuming in the 3% to 6% is that today, we are at the 3% level already And that as you get the absence of some of the negatives, meaning that academic is not going to keep declining year over year over year, but it will stabilize, even if it returns to zero, you actually get higher and higher in that range. It’s just working through. The same thing is true in clinical research. When I look at authorizations momentum, this year it’s a flattish year in aggregate. That starts to pick up.
So without major changes, you’re in that range over the next couple of years. So that is the first aspect of it. Am sure there will be other analysts who have questions about that. But then we take to the longer term and you think about the fundamental drivers of the industry, there is a huge need for improved healthcare around the world. The scientific breakthroughs are incredible.
When I talk to our biotech and pharmaceutical customer executives, they are incredibly excited about what is in their pipelines and the huge unmet needs that they’re going after. To be able to say in the longer term, that we’re going to be 7% plus feels very reasonable to us. We believe in our conviction around our share gain of that two to three points. And so, you back into, I would say, we’re getting to the 4% type market growth feels very reasonable in the longer term, but I’m really focused on the short term right now and delivering just great experience for our customer share gain and great operating income. So hopefully, that’s growth.
So I hope that’s helpful. Thank you, Mike.
Michael Ryskin, Analyst, Bank of America: Okay. Great. And then, Stephen, one for you then. Talk about the margin expansion next couple of years. Think you said 50 to 70 bps of op amp per year.
That’s pretty impressive given the subdued environment. You’ve already delivered or you’re planning to deliver a good amount of margin expansion this year, again in an uncertain market. Can you talk about the levers you have there? How much of it is PPI versus some of the synergies from the business you brought on? Or any particular segment where you’re pulling the lever more?
Could you just talk about the drivers of that margin gains? Yes.
Stephen Williamson, Senior Vice President and Chief Financial Officer, Thermo Fisher Scientific: So Mike, actually, one clarification on We’re talking about Clinical Research, and you said that business is flat this year and expected to increase going forward. That wasn’t authorizations. That’s organic revenue growth, and authorizations were very strong in the quarter and as they were last quarter. The business is in very good shape.
When So I think about the 50 to 70 basis points of margin expansion, it’s about using the same tools in the toolbox from PPI Business System. And we keep improving the tools in there, and we’ve added AI capabilities in as we think about how we manage the company. So, it’s just really about how do we where do we spend the organization energy to use the right levers? And we’re not having to invent new things and figure this out. This is all about the same levers that we have, and our team is executing on that this year, I think about what we delivered in Q2.
We’ve got, obviously, a significant reported margin headwind from the impact of tariffs and FX. And then underlying, the business is delivering 100 basis points of margin expansion, demonstrating how strong that growth is in earnings. And I think about that organic viewpoint on earnings growth in the quarter, that was about 6%. So very strong performance in a more muted top line environment. So we know the right levers, and we’re confident in the ability to deliver on that over that two year period.
Thanks, Mike.
Conference Call Operator: Thank you. Our next question comes from Dan Arias with Stifel. Please go ahead.
Dan Arias, Analyst, Stifel: Hi, good morning guys. Thank you. Mark, maybe on biopharma, it seems like there’s a range of things that are going on right now when it comes to just the investment approaches for these companies. You kind of touched on it, but can you just maybe expand on the extent to which it feels like these spending decisions are being influenced by the macro factors at play? And then if you sort of remove the small biotech segment from the equation, where I understand it’s kind of just about how much money you have left in the bank, I’m curious whether there are factors or characteristics that are emerging that sort of divide those that are pulling back in response to the macro versus those that are pushing forward and in some cases investing more it pipeline, geography, something else?
Mark Casper, Chairman, President and Chief Executive Officer, Thermo Fisher Scientific: Yes. Thanks for the question. So when I think about pharma and biotech, our mid single digit growth, we saw broad strength actually across all aspects of the business. And there was a nice sequential step up and actually the best we’ve seen in nine quarters. Feel very good about that.
Bio production was excellent. Team did a really good job, strong growth continuing the trends we saw in Q1, great bookings growth. Pharma services, very strong growth. Makes sense. We’ve talked about the importance of our sterile fillfinish capabilities, the work we do for the clinical trial supply and those things in pharma services.
Excellent demand there. Research and safety market channel continues to do well. That’s a reflection of sort of what’s going on in the research labs at biotech and pharma. And that was a strong performer. And as Stephen and I both have said, we turned to positive growth while only slightly in the quarter for clinical research, it’s actually performing as we expected.
Authorization growth is very, very strong. So those things bode really well. And when I think about the conversations with our customers, and it may actually be quite surprising to our investors. And whether this is small biotech, I saw a lot of them at the bio conference, that was here in Boston in June, large pharma, some of those companies that are growing super well are those companies that might be managing a challenge. The tone is incredibly positive.
And so why is that the case? I think that they have plans on how to navigate this you know, the environment. I think that as they talk about their pipelines, they feel very good about what is going on in their own pipelines, the understanding of science and what that bodes for the future. For the larger companies, there is a real confidence that they can work with governments in this environment and navigate it effectively. So we actually see it as a lean in environment for pharma and biotech and they are leaning on us to make that a reality.
So we are excited about it and it continues to be a real driver of our outlook and our current performance.
Dan Arias, Analyst, Stifel: Okay. That’s helpful and good to hear. Stephen, congrats on my end as well. Looking forward to hearing where that handicap goes from here. How should we be thinking about the Analytical Instruments business in the back half?
Obviously, it’s tough out there from a CapEx decision standpoint, down 4% this quarter. You have a similar comp next quarter, but then you come up against a really strong 4Q from last year. So I know you don’t try to get too specific at the segment level, but just given the moving parts on the hardware side, it would be helpful to know how you see growth there in the back half. Do you think you can finish twenty twenty five with Analytical Instrumentation being up? Thanks a bunch.
Stephen Williamson, Senior Vice President and Chief Financial Officer, Thermo Fisher Scientific: Yes. So, Stan, thanks for the comments. So when I think about Analytical Instruments, we’ve got decent bookings performance as well when I think about a positive book to bill. It is most impacted by the more muted conditions in academic and government and the economy in China. So there’s kind of some factors there to wrap into that.
And the team is focused on executing and making sure that we’re gaining share and getting the most impact from the great innovation that we’ve been doing across this segment from a number of years. And the new product launches that Mark talked about are a continuation of that. So the team is well positioned, and it will navigate the situation. And as I said in my guidance, I continued the assumptions that I had for tariff impact in the second half of the year, and that was a largely pessimistic view on demand in China. And should that not be the case, that would be helpful in terms of basically demand in the second half of the year.
We’ll see how that plays out. Great. Thanks, Dan.
Conference Call Operator: Thank you. Our next question comes from Jack Meehan with Nephron Research. Please go ahead.
Jack Meehan, Analyst, Nephron Research: Good morning and Stephen congratulations and Jim looking forward to working together. For Mark, I wanted to get your test the pulse on reshoring. How do you
Stephen Williamson, Senior Vice President and Chief Financial Officer, Thermo Fisher Scientific: think this is going to
Jack Meehan, Analyst, Nephron Research: play out over the medium term? It seems like you’re planting some good seeds here with the Sanofi deal to bring business home. Conversely, I’m just curious, like in 2Q, did you see any evidence customers could have been pausing purchasing at all? Just the idea being like if you’re going to buy equipment, you got to know where to send it. I wanted to test out that theory on you.
Mark Casper, Chairman, President and Chief Executive Officer, Thermo Fisher Scientific: Yeah. So, Jack, thanks. There’s a heightened level of interest in expanding US manufacturing capacity. You see that in the large pharma announcements. You even see it in our announcement last quarter about expanding our domestic production because leveraging our CDMO capabilities is a very economically effective way as a pharmaceutical customer to reach our capacity and that really is a lot around Sanofi transaction.
When I think about, does that cause any pause? Not really, actually, bioproduction is doing really well. It takes multiple years to bring these facilities online. It is a one time added tailwind at some point in the future as facilities are opened or expanded. Then it normalizes because you to you don’t keep buying more and more equipment.
You just expand your capacity at your new site. So I think there’s a tailwind that comes up over the next couple of years is the way I would think about it. But I’m not seeing any customers pausing at all in bioproduction. So it’s been very positive.
Stephen Williamson, Senior Vice President and Chief Financial Officer, Thermo Fisher Scientific: Awesome. Okay. And then I wanted
Jack Meehan, Analyst, Nephron Research: to flip over to Analytical Instruments, just the organic growth, declined this quarter. When you talk about some of the policy pressure, was this all academic? Or did you see any of that bleed into pharma biotech or elsewhere? Could you just talk about that a little bit more?
Mark Casper, Chairman, President and Chief Executive Officer, Thermo Fisher Scientific: Oh, yeah. Jack, when I think about the Analytical Instruments business, obviously, the business performed in line with what we were expecting given the academic and government environment and the tariff environment. We actually, I think, actually gained share once again even in this environment. Why is that the case? Our innovation is unbelievable.
If I think about and I’ve said this many times for many years, which is if you bring out super relevant products, it doesn’t matter what the funding environment is, customers find money. If I think about the order book on Astro Zoom that we launched in June, it’s phenomenal, right, in terms of customer interest. I mean, it’s super cool. Right? And none of them are talking about the funding environment.
They’re like, wow, this is going to be breakthrough in terms of my research. When I think about the environment, until there’s more visibility, if you will, to how the budgets play out, I would expect that demand will continue to be muted from academic and government to this customer base. That was embedded in our guidance. It’s very much in line with what we said before in terms of nothing’s changed and the China headwinds are favorable to what we had said back in April. So, it’ll take a bit of time until you get more stability in this end market, but we’re well positioned to gain share and do a good job serving our customers.
Thanks, Jared.
Conference Call Operator: Thank you. Our next question comes from Rachel Wartenstahl with JPMorgan. Please go ahead.
Rachel Wartenstahl, Analyst, JPMorgan: Great. Good morning, and thank you for taking the questions. Steven, congrats on the long career, Jim. Looking forward to working with you as well. So I wanted to follow-up on Mike’s question regarding those midterm targets in 2026 and 2027.
It seems like investors are really most concerned about three key end markets for Thermo, the pharma end market given MSN and some of the tariff concerns, academic and government given the funding dynamic under the new administration and then China. So can you walk us through how are you thinking about those three end markets as we look to this 3% to 6% framework over the next few years? And could you rank order for us which ones of those do you think are most realistic in terms of being pressured or being fully resolved as we come out of this 2026, 2027 time frame?
Mark Casper, Chairman, President and Chief Executive Officer, Thermo Fisher Scientific: So, Rachel, when I think about, the framing, right, there’s nothing super scientific about it being exactly two years. What we wanted to say is that, you know, it’s a relatively short term period. It’s the environment that we’re in now. And what are we seeing, and how do we believe it to progress? And when you go through, you know, effectively our assumption is that in this period of time over the next couple of years, that academic and government goes from a headwind to growth.
Right? Normally, I think about academic and government, a couple percent, 3% type growth end market. Right? It declined mid single digits in the, you know, in the quarter. At some and and that’s what we’re assuming.
You know, we’re gonna assume a headwind for a while. But what happens is the budgets get set, they don’t keep declining. So that eventually, in this period, will normalize if you’re not expecting a big funding environment to flatten out. Right? So that is the absence of that headwind, you know, effectively happens in this period.
And pharma and biotech, actually, just based on the momentum and the authorizations of clinical research, you know, is going to improve certainly, and that’s been our all along, we said ’26 is a year of improving growth relative to ’25, and most of the industry has said that. And if I look at another large industry participant, they saw very similar trends that we did, which is authorizations activity was good, seeing some level of growth. That’s the second driver. When I think about China, it is a headwind right now. We expect that the economy continues to be challenged.
It continues to have some headwinds because of the tariff environment. Our expectation is that over this period, it will flatten out. That doesn’t mean it won’t be better at some point. But right now, in the quarter for us, it was high single digit decline. It’ll take some quarters to work through that, but getting back to sort of a stable at a minimum gets you into that environment.
So as Steven said, there are clearly scenarios that are better than that, and I’m not smart enough to call exactly how each of these things play out. But I think from our experience to say that we’re operating in this 3% to 6% environment now doesn’t take much of a change in sort of what we’re seeing to make that a reality. And then whenever that exact quarter is that you’re exiting that period, the growth drivers here are very strong, and that’s why we said the 7% plus seems to make sense to us.
Rachel Wartenstahl, Analyst, JPMorgan: Thanks. That’s helpful. Then I just wanted to dig into the academic and government funding a little bit more and follow-up on your answer to Jack’s question. So you noted that customers are still finding budgets for your products, which is great to hear. But can you spend a minute talking about what are you hearing from customers and your consultants in DC regarding the funding outlook for NIH this year?
Mark Casper, Chairman, President and Chief Executive Officer, Thermo Fisher Scientific: Yeah. So when I think about what’s going on in academic and government, you know, a couple things. One is, personally, I’ve been quite active, right, in terms of with our government and, you know, in the dialogue, certainly in congress as well. There remains a high level of bipartisan support for academic and government funding in the life sciences. There’s a very clear understanding of the importance of the life sciences for the health of The US economy and The US’s standing in the world.
My belief that you will get to an environment that is meaningfully better than what people are assuming right now seems quite reasonable. And it’s hard to know exactly what that is, but I don’t think something in the flattish type, flat funding environment wouldn’t be out of the question. It might be down a little bit, but I don’t think it’s going be that significant ultimately, but we’ll see. Customers are cautious. Right?
And they have the dynamic that they have to spend some of the budgets that they have, and they’re also planning for what the next year is. So you’re gonna have some heightened caution until the budget environment is, you know, sorted out for 2026. And we reflected that in our guidance. Right? We’re expecting that US academic and government will be soft in the second half of the year.
Nothing has changed in our view of that or in terms of the impact, and we’ll see how that plays out. Thank you, Rich.
Conference Call Operator: Thank you. Our next question comes from Tycho Peterson with Jefferies. Please go ahead.
Tycho Peterson, Analyst, Jefferies: Hey. Thanks. I want to maybe just probe back into pharma services for a minute, and I appreciate, you know, the color on strong bookings and and PPD, you know, on track to get back to flat for this year. I guess, Mark, as we think ahead to next year, is there any reason that, you know, the CRO business isn’t back in more normalized, you know, call it high single digit growth? And I guess, yeah, has anything changed about the longer term outlook on that side?
Mark Casper, Chairman, President and Chief Executive Officer, Thermo Fisher Scientific: Yeah. I think what we’ve assumed is a couple of things, and we’re not guiding to what next year’s numbers are or certainly next year by business line and the next question for geography. But more that we are expecting, after just periods of incredible growth in clinical research, that this was a year of tough comparison, which was well earned, a tough comparison, and that authorizations momentum that we saw starting to pick up in the second half of last year would drive the business back to growth. And we’re not assuming that right now that there’s immediately the high single digit, but it returns to growth and then builds from there. You know, long term, when I think about this business, this is a high single digit growth business because more work is actually happening in biotech than pharma ultimately in terms of where innovation is, and biotech is 100 dependent on partners to do that work.
So the tailwinds here are very strong and we are incredibly well positioned with that customer base. And so long term, feel very good about the growth drivers of a clinical research and nice to return to positive growth this quarter, nice to get great authorizations growth and setting up for the continued momentum that we would expect in the second half of the year.
Tycho Peterson, Analyst, Jefferies: Okay. And then just follow-up, maybe sticking with the services theme. On the CDMO side, you know, the Sanofi deal was an interesting one. I think you’ve always said asset transfers from pharma are some of the better deals you do. Can you maybe talk about the opportunity set there, how you feel about current capacity until finished today?
And then, maybe just touch on traction with Accelerator. How many customers do you have today, and and how is that going?
Mark Casper, Chairman, President and Chief Executive Officer, Thermo Fisher Scientific: Yeah. So, Tycho, in terms of Accelerated Drug Development, incredibly, know, being adopted incredibly across the industry. And, you know, you you see that in the pharma services growth. You see that in the authorizations momentum. And the Tufts study is a nice study to get a have a third party’s view on it.
But what’s more important is what are our customers actually buying. And they they’re super excited by it because they partner with us, and now we’re really in the how are they operating and how do we make their drug development process more time effective and more cost effective so that they can get their important work to the market. And That is driving really excellent momentum. In terms of the StyleFilFinish and the work there, it is adding a third site to our US footprint. We really like acquiring capacity versus a greenfield because it’s a much more cost effective way of doing it.
You have trained operators, you have equipment that’s not a 100% utilized, and that we’re going to expand on that footprint. It’s great news for the team in New Jersey because they’ll be working on even more exciting molecules and we’ll be able to meet the demand, which is very strong with the increased capacity that we have in New Jersey. So, it’s a really nice acquisition and we look forward to getting that one closed before the year end as well. Thank you, Tycho.
Rafael Tajada, Vice President, Investor Relations, Thermo Fisher Scientific: Operator, we have time for one more question.
Conference Call Operator: Thank you. Our final question today comes from the line of Dan Brennan with TD Cowen. Dan, please go ahead.
Dan Brennan, Analyst, TD Cowen: Great. Thank you. Thanks for the questions. Stephen, I’ll echo the congratulations. And Jim, look forward to working with you.
Maybe just one, Mark, to start just on the 7% plus long term growth. I think you said the 4% underpinning of market growth feels good to you. I would certainly agree, very doable, but the last three years have been so tough. So maybe a two parter, just with pharma as your biggest customer, just wondering what type of maybe pharma R and D growth or other kind of factors you would kind of be using in order to support that 4% growth if R and D is a good factor? And I know you talked about the two to three points of share gains.
Where do you feel best across your business for those gains?
Mark Casper, Chairman, President and Chief Executive Officer, Thermo Fisher Scientific: Yeah. So when I think about a very long term perspective of serving pharma and biotech, and I think about the unique capabilities that we bring, we’re very well positioned to continue to drive very strong share serving that customer base. And we are involved in all of what drives that industry. Right? We supply their research labs.
We supply their quality control labs. We design their clinical trials. We run their clinical trials. We package and distribute their experimental medicines. We scale up medicines from a concept all the way up to commercial production in small and large molecule, and we benefit from all of those drivers and the trusted partner status that positions us very well.
I get lots of questions over the year about what’s the aggregate r and d budget or these different things. It’s interesting. It’s not actually something that is a major driver, but rather is that holistic support in the industry that we have. So I feel very good about our ability to get very strong growth coming out of our largest end market, and that will drive our long term growth going forward.
Dan Brennan, Analyst, TD Cowen: And then maybe just one follow-up just on the year. I know you had baked in or Stephen and Mark had baked in the $400,000,000 headwind for China and I think there’s a $200,000,000 vaccine headwind. And Stephen, you talked about how that China reversal, I think helped the organic growth upside in the quarter. So just can you just walk through a little bit how much of China of that $400,000,000 came back in Q2? What’s still left?
And any benefit from the vaccine headwind? Or is that still contemplated as a drag? Yes.
Stephen Williamson, Senior Vice President and Chief Financial Officer, Thermo Fisher Scientific: So, Dan, so when I think about the tariff dynamic in China, we’d assumed there would be a significant cessation of trade. So we saw that early on in Q2, and there was an impact. Roughly half of the impact didn’t happen in Q2, so things eased up. And that’s so the $75,000,000 kind of beat on the top line, that was you can think about that as kind of the scale of the benefit in Q2. And yes, so we have an assumption that things basically stay the same as they were in Q2.
Things will get will improve from the guide we’ve given you. At the end of the day, it’s probably about a 25% a quarter cushion that we have against potential other tariff things that could come up. So I think it’s appropriate this time not to change the guidance for that, and we’ll see how the tariff environment changes over the next several quarters.
Mark Casper, Chairman, President and Chief Executive Officer, Thermo Fisher Scientific: Thanks, Dan. And so let me wrap up here. Thanks, everyone, for joining us on the call today. We’re in a strong position as we enter the second half of the year. We’re actively managing the company, continue to deliver differentiated performance, create shareholder value, build an even brighter future for our company.
I very much will cherish the upcoming nine months with Stephen, and I look forward to working with Jim on the transition as well. And we all look forward to updating you on our third quarter results in October. And as always, thank you for your support of Thermo Fisher Scientific. Thanks, everyone.
Conference Call Operator: Thank you everyone for joining us today. This concludes our call and you may now disconnect your line.
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