Thermo Fisher Scientific's Growth Outlook and Challenges in China
2023-08-01
Thermo Fisher Scientific's CEO discussed the company's capital deployment, M&A activities, and growth in the pharma services business during the earning call meeting. The CEO also addressed the impact of a tornado in North Carolina and the company's commitment to supporting customers during natural disasters.
The most important topic discussed in the meeting was the company's capital deployment and M&A strategy. The CEO provided insights into recent acquisitions, including The Binding Site and CorEvitas, which are expected to contribute to growth and increase earnings per share. The company has also formed a partnership with Pfizer to improve access to genetic testing for cancer patients.
![Cover photo of the article](https://storage.googleapis.com/shark_public/pictures/s_industrials5.png)
The economic slowdown in China was the single most interesting topic discussed in the meeting. The CEO highlighted that the slowdown is not limited to a specific sector but is a result of cautiousness among customers in China. This cautiousness has already affected the company's bioproduction business and is expected to have an impact on its entire portfolio. The CFO further emphasized that the economic problems in China extend beyond the life sciences tools industry and that the Chinese economy is struggling to recover post-COVID. This information indicates that the company's performance could be significantly affected by the economic conditions in China in the near future.
The market outlook summary suggests that the company is not expecting significant growth for the remainder of the year due to a slowdown in economic activity in China, particularly in the bioproduction sector. The recovery from the impact of COVID-19 is posing challenges for the Chinese economy. The company aims to outperform the market growth by a couple of points and expects a margin expansion of 50 basis points.
The key drivers of the business discussed in the meeting were customer caution, the China market, and backlog and order growth. Customer caution, particularly in the biotech sector, has affected the growth outlook. The softness in the Chinese market has impacted overall growth, especially in the analytical instruments segment. The company entered the year with a strong backlog, contributing to growth in the instruments segment, but softer orders in Q2, primarily from China, have led to a more muted growth rate.
The most important KPIs discussed in the meeting were the growth outlook, the China market, backlog and order growth, and PPI (Productivity, Performance, and Innovation). The company mentioned a change in the growth outlook, particularly in the biotech sector, due to customer caution in bioproduction. They also highlighted the impact of customer caution in China on their growth, with China's softness affecting their business. The company discussed the backlog and order growth in the analytical instruments business, noting that orders were softer than expected in Q2, primarily driven by China. Lastly, they talked about their approach to managing economic conditions and activity levels with customers, emphasizing the importance of prioritizing investments, productivity, performance, and innovation.
The company's outlook for the quarter/year is moderate growth. They anticipate a significant moderation in growth due to oversize growth in the prior-year period. They forecast a 5% growth excluding vaccine and therapy runoff for the quarter, which they consider reasonable given the comparison. The CEO mentioned that funding in biotech has been more challenged and not as strong as in the past, leading to some headwinds in Q2. However, there are positive signs in terms of new company formation and funding in biotech starting to show signs of positivity.
The company has made terrific progress on its strategic initiatives in the second quarter. They have launched high-impact new products in various business segments, including mass spectrometry, electron microscopy, biosciences, and specialty diagnostics. These products have strengthened their industry leadership and have already been delivered to customers with strong bookings performance. Additionally, the company has built a trusted partner status with customers, allowing them to bring together their industry-leading products, services, and expertise to meet unmet needs.
The company's capital spending plans for the year include net capital expenditures of approximately $1.7 billion.
In conclusion, the earning call meeting provided valuable insights into Thermo Fisher Scientific's capital deployment, M&A strategies, and growth outlook. The company's performance is expected to be significantly influenced by the economic conditions in China, and the cautious approach reflects the challenges posed by the recovery from COVID-19. Despite these challenges, the company remains optimistic about the future of the life sciences industry and has made significant progress on strategic initiatives.