Thermo Fisher Scientific Inc. delivered a strong financial performance in its third-quarter earnings call for 2024. The company reported a revenue of $10.6 billion and an adjusted operating income of $2.36 billion, resulting in an adjusted earnings per share (EPS) of $5.28. Thermo Fisher raised its full-year adjusted EPS guidance to $21.35 to $22.07 and maintained its revenue forecast within the range of $42.4 billion to $43.3 billion. Despite challenges from reduced COVID-19 testing revenue, the company demonstrated resilience and strategic growth through innovations and acquisitions, such as the recent purchase of Olink. Looking ahead, Thermo Fisher anticipates continued strong financial performance in 2024. In our third quarter earnings press release, you can find a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP measures. This information is also available in the investor section of our website under the financials heading. Now, I will pass the call over to Marc.
Marc Casper: Thank you, Raf. Good morning, everyone. Our third-quarter results demonstrate strong financial performance, driven by our trusted partner status with customers. We continue to deliver differentiated results in the short-term while strengthening our long-term competitive position. Revenue for the quarter was $10.6 billion, with adjusted operating income of $2.36 billion and adjusted EPS of $5.28. We saw sequential improvement in growth across our end markets, with pharma and biotech, academic and government, and industrial and applied all showing low-single-digit growth. Diagnostics and healthcare remained flat due to the impact of COVID-19 testing-related revenue runoff. Our growth strategy, focused on high-impact innovation, trusted partnerships with customers, and a strong commercial engine, continues to drive success. Our recent innovation highlights include the R&D 100 Awards recognition for our Gibco CTS Detachable Dynabeads and Thermo Scientific Orbitrap Astral Mass spectrometer. We also launched new products like the Iliad scanning transmission electron microscope and MagMAX Sequential DNA/RNA kit, furthering our commitment to advancing science and technology. Our trusted partner status with customers is evident in our ongoing commercial wins and collaborations, both domestically and internationally. Our recent visit to China highlighted the strong relationships we have in the region and the opportunities for growth when the economy rebounds. We are well-positioned to capitalize on these opportunities and continue to deliver value to our customers. Let me provide you with an example from the third quarter that demonstrates how we advanced customer partnerships and collaborations. In our clinical next-gen sequencing business, we announced a partnership with the National Cancer Institute for the myeloMATCH precision medicine umbrella trial. This collaboration will use our next-generation sequencing technology to test patients for specific biomarkers, allowing them to be matched more quickly with optimal treatments based on their unique cancer profiles. Additionally, we expanded our capabilities to meet our customers’ current and future needs by enhancing our oral solid dose formulation capabilities for pharma and biotech customers. This involved expanding our pharma services manufacturing footprint in Cincinnati, Ohio and Bend, Oregon. In our clinical research business, we announced the expansion of our global laboratory services network with a new bioanalytical lab in Gothenburg, Sweden, to support pharmaceutical and biotech customers with advanced laboratory services for all phases of development. This quarter was a strong one for advancing our growth strategy.
Our PPI business system played a significant role in our success during the quarter. It empowers our colleagues to find better ways to enable outstanding execution, resulting in strong profitability and cash flow. We optimized our supply chain in Asia-Pacific and streamlined manufacturing processes in Europe to meet demand.
In terms of corporate social responsibility, we have a CSR strategy that delivers competitive advantage. Our mission-driven company aims to make a positive impact on the world, support our communities, and be good stewards of the planet. Our colleague safety is a top priority, especially in the wake of natural disasters like Hurricane Helene. I’m grateful for the safety of our colleagues in Asheville, North Carolina.
Our disciplined capital deployment strategy, which includes strategic M&A and returning capital to shareholders, continues to create value. Recent acquisitions like The Binding Site and Olink have performed well, with the latter contributing to advancing proteomics research.
We are raising our adjusted EPS guidance for the year based on our strong performance in the third quarter. This, along with our proven growth strategy and PPI business system, positions us well to deliver differentiated performance in 2024 and create value for all stakeholders. Partially offsetting these factors is a $0.02 FX headwind compared to our initial assumption for the quarter. However, our strong performance in free cash flow generation continues, with year-to-date free cash flow 22% higher than the same period last year. This positions us well to deliver differentiated financial performance in 2024.
In Q3, adjusted EPS was $5.28, while GAAP EPS was $4.25. Revenue, organic revenue, and core organic revenue were all flat year-over-year, with pandemic-related revenue of approximately $100 million, primarily from vaccines and therapies, representing a 3% headwind to organic revenue growth.
By geography, North America declined low-single-digits, while Europe, Asia-Pacific, and China were flat year-over-year. Adjusted operating income was $2.36 billion in the quarter, with an adjusted operating margin of 22.3%, slightly ahead of expectations. Adjusted gross margin was 41.8%, reflecting strong productivity and cost management efforts.
SG&A was 16.2% of revenue, R&D expenses were $346 million, and net interest expense was $80 million in Q3. Adjusted tax rate was 10.5%, and average diluted shares were $384 million.
Year-to-date free cash flow from operations was $5.4 billion, with $4.5 billion after net capital expenditures. We deployed $3.1 billion through the acquisition of Olink, ending the quarter with $6.6 billion in cash and short-term investments and $35.3 billion of total debt.
Adjusted ROIC was 11.4%, demonstrating strong returns on investment. Performance across our four business segments varied, with declines in Life Sciences Solutions and Laboratory Products and Biopharma Services, and growth in Analytical Instruments and Specialty Diagnostics.
Guidance for 2024 has been raised, with adjusted EPS now expected to be in the range of $21.35 to $22.07. Revenue guidance remains unchanged, with core organic revenue growth expected to be between -1% and +1%. Adjusted operating income margin is expected to be between 22.5% and 22.8%, and net interest cost is expected to be between $340 million and $380 million for the year. Marc Casper highlighted the gradual improvement in market conditions throughout the year, with organic growth returning to positive territory in the fourth quarter. Looking ahead to 2025, he emphasized the importance of providing guidance in January based on the latest market conditions. He expressed optimism for the year, noting that the final year of pandemic-related activity will be less of a headwind compared to 2024. Overall, Casper emphasized the company’s strong execution, growth strategy, and disciplined capital deployment, positioning them well for continued differentiated performance in 2025. In regards to the follow-up question on pharma and biotech, Marc Casper provided an overview of the performance of the segment in the third quarter. He mentioned that there was a sequential improvement and a mid-single-digit headwind from the pandemic runoff. He highlighted that confidence in biotech is improving, funding is modestly increasing, and large pharma companies are adjusting to their pipelines. Overall, Thermo Fisher is well-positioned with its customer base and delivering differentiated performance. Casper expressed optimism about the long-term health of pharma and biotech and the company’s performance in the sector.
In response to the question about the CRO sector with a focus on PPD, Casper emphasized that the clinical research business is performing well despite the headwinds from the pandemic. He mentioned that the company is unlocking value through the combination of pharma services and clinical research. Thermo Fisher serves slightly more biotech customers than pharma in the clinical research business, and biotech customers are more rapidly adopting the unified capabilities offered. Casper did not provide specific guidance for 2025 but indicated that the company will discuss the outlook next year.
Regarding the Life Science Solutions segment, Casper clarified that the growth was in line with the company’s expectations for the quarter, despite being softer than what analysts had anticipated. He attributed this to the largest impact of the COVID roll-off in the segment during the third quarter. Casper noted that bioproduction, biosciences, and genetic sciences all trended as expected, with the quarter presenting the most challenging comparison in terms of COVID-related activities. In terms of geographies, customer groups, and product categories, our portfolio is tracking pretty closely to our expectations for the year. The first quarter saw slightly higher revenue, but the next two quarters were right in line with our projections. Looking ahead to the fourth quarter, we anticipate a return to growth.
One area that we did keep an eye on was how biotech funding and the Chinese market would perform, as these were potential areas of variability. Biotech funding is showing signs of improvement, which is a positive development. Confidence in the industry is growing, and we are seeing this translate into our business as well.
Overall, there haven’t been any significant deviations from our initial expectations at the start of the year. We will continue to monitor these trends as we look towards 2025 and beyond. Can you provide more detail on how you expect margins to trend in that segment as those headwinds subside and the underlying growth continues to be strong? Dan, thanks for the question. In terms of pharma R&D, we have definitely seen mixed headlines in the industry. However, when we look at the global analysis of R&D trends, we see a continued focus and investment in research and development across the pharmaceutical sector. This is a positive sign for our business as a provider of services to the drug development and manufacturing industry. We are seeing strong demand for our services, particularly in areas such as sterile fill/finish and oral solid dose manufacturing. Our capacity expansions in these areas are in response to this demand and will help us meet the needs of our customers in the coming years. Overall, we are optimistic about the growth opportunities in the pharma R&D space and are well-positioned to capitalize on them. Thermo Fisher Scientific is performing well in the large pharma and global pharma sectors, with growth in R&D investments reflecting optimism for the future. The company is seeing strong pipeline opportunities and excitement in the industry, despite challenges in bioproduction and pharma services due to the pandemic. In China, there is anticipation for stimulus funding in 2025, with Thermo Fisher well positioned to benefit from partnerships and collaborations in the country. The company remains confident in its long-term prospects and looks forward to continued success in the future.