Thermo Electron Reports 21% Revenue Growth and Record Operating Income in the Third Quarter
Tuesday October 26, 4:13 pm ET
WALTHAM, Mass., Oct. 26 /PRNewswire-FirstCall/ -- Thermo Electron Corporation (NYSE: TMO - News) today reported revenues of $542 million for the third quarter of 2004, a 21 percent increase over $449 million in the 2003 quarter. GAAP diluted earnings per share (EPS) were $.65 in 2004, compared with $.29 a year ago. The 2004 quarter includes a gain of $.39 per share from discontinued operations, primarily due to the sale of Spectra-Physics and tax benefits related to a previously divested business. GAAP operating income increased 42 percent from 2003, largely a result of lower restructuring costs in 2004. GAAP operating margin for the 2004 quarter rose to 11.0 percent from 9.3 percent in 2003.
Adjusted EPS grew 23 percent to $.32 in the third quarter of 2004, compared with $.26 in 2003. Adjusted operating income also rose 23 percent to record third quarter levels since the company's reorganization in 2000. Adjusted operating margin was 13.1 percent, up from 12.9 percent in 2003. Adjusted operating margin improved by 50 basis points in 2004 before the effect of acquisitions, which lowered the margin by 30 basis points. Organic revenues, which exclude the effects of currency translation and acquisitions/divestitures, grew 9 percent. Currency translation increased revenues by 5 percent, and the net effect of acquisitions/divestitures led to a 7 percent increase.
Adjusted EPS, adjusted operating income, adjusted operating margin and organic revenues are non-GAAP measures that exclude certain items detailed at the end of this press release under the heading, "Use of Non-GAAP Financial Measures."
Third Quarter Highlights
* Reported revenues grew 21 percent
* Adjusted EPS rose 23 percent
* Organic revenues increased 9 percent
* InnaPhase LIMS business acquired for $65 million
* Industrial process segment showing robust growth
Marijn E. Dekkers, president and chief executive officer of Thermo Electron, said, "We are very pleased to have delivered strong top- and bottom- line growth for the quarter. Importantly, our revenue performance contributed to solid earnings growth, with adjusted EPS exceeding the high end of our guidance by $.02. In addition, we generated strong cash flow of $66 million from continuing operations.
"These results indicate that our growth strategy is working. We've made significant internal investments to develop new products, expand our services and create the commercial framework necessary to differentiate Thermo in the marketplace. We also have the resources to continue to make strategic acquisitions that extend our offerings and market coverage.
"In the Life and Laboratory Sciences segment, our leading analytical technologies are setting new standards for scientific research, enhanced by a growing family of informatics and services solutions following our recent acquisition of InnaPhase Corporation, a leader in data management systems for the pharmaceutical industry. In Measurement and Control, we are driving improvement by pursuing opportunities in growth markets, such as China, and applying our laboratory-grade analytical instruments to on-line processes. In addition to these initiatives, we are benefiting from recovery in many of our industrial markets."
Mr. Dekkers added, "For the fourth quarter of 2004, we expect to report adjusted EPS of $.36 to $.38. As a result, we are narrowing our previous adjusted EPS guidance of $1.20 to $1.25 for the full year to $1.23 to $1.25." (This guidance excludes approximately $.03 of expense per quarter from the amortization of acquisition-related intangible assets and the other items described in this press release under the heading, "Use of Non-GAAP Financial Measures.")
Life and Laboratory Sciences
The Life and Laboratory Sciences segment reported a revenue increase of 27 percent in the third quarter to $383 million, versus $302 million last year. Organic revenues increased 8 percent. The effects of currency translation and acquisitions increased revenues by 5 percent and 14 percent, respectively. New products continue to drive stronger sales of our mass spectrometry systems. Our Finnigan(TM) LTQ FT(TM) hybrid system, which has become a valuable research tool for proteomics since its introduction in 2003, has been selected by R&D Magazine as one of this year's top 100 innovative products. In our molecular spectroscopy product line, we are seeing increased demand for our recently launched Nicolet(TM) infrared spectrometry systems and our new Continuum(TM) series microscope. In addition, growth in consumable products has led to general strengthening across our clinical diagnostics portfolio. The recent InnaPhase acquisition allows us to further leverage sales of systems and hardware by extending our informatics offerings to include laboratory information management systems for specialized pharmaceutical applications.
GAAP operating income for the segment grew 24 percent in the 2004 quarter, with GAAP operating margin of 14.2 percent, versus 14.5 percent in 2003. Adjusted operating income for the segment increased 23 percent in 2004, and adjusted operating margin was 16.2 percent, compared with 16.7 percent in the 2003 quarter. Adjusted operating margin improved by 20 basis points in 2004 before the effect of acquisitions, which lowered the margin by 70 basis points. As we integrate these operations, we expect margins to improve in ensuing quarters.
Measurement and Control
Third quarter revenues in the Measurement and Control segment increased 9 percent to $159 million, versus $146 million last year. Organic revenues also rose 9 percent. The effect of currency translation increased revenues by 4 percent, while the net effect of acquisitions/divestitures decreased revenues by 4 percent. Revenue growth was fueled by strong demand for our process instruments used by the materials industry; the metals market continues to grow in China, and minerals markets are gaining strength due to favorable pricing of base materials. Our temperature control and materials characterization product lines are benefiting from an upturn in industrial markets. We are also seeing higher sales of gas flow systems used in petroleum processing, and increased demand for our SOLA on-line sulfur analyzers resulting from stricter clean-fuel regulations.
GAAP operating income for the segment increased 34 percent from the 2003 period, and GAAP operating margin rose to 9.1 percent, versus 7.5 percent last year. Adjusted operating income for the segment increased 24 percent over last year, with adjusted operating margin of 11.1 percent, up from 9.7 percent in 2003.
Use of Non-GAAP Financial Measures
In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures, including adjusted EPS, adjusted operating income and adjusted operating margin, which exclude restructuring and other costs/income and amortization of acquisition-related intangible assets. Adjusted EPS and adjusted operating income also exclude certain other gains and losses, tax provisions/benefits related to the previous items and benefit from tax credit carryforwards. We exclude these items because they are outside of our normal operations and, in certain cases, are difficult to forecast accurately for future periods. We also use the concept of organic revenue growth, which excludes the effects of currency translation and acquisitions/divestitures. We believe that the inclusion of such measures helps investors to gain a better understanding of our core operating results and future prospects, consistent with how management measures and forecasts the company's performance, especially when comparing such results to previous periods or forecasts.
Specifically:
We exclude costs and tax effects associated with restructuring activities, such as reducing overhead and consolidating facilities, in connection with the final phase of our overall reorganization, which we expect will be substantially complete in 2004. We believe that the costs related to these restructuring activities are not indicative of our normal operating costs.
We exclude charges relating to the sale of inventories revalued at the date of acquisition, as we believe these charges are not indicative of our normal operating costs.
We exclude the expense and tax effects associated with the amortization of acquisition-related intangible assets because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have lives of 5 to 10 years. Exclusion of the amortization expense allows comparisons of operating results that are consistent over time for both our newly acquired and long-held businesses and with both acquisitive and non- acquisitive peer companies.
We also exclude certain gains/losses and related tax effects, as well as benefit from tax credit carryforwards, that are either isolated or cannot be expected to occur again with any regularity or predictability, such as those arising from the sale of a business or real estate, the sale of our equity interests in Newport Corporation, Thoratec Corporation and FLIR Systems, Inc., and the early retirement of debt, which we believe are not indicative of our normal operating gains and losses.
Thermo's management uses these non-GAAP measures, in addition to GAAP financial measures, as the basis for measuring the company's core operating performance and comparing such performance to that of prior periods and to the performance of our competitors. Such measures are also used by management in their financial and operating decision-making and for compensation purposes.
The non-GAAP financial measures of Thermo's results of operations included in this press release are not meant to be considered superior to or a substitute for Thermo's results of operations prepared in accordance with GAAP. Reconciliations of such non-GAAP financial measures to the most directly comparable GAAP financial measures are set forth in the accompanying tables and/or the text of this press release. Thermo's earnings guidance, however, is only provided on an adjusted basis. It is not feasible to provide GAAP EPS guidance because the items excluded, other than the amortization expense, are difficult to predict and estimate and are primarily dependent on future events, such as decisions concerning the location and timing of facility consolidations, and the timing of and proceeds from the sale of our equity interests in Newport and Thoratec. We no longer own any shares of FLIR Systems.
Conference Call
Thermo Electron will hold its earnings conference call on Wednesday, October 27, at 8:30 a.m. Eastern time. To listen, dial 888-872-9028 within the U.S., or 973-633-6740 outside the U.S. You may also listen to the call live on the Web by visiting thermo.com. Click on "About Us," then "Investors." An audio archive of the call will be available in that section of our Website until Friday, November 26, 2004. You will also find this press release, including the accompanying reconciliation of non-GAAP financial measures, under the heading "Press Releases," and related information under the heading "Financial Reports," in the Investors section of our Website.
About Thermo Electron
Thermo Electron Corporation is the world leader in analytical instruments. Our instrument solutions enable our customers to make the world a healthier, cleaner and safer place. Thermo's Life and Laboratory Sciences segment provides analytical instruments, scientific equipment, services and software solutions for life science, drug discovery, clinical, environmental and industrial laboratories. Thermo's Measurement and Control segment is dedicated to providing analytical instruments used in a variety of manufacturing processes and in-the-field applications, including those associated with safety and homeland security. Based near Boston, Massachusetts, Thermo has revenues of more than $2 billion, and employs approximately 10,000 people in 30 countries. For more information, visit thermo.com. |
