MOODY'S UPGRADES THERMO ELECTRON'S SENIOR UNSECURED TO Baa1
2004-09-13 17:54 (New York)
New York New York
Tom Marshella John D. Moore
Managing Director Asst Vice President - Analyst
Corporate Finance Group Corporate Finance Group
Moody's Investors Service Moody's Investors Service
JOURNALISTS: 212-553-0376 JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653 SUBSCRIBERS: 212-553-1653
MOODY'S UPGRADES THERMO ELECTRON'S SENIOR UNSECURED TO Baa1; OUTLOOK STABLE
Approximately $250 million of Debt Securities Affected
New York, September 13, 2004 -- Moody's Investors Service upgraded Thermo
Electron Corporation's senior unsecured rating to Baa1 from Baa2. The
rating outlook is stable.
The upgrade reflects: (1) an expectation for continued organic revenue
growth in each of the company's business segments, (2) significant debt
reduction and sustained improvement in free cash flow (cash flow from
operations less capital expenditures) since fiscal year end 2002, (3)
sales traction within key pharmaceutical client accounts, and (4) the
recent sale of Spectra Physics, the company's former optical business,
which had been a drag on the company's margins and cash flows.
The stable outlook reflects Moody's expectation that the company will
continue to maintain operating margins approximating 10% or higher,
given the sale of the optical business, the company's focus on
procurement and real estate consolidation, and the diversification of
Thermo's revenues, with no customer representing over 10% of sales.
Moody's believes that the company's credit protection measures as
measured by free cash flow to debt will not materially change over the
intermediate term. The rating could face downward pressure if management
deviates from its conservative financial profile of maintaining
substantial internal liquidity or increases its appetite for
acquisitions. The rating would likely be upgraded to the extent that the
company continues to achieve consistent organic revenue growth and
operating profitability at least in step with industry peers, while
maintaining a measured approach to acquisitions and share repurchases.
Thermo's organic revenue growth in the first two quarters of fiscal 2004
indicates the company's end market demand is improving. Both of the
company's business segments are experiencing organic revenue growth; the
company saw 2% organic revenue growth in its Life Sciences segment in the
second quarter of fiscal 2004, while its Measurement and Control segment
experienced 3% organic revenue growth for the quarter. Moody's believes
that Thermo's organic revenue growth will continue to be supported by
traction in key accounts, especially those with large international
pharmaceutical manufacturers. The company's organic revenue growth for
the first half of 2004 has been 4%, a significant improvement from the
negative 3% and negative 4% organic revenue decline experienced in fiscal
year 2003 and fiscal year 2002, respectively.
Free cash flow for the first two quarters of fiscal 2004 has improved
significantly to $117 million from $53 million in the first two quarters
of fiscal 2003. Given a recent increase in organic revenue growth, the
recent sale of the optical business, and the company's continued focus on
procurement savings and real estate consolidation, Moody's believes the
company will generate free cash flow approximating $200 million or more
in 2004. Moody's notes that free cash flow improvement is attributable to
improved productivity and cost saving measures undertaken in 2002 and
2003 (annualized cost savings of $58 million resulting from consolidation
of real estate and headcount reductions). Since 2002, the company has
reduced debt significantly to $259 million debt outstanding at July 3,
2004 from $936 million at fiscal year end 2002.
Liquidity consists of $250 million undrawn revolving credit facilities
($125 million 364-day, $125 million 3-year agreement though December
2005), approximately $372 million cash and investments as of July 3rd,
2004 and additional $200 million cash and $50 million of Newport common
stock received in mid July the sale of Spectra Physics. Thermo Electron
remains in compliance with the financial covenants of its credit
facilities. Thermo's debt consists of $128.7 million outstanding senior
unsecured notes due in 2008 and $77 million outstanding guaranteed
convertible subordinated debentures due in 2007.
RATINGS UPGRADED:
Senior Unsecured Rating to Baa1 from Baa2
Senior Unsecured Shelf Rating to (P)Baa1 from (P)Baa2
Subordinated Shelf Rating to (P)Baa2 from (P)Baa3
Thermo Electron Corporation, based in Waltham, Massachusetts, is a global
provider of high-tech instruments, scientific equipment, services, and
software supporting the life science, environmental, and industrial
process industries. |
