Thermo Fisher’s revenue falls in Q2 amid ‘challenging’ climate for biotechs and in China

Thermo Fisher Scientific blamed a 3% decline in revenue in the second quarter to biotechs exercising more caution with their spending and slowing economic activity in China.

The company’s revenue fell to $10.7 billion in Q2, down from $10.9 billion in Q2 of last year.

Marc Casper

CEO Marc Casper said on an investor call on Wednesday morning that the drop was due to the “macroeconomic environment [becoming] more challenging in the quarter.” One-third of the decline in core revenue was due to the lower economic activity in China, while other customers pulled back on spending, primarily biotechs, CFO Stephen Williamson said. Casper cited higher interest rates, credit availability and overall caution.

“Every quarter the funding has been a little bit more challenged or not as strong as the past. Companies get more conservative because they think about: What’s their runway on spending?” he said. “That really picked up in terms of the headwinds in Q2 against an incredibly difficult comparison in the prior year period. The final point I would make here is that there are some green shoots starting to happen in biotech.”

Execs said that when they laid out their guidance back in January, they assumed core market growth would be in the 4% to 6% range — what they described as “normal.” However, given the Q2 performance, Thermo is modifying its guidance on core market growth to grow between 0% and 2%.

The company is also resetting its revenue goals for 2023 — to between $43.4 billion and $44.0 billion. The company had previously predicted that it would have $45.3 billion in revenue for the year.

“Given the lower core revenue both in the quarter and assumed in our full-year outlook, we’re using the PPI business system to aggressively manage that cost base,” Williamson said, citing an internal system and claiming the company was able to offset $75 million of the profit impact.

Stephen Williamson

Thermo’s revenue is still higher than it was pre-pandemic. Just three years ago, the company reported $6.9 billion in Q2 revenue in 2020, though it shot up to $9.2 billion in 2021, with $1.9 billion of that coming from Covid-19 testing revenue.

Thermo Fisher has laid off hundreds of employees at different sites in California and New Jersey so far this year. The company axed more than 200 employees in February at three different sites in California, followed by more than 100 layoffs in New Jersey and another 218 in San Diego. That last set of layoffs was due to lower demand for its Covid-19 products.

Casper also mentioned the potential for deals.

“We’re actively looking at a number of things,” he said. “We’re only going to do transactions that fit our criteria, which ultimately it’s going to strengthen our offering from a customer perspective.”

Thermo’s share price $TMO fell more than 5% in premarket trading.

Stifel analyst Daniel Arias noted ahead of the call that a cut to Thermo’s overall guidance seemed inevitable.

“We expect shares to be down at the open, but do believe that a refreshed outlook that better reflects the state of the macroeconomy was something that many investors were waiting on before stepping in,” Arias wrote in a note to investors on Wednesday morning.

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