Q2 2019 Earnings Call

Now you've you've had a little bit.

You know at least a relative to your capacity, maybe a a good year, but but not as super active you are I guess, how are you thinking of you know kind of the current environment and the pipeline from Monday and value evaluations relative.

Maybe the size of some of the deals you can look at and execute on.

So Ross in terms of the pipeline, we're very busy.

There's there's a lot of activity that we're looking at and as you know yep substantial capacity, we outline that an or may analyst meeting and in overtime, you're going to see us deployed that capacity on the right transactions.

And that's that's why we think about it and I'm very excited about what we've you know closed and announced as well as the one divestiture that we did and.

You know will continue to be good stewards of our shareholders Council.

Thanks Mark.

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Next question comes Sir Derek Depression with Bank of America.

Hi, good morning.

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Hey.

The can you give us Stevens them gardens on the gross margin that it's consistently a little bit below.

Where the street tends to model on a quarterly basis and could you sort of walk us through how we should sort of think about the gross margin progression because I mean, obviously you you hit your operating margin targets because of good <unk> leverage, but the gross margins a little bit all over the place any color you can provide on that would be great.

Yeah darn thinks the question that a couple of faxes. One is the F.X. isn't impact on gross margins, it's about 3% headwind on on on the on the <unk> Yeah.

But the main piece really at the mix of businesses and and the growth in relative profitability at the gross margin level very strong growth in bioproduction certain product lines and family services and these have a relatively lower gross margin than other business in the company, but good probability so it's kind of.

Mics element within that that's really driving that gross margin level.

And so I guess you know as you talk about adding capacity in in your predict your your bioprocess businesses in your contract manufacturing businesses, you know how <unk> I guess looking at.

Looking at trends into next year should we expect additional pressure on the gross margin there until you sort of feel like capacity or is it too early to tell.

We're getting good leverage on R.S.G.N.A., which is driving overall good margin expansion of the bottom line and I think the gross margin profile you seeing will play out for for some time, but it's.

Best strong growth in the right areas <unk> delivering strong profitability at the bottom line can translate D.B.S. grows so.

<unk> way to think about it.

Great and if I can sneak in one more the academic and government.

Outlook with growth this quarter was a little flatish is that mostly due to the data center.

Issues or just some general trends on that market place.

Yeah, So Derek <unk> when I think about the corridor as you really look into the comps was first similar to what we've seen geographically China was strong.

Little bit more muted in North America, and Europe , the data center outage.

No affected each of the and markets, a little bit, including academic and government probably affected industrial apply the most so you know as I talk to the teams around the world. They didn't really see much of a change in terms of what the market looks like.

Okay. Thank you.

Next question comes from Jack Man.

Q the morning.

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[noise], hoping if you give us an update on F.B.I. and with Cry are we it wasn't something that you called out for the analytical instruments segment. Just you know how how was performance in the quarter. How are how's the backlog look and maybe just remind us what your guiding too in terms of revenue there pacing in the back half.

Yeah. So you know in terms of.

The you know or materials and structural analysis business, which includes you know electron microscope, they endorse spectroscopy instruments.

You know, we had modest growth in chew too.

And our expectation is that we'll have you know modest growth in the balance of the year in that business due to the very strong performance that we had in 2018, we saw some of that than it would play out.

In in Q2.

You know pretty much in line with what we had expected during the beginning of the year. So you you got visibility without business, usually about six months in terms of how things how things look and you know the outlook looks positive.

For the long term in terms of the life Sciences application.

You know we've had really nice.

Uptake and the pharmaceutical customer base still a small proportion of the total.

Do you recall when we acquired F.B.I. you really have the flagship universities around the world Apart you know acquiring quite spectrum across cooking.

And one of the things that we wanted to do was to democratize it towards the pharmaceutical industry.

And that's actually going very well, so that bodes well for the future and expect that overtime life Sciences will continue to be a bigger and bigger portion of total electron microscope sales and and that bodes well for the long term out for this businesses.

Yeah, and and Jack is reminded that profile for this business is essentially built into I got in the beginning of the year and.

Through the great Yeah that makes sense and just as the second question was hoping you could give a little bit more color on the European region, and just you know how some of the impacts whether it's trade and tariff or conversation around breakfast and finally Easter pacing you know how you thought some of those different impacts might have impacted the quarter.

Yeah, you know in terms of Europe conditions were pretty similar to what we've been saying you know with you know some level of macroeconomic concern not thermal Fisher specific concern because lots of balls about what the world's going to look like and you know conditions seem to continue to be stable from that perspective, and you know our team is doing a good job of serving customers well and helping to navigate the environment. So so Europe is playing you know with moderate growth.

Any impact on from east or that you think.

I'm not a material impact and.

Okay. Thank you.

Next question comes from <unk>.

To mourn and gosh.

Your original core revenue growth guidance for the year factored in the assumption that China would grow in the mid teens.

This is still the case I believe mathematically this would imply that you're assuming trying to grow moderates in the second half versus the first half.

So my my questions are burst is trying to guidance on changed and two are you seeing any changing conditions and I I ask this second question because we have seen some trade data that suggests there was a a bit of a moderation a tool China tools experts.

Over at least the first two thirds of the second quarter. So in any comments on on both of those topics would be much appreciated.

Great analytical question, so conditions are fine in China.

You know when I when I look at the performance we admit teams in the quarter when I look at the <unk> from you know the year no no changes and there's not.

A negative change going forward, so it's not applying any.

Slow down in the girls relative to what we expected and conditions continue to be to be good. So that's very positive you know one of the real highlights in China is the continued you know rapid emergence of biotechnology industry in the country and and that bodes well for all of these you know innovative companies you know wanting to work with you know what the best company in the field of terms supporting their scale up so it's really a.

A good and market for us from that perspective, so nothing no no no yellow flags as over to China.

Okay that is a super helpful. Mark and just a quick clean up I think for Steven.

Just back to the to the the the data storage outage or the data outage did did that in impact margins in the corridor. It's it's yeah I I know there was an earlier question about margins I'm I'm just wondering if that might have had some impact on results as well the on the top line.

You have to really think about the revenue here. It is the the shipments where it has to be made in the last few days of the quotas. So we've basically lost though is their contribution buttons or was it.

It's a matter of profitability that would have gone to them. So it was it was some impact but not.

No significant impact.

Great. Thank you.

Next question comes from Stephen Michelle with full free search.

Thanks, Good morning, and thanks for the time here.

One bigger picture one for for Mark and then just a couple of times for Steven.

Like like some I think I may be looking here at the trends, particularly in in farming to some extent.

An L.P.S. and thinking Wow, how is that these guys are doing it and I. Appreciate some of the commentary provided earlier, but I wonder if you could zone in specifically within farm of the corporate account strategy any changes could give us some color on you know how much bigger that is today versus 12 months ago, and and whether that's a critical driver.

Yeah, So what I think about.

Pharma and biotech in the end market.

No no they're really strong border for us.

And it was broad base in terms of.

Cross our product lines.

So you know excellent performance from services bar production, our customers really respect and appreciate the value proposition you know, we help them with their innovation pipelines, we help them drive productivity because of the scale of the relationships. We have we have unique access to the decision makers and you know those customers or or doing more business with us, but also the pipeline of activities with us is very strong. So so that's part of it and you know the small and emerging companies. The innovators that you know are are in the earlier stages of their history, you know really or about speed to market and they're relying on us to help them do their development work and scale up and help them with their you know logistics on clinical trials, all things that we do and and that's also been driving very strong growth for those so it's broad based is not only by customer type within phone about Texas broadbased in terms of.

<unk>, often as well so very good market for us and we are uniquely positioned to capitalize.

Okay. Much appreciated and then two quick ones. Stephen for you. One is do you have a sense for what the impact on back half earnings is in total for for Brammer and then given that what happened with the data center was a little bit more concentrated on the analytical instruments business any color on growth phasing specifically for a.

As you were nice enough to provide the total company level would be really helpful. Thank you.

Yeah, the one <unk> the timing of the announcement the Akron.

I Wonder if the acquisition for about four cent impact on the on the yeah. So that's already in the second Oh comes in the second half of the year.

In terms of the aid I gave the phasing at the company level in terms of the organic growth who's going to think about that for the for that.

13, Q3 in Q4.