賽默飛世爾科技 (TMO) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the Thermo Fisher Scientific first quarter 2010 Earnings Conference Call.

My name is Carmen and I will be your coordinator for today.

(Operator Instructions) I would like to introduce our moderator for the call, Mr.

Kenneth Apicerno.

Good morning and thank you for joining us.

On the call with me today is Marc Casper, our President and Chief Executive Officer and Pete Wilver, Senior Vice President and Chief Financial Officer.

Please be aware that this call is being web cast live and will be archived on the investor section of our web site, thermofisher.com under the heading web cast and presentations until May 21, 2010.

A copy of the press release of our first quarter 2010 earnings and future expectations is available on our web site under the heading financial results.

So, before we begin, let me briefly cover our Safe Harbor Statement.

Various remarks we may make about the Company's future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor Provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including those discussed in the Company's form 10-K for the year ended December 31, 2009, under the caption risk factors.

Which is on file with the Securities & Exchange Commission and also available on the investor section of our web site under the heading SEC filings.

While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our estimates change and therefore you should not rely on the forward-looking statements as representing our views as of any date subsequent to today.

Also, during the call, we'll be referring to certain financial measures not prepared in accordance with Generally Accepted Accounting Principles or GAAP.

A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our first quarter 2010 earnings and future expectations and also in the investor section of our web site under the heading financial results.

So, with that, I'll now turn the call over to Marc.

Thanks, Ken.

Good morning, everyone.

And thank you for joining us for a review of our first quarter results in 2010.

We're pleased to report a strong start to the year with record revenue and EPS performance in Q1.

I'm incredibly proud of our teams and their determination in achieving our operating and financial goals for the quarter.

Our production teams responded extremely well to increasing demands from our customers.

Our commercial teams are making new connections for our customers across our portfolio to leverage our unique value proposition.

And, as usual, we had strong results through practical process improvement or PPI which is how we increase productivity to better serve our customers around the world.

All of this helped to continue the growth momentum we began in Q4 and puts us solidly on track to meet our goals for the year.

We have emerged from the recession a stronger industry leader as a result of the actions we took in 2009 and that is clearly evident in our first quarter results.

Let me give you a quick overview of our financial performance in Q1.

We reported record first quarter revenues of $2.7 billion for the quarter, 19% higher than 2009.

This translates to 13% organic growth which was slightly better than we expected coming into the quarter.

The easy comparison with the very weak quarter last year and four more calendar days also helped.

Still, we had strong operating performance across the Company with solid double digit revenue growth in both of our reporting segments, Analytical Technologies and Laboratory Products and Services.

We also recorded strong double digit growth not only in Asia but in the North American markets as well.

We're pleased to report that our adjusted operating margin returned to historic levels, improving by 200 basis points year over year to 17.5%.

This was primarily due to pull through from a strong top line revenue growth and the continuing benefit of our cost saving initiatives including our on-going focus on PPI and global sourcing.

Last, we're pleased to report that our adjusted EPS results for the quarter were a first quarter record at $0.84 a 35% improvement over 2009.

So, all in all, it was an excellent quarter and a great start to the year.

Let me spend a few minutes describing the conditions of our key end markets at this point.

The take away here is that market trends are in line with our expectations and similar to what we experienced in Q4 of 2009.

Let me give you a high level view of what we're seeing four months into the year.

In BioPharma markets, capital spending is still constrained but as we've said before, we believe we have the ideal value proposition to support new operating models being put in place by Pharma companies to improve their competitive positions.

Our top 20 accounts showed strong double digit organic growth in the quarter, ahead of the Company's overall organic growth rate.

Our announcement last month about our expanded relationship with Eli Lilly is a terrific example of how we're supporting these new models.

We will be taking over responsibility for Lilly's in-house clinical trials materials manufacturing, packaging, and labeling operations at their technology center in Indianapolis.

The objective is to use our expertise to speed the delivery of innovative medicines to patients while helping Lilly to reduce of some its fixed costs.

Definitely a win-win for all parties.

In government and academic markets, global stimulus programs had a positive impact on the quarter.

Particularly in our mass spectrometry business.

We had over $60 million of stimulus sales in Q1, much of it coming from Japan and some of it from the United States.

I want to know here that our performance in mass spec overall was incredibly strong in Q1, even beyond stimulus.

Based on our stimulus-related sales and bookings so far this year, we fully expect to achieve our goal of $50 million to $150 million in 2010 as we previously stated.

Turning to healthcare, the landscape here is similar to what we saw in Q4.

Moderate growth and consumables but still some constraints in capital spending.

Our results were in line with these dynamics.

Our healthcare customer channels continues to face the Biosite headwinds and although our microbiology business was affected by the very light flu season, sales of our specialty diagnostic consumables overall showed solid growth in the quarter.

Last, I'll cover industrial markets where obviously our comparisons with Q1 last year made for a much better quarter in our businesses that served this sector.

Certain markets such as metals continue to lag.

But overall, activity is largely as we expected, reflecting a slowly recovering economy.

The fact that we saw a pickup in spare part sales tells us the capacity utilization is recovering across the industrial economy.

However, it looks like it will be a few quarters before we see the benefit of later cycle investments being made by our customers here.

Let me now turn to some of the exciting developments of the past few months that will contribute to our growth momentum.

Our proven strategy of continued investment and effective cost management gives us many opportunities for creating shareholder value.

We have a number of excellent examples so far this year.

First, we continued our leading track record of innovation.

The first quarter is always a very active time for new product introductions.

We stood out again this year at major industry trade shows around the world.

The overriding theme under our thermal scientific technology brand was this performance matters in driving bold progress for our customers.

Not only in the research laboratory but in a range of routine and field application.

We were able to demonstrate our depth of capabilities which results from our unique combination of technology leadership and applications expertise.

In addition to exhibiting the most powerful new mass spectrometry research tools, we introduced a range of instruments and consumables designed specifically for routine testing.

For example, our new TSQ Quantum XLS and ISQ Single Quad Systems deliver industry-leading performance of food testing, forensics and environmental applications.

We also launched an innovative web-based software system called LIMS on Demand so customers connect all aspects of their laboratory operations without having to make significant investments in a traditional laboratory information management system.

This brings enterprise wide functionality to our customers who are running small to midsized labs.

In another promising development, just after quarter end, we now see opening of a food safety response center at our Dreieich facility in Germany.

This is the first global food testing laboratory devoted specifically to containing costly and life-threatening chemical contamination.

You probably recall the melamine crisis that started in China and led to economic and health ramifications all over the world.

Our center is strategically located near Europe's leading food safety research institutions.

It features a team of experts working with state-of-the-art thermo-scientific analytical instruments to rapidly develop methods that can be replicated by regulators, contract testing labs and food producers to screen for contaminants and contain a potential crisis.

We also built on our progress and presence in China where we reported strong double digit growth.

I traveled to China at the end of March to visit of some our operations and key customers.

And the continued growth in various markets reinforces our strategy of on-going expansion in the region.

I'll give you three examples that illustrate the range of opportunities there.

First, China is investing heavily in multiple forms of energy production.

Over the next ten years, the country plans to build more than half of the world's new capacity, mostly in the form of nuclear power.

In Q1, we won a multi-million dollar order to provide radiation monitoring equipment for plant and worker safety.

We expect to ship these products in 2011 and 2012.

This positions us to be a key participant in this high growth market.

You may recall that we moved the headquarters of our environmental instruments business to Shanghai, well over a year ago to focus on opportunities just like this.

Second, companies of many industries are building new R&D labs in China.

During the quarter, we won significant orders to equip labs for a multi-national petrochemical customer, a leading CRO as well as a major Chinese pharmaceutical company.

These customers chose us because of the range of technologies and choices we offer along with our expertise in laboratory operations.

Last, we launched our PCT biomarker for sepsis which we recently gained through our B-R-A-H-M-S acquisition to the Chinese healthcare market.

The last point I want to highlight is that we continue to deploy our balance sheet to create shareholder value.

We closed the acquisitions of Ahura Scientific and Finnzymes during the quarter which added new hand-held technologies and PCR work flows to our offering.

Just after quarter end, we acquired Proxeon, a supplier of products for proteomics applications.

Located in Denmark, Proxeon is recognized for its ability to offer a simplified proteomics work flow based on nanoflow chromatography technology.

This LCMS solution complements our leading portfolio of proteomics tools based on our ion trap and hybrid capabilities.

To recap our acquisition activities, we have spent more than $260 million year-to-date on complimentary acquisitions.

We will continue to use our disciplined approach to evaluate on-going opportunities that we believe will create additional shareholder value.

Last week, we also announced a $750 million stock buyback authorization and we took advantage of current favorable conditions in the debt capital markets to refinance some of our debt.

Pete will provide a little more detail on these transactions later in the call.

The take away here is that the significant strength of our balance sheet will continue to provide us with opportunities to create value.

It is nice to have a strong first quarter behind us as we look ahead to the rest of 2010.

As I said earlier, it was a little better than we expected at the beginning of the year.

These results along with the expected benefits are a buyback and refinancing activities led us to raise our 2010 adjusted EPS guidance to a new range of $3.40 to $3.50.

This would result in 11% to 15% growth over 2009.

Despite the increasing foreign exchange headwinds, we're also raising the low end of our revenue guidance to a new range of $10.65 billion to $10.80 billion based on our solid operating performance and the acquisitions we made so far this year.

This would lead to 5% to 7% growth in revenues over 2009.

So, to summarize, first, we're off to a good start to the year operationally.

Second, we continue to put our strong balance sheet to work.

We raised our annual guidance as a result of these two points.

As the year progresses, while the comps will become more difficult, I feel good about our outlook for 2010.

With that, I would like to hand the call to our CFO, Pete Wilver.

Pete?

Thanks, Marc, good morning, everyone.

As Marc said, we're pleased to report significant improvement in our earnings for the first quarter with 35% growth in our adjusted earnings per share to a record $0.84 compared to $0.62 last year.

GAAP EPS in Q1 was $0.56 also up significantly from $0.35 in the prior year's quarter.

Moving on to our top line performance, we reported a 19% increase in revenues year over year to a record $2.68 billion.

Organic revenue growth 13% in the quarter excluding favorable foreign currency translation of 3% and another 3% from acquisitions.

We had strong growth across our portfolio in Q1 with instruments and equipment growing in the mid teens, consumables growth in the low double digits and services growing in the high single digits.

I'm very pleased with these results although it is important to note that we had a very easy comparison with minus 7% organic decline in the 2009 quarter.

We also had four more days in the quarter compared to the last year as a result of our fiscal calendar which primarily helped our consumables businesses.

As a reminder, the fourth quarter will have four fewer days so we will lose the incremental calendar benefit at the end of the year.

We continue to strengthen our backlog with bookings exceeding revenues in the quarter by 2%.

By segment, Analytical Technologies Q1 revenues grew 18% on a reported basis and 10% organically.

All of our key growth platforms contributed to these results including those primarily serving industrial markets.

And as Marc mentioned, mass spec was particularly strong.

On the negative side, our microbiology business grew slower than the segment average as it was affected by a very weak flu season.

Some of our analytical instruments product lines that serve late cycle industrial markets are still down year over year although we see signs that they're stabilizing.

In the laboratory products and services segment, Q1 revenues grew 19% on a reported basis and 15% organically.

During the quarter, we saw consistently strong growth across the segment in both laboratory equipment and consumables and our BioPharma services business returned to high single digit growth.

By geography, we saw double digit organic revenue growth in North America and Asia Pacific driven by very strong growth in China and Japan.

The rest of the world continued to grow faster than the Company average though from a relatively small base.

Europe returned to positive growth in the low single digits this quarter compared to a mid single digit decline in the prior year.

Turning to adjusted operating income, Q1 increased 34% year over year to $468 million.

Adjusted operating margin was 17.5%, up 200 basis points from 15.5% in the year ago quarter.

The year-over-year margin expansion resulted primarily from pull through at marginal rates on the organic volume growth along with a net impact of our prior year cost reductions actions as well as our global sourcing and PPI efforts.

Pricing also contributed positively to our margin expansion but somewhat less than in prior quarters.

By segment, Analytical Technologies adjusted operating income increased by 34% year over year in Q1.

And adjusted operating margin was 21%, up 250 basis points versus 18.5% last year.

Laboratory products and services Q1 adjusted operating income also increased by 34% year over year and adjusted operating margin was 13.9%, up 160 basis points versus 12.3% in the 2009 quarter.

Moving to the details of the P&L, total Company adjusted gross margin was 42.4% in Q1.

Up 170 basis points from the year ago quarter.

This was primarily a result of marginal pull through on the strong organic revenue growth as well as our global sourcing efforts and the cost reduction initiatives that we implemented in 2009.

Adjusted SG&A was 22.5% of revenue in Q1 down 10 basis points from 22.6% in the year ago quarter with favorable volume leverage this quarter offsetting our continued investment in commercial expansion and slightly higher compensation expense.

Stock compensation.

R&D expense was 2.5% of revenue in Q1 down slightly from last year, primarily as a result of significantly higher revenues this year diluting the percentage of spend.

On a dollar basis, we increased our R&D spending even after adjusting for foreign exchange and acquisitions.

So, we continue to invest in technology development to expand our new product pipeline for future growth.

Moving below the line, our Q1 adjusted net interest expense decreased $5 million year-over-year to $20 million driven by lower interest expense as a result of the refinancing we completed last November.

Other income was a loss of $3 million down $6 million from last year, primarily as a result of currency transaction losses on foreign entity cash compared with transaction gains in the 2009 quarter.

As forecast, our adjusted tax rate for the quarter was 21.5%, up 1.5 points from the prior year's quarter, primarily as a result of higher income at marginal rates.

Average diluted shares were 418 million in the quarter, down seven million from last year, primarily as a result of the $500 million share buyback authorization we completed in the second quarter of last year.

With regard to the balance sheet, our cash flow performance remains very strong.

Quarter to date free cash flow from continuing ops was $293 million after deducting net capital expenditures of $50 million in the quarter.

Free cash flow for the quarter was down slightly versus last year driven by investment in working capital to support significantly higher revenues.

We ended the quarter with $1.44 billion in cash and investments down $131 million from Q4 as a result of acquisitions and the settlement of convertible debt partially offset by our strong free cash flow.

Our total debt was $2.07 billion, down $109 million from Q4, primarily as a result of convertible debt redemptions initiated by bond voters which I'll talk more about later.

With regard to working capital, we had good performance this quarter as we continue to make tangible progress in this area.

Accounts receivable days outstanding were 50 days down seven days from the prior year and inventory days of supply were 67 days, down 11 days from the prior year.

Both metrics increased sequentially from our excellent performance in Q4 but this was expected given the seasonality of Q1 versus Q4 working capital balances.

Before I move on to our 2010 guidance, I would like to provide a brief overview of our recent refinancing activities.

Since November, we've issued $1.5 billion of new debt to take advantage of the current favorable capital markets and to reduce our exposure to convertibles in higher cost fixed rate debt..

In Q1, we used cash to settle $120 million of convertible debt plus the associated premium.

In Q2, we'll be using the proceeds of our $750 million April bond offering plus cash on the balance sheet to retire $500 million of [6.125%] straight debt and another $218 million of converts plus premium.

I would like to point out that there will be a few month lag between funding and resumption of some of the debt in Q2 which will cause some minor negative interest carry in the quarter.

The result of these refinancing actions will be lower interest costs along with much better match between our fixed variable interest rate mix and our cash flow profile.

We'll also have good accretion as a result of retiring $640 million of converts since Q4 and the associated share premium which of course will become more accretive as our stock price increases.

Overall, an excellent use of our balance sheet to generate shareholder value.

Now, for our 2010 guidance, we're maintaining the high end of our revenue guidance and raising the low end by $50 million from our previous range of $10.60 billion to $10.80 billion to a new range of $10.65 billion to $10.80 billion.

This range represents growth of 5% to 7% compared to our 2009 revenues of $10.11 billion.

Our guidance includes a little more than 2% growth from past acquisitions and divestitures and assumes no future acquisitions or divestitures.

It also assumes current foreign exchange rates which would have a slight unfavorable impact of a little less than 0.5% on our revenue growth.

Consistent with past practice, we haven't attempted to forecast future foreign exchange rates.

Even though we're maintaining the high end of our revenue guidance, I would like to point out a number of changes from our previous guidance.

Specifically, we increased our organic revenue growth by about 1% from a range of 2% to 4% to a range of 3% to 5% as a result of increased confidence in our outlook after delivering strong Q1 results.

And we added about 0.5% as a result of the acquisitions we closed since we issued our previous guidance.

These two factors were offset entirely by less favorable foreign exchange translation of over 1.5% as a result of a stronger dollar.

In terms of adjusted EPS, we're raising both the low and high end of our previous guidance resulting in an $0.08 increase in the midpoint and a $0.05 narrower range.

Specifically, we're increasing our previous range of $3.30 to $3.45 to a new range of $3.40 to $3.50.

Resulting -- which represents 11% to 15% growth compared to our 2009 adjusted EPS of $3.05.

The primary drivers for increasing the midpoint of our adjusted EPS guidance are the expected decrease from the debt refinancing and $750 million share buy-back that our board authorized last week.

Along with slightly improved operating performance based on our strong Q1 results, we are on track to complete the refinancing activity as announced and for modeling purposes our guidance assumption is that we will complete the share buy-back ratably over the next 12 months.

To wrap up.

It was an excellent quarter and we are pleased to see continued positive momentum across the Company.

With that I'll turn the call over to the operator for q&a.

(Operator Instructions) Our first question comes from the line of Ross Muken from Deutsche Bank.

Please proceed.

Good morning and congratulations on a record quarter.

Thanks.

So, Marc, the market commentary was very helpful.

As we look at Q1 results for a lot of your customers, the numbers coming in are considerably above what the street was looking for.

It feels like momentum is building in the recovery and we're still not (inaudible) inventory rebuild and even some potential for some capacity build-out.

As we sort of think about the economy, maybe being a bit stronger than we had thought a few months back, can you point to specific businesses where today maybe the order commentary is starting to get more positive but we haven't seen the turn but you're expecting hopefully at some point in the next six to 12 months, we're going to get a bit more leverage and pull through through the revenue line?

Sure.

So, a few things.

I think when you -- you look at the first quarter as we said it came in a little better than we expected.

I think when you put your original guidance out there especially coming from such a bad and tough year in 2009 for the global economy, just the fact that you get through a good quarter is a good thing.

There's less uncertainty for the rest of the year now.

In and of itself, that's helpful.

When you look at the various parts of the business, really, the longer -- cycle decisions on the industrial side is what is still six to 12 months out.

When people are actually having to build factories or expand capacity, that is still a way out.

What we're seeing is clearly capacity utilization is increasing.

Spare part demands up.

The short cycle type instruments which are not massive decisions, things break, things need to be replaced.

They're being bought.

Hand-helds, really very strong momentum.

When you're making the decision I'm going to expand a new line, build a new factory.

We're having some inquiries at this point in time, but that means it is still several quarters away.

Those aren't orders yet, those are long lead time items.

That's really the thing that is out in the future.

That's more your process instrumentation type businesses?

Yes, it is the industrial part of the analytical instruments business.

So, it is everything from bulk element to where you're doing quality control to the process instruments online instrumentation.

And one quick one for Pete.

We look at the growth in Op Ex and the quarter.

Obviously, the top line was phenomenal.

As we sort of look particularly on the SG&A line, how could we tease out what we saw this quarter in growth there.

Was some of that maybe from the day's impact?

Was that more in line with what we'll see organically, versus the top line through the rest of the year.

I'm just trying to get a sense for the Op Ex side, how much of the selling expense et cetera was impacted by days versus actual increased spend and when will we start to see the other cost saves from last year continue to flow through?

Yes, there are a couple of things going on there.

One, as you said, we had four more days in the quarter.

So, we picked up four more days of fixed costs.

So, the 13% organic growth came with four extra days of expenses whereas in a normal quarter you wouldn't have that.

In terms of the $25 million of cost reduction actions that we're getting in terms of carryover, we got about actually half of that in Q1 in terms of savings, we'll get the other half spread out over the rest of the year.

As we go through the year, we'll ramp up our investments in commercial teams in the areas like Asia which was our original plan.

You'll see a ramp up in the spend but of course, we're expecting a ramp up in the dollars of revenue as well.

Great.

Thank you very much.

Sure.

Your next question from Jon Groberg from Macquarie.

Thanks a million for taking the call and congratulations on a great quarter.

You mentioned that pricing was less than maybe you have seen in previous quarters.

Can you maybe dive into a bit more detail in terms of the puts and takes in terms of where pricing was stronger and maybe where it was not as strong?

Sure.

We still did get price, something a little bit more than 1%.

Right now, we're seeing it much easier to get price into consumables area than it is in the instruments and equipment.

And a recovery period, there's just a little bit more competition out there as all of the suppliers are trying to get the growth back.

So, we're seeing just a little bit more competitive environment on the equipment and instrumentation right now than we've seen in the past.

Okay.

Thanks for the clarification.

And then one follow-up.

You mentioned a lot of the -- some of the things to take into consideration of such as extra days.

Can you talk about maybe some of the other things like where you stand, for example on Biosite revenues, if that's -- if you're losing those faster than you thought or if it is at about the rate you thought.

There was a snowstorm in the Northeast, one of your big competitors mentioned impacting business.

Whether or not there was an impact to you guys in the quarter.

Sure, on Biosite, we're pretty much on track with what we were expecting on Biosite both in the quarter and what we're expecting for the full year.

So, that headwind net of the alternative supplier that we pick up, that's about the same assumption, flu got a little bit worse.

We were expecting a $30 million hit year-over-year, but the Q1 flu season was extremely weak.

That probably added another $5 million to $10 million to the headwind there.

As far as the snowstorm, that really is a minor impact for us.

It is not something that came up in any of our business reviews as a significant number.

Thanks.

Sure.

The next question comes from the line of Doug Schenkel from Cowen & Company.

Please proceed.

Good morning and thanks for taking the questions.

First question on US stimulus, you guys sounded positive relative to what we've heard from some of the other companies in the group.

Do you think you're doing better from a competitive standpoint in capturing stimulus dollars and presumably instruments are doing a little bit better than consumables?

Are consumables spending starting to pick up a little bit when it comes to stimulus?

So, Doug, we're pleased with the progress that we've made on stimulus.

As you recall, it is well over a year ago.

We forecasted $100 million to $200 million of revenue.

That we would get from stimulus.

We got $50 million last year.

So, we said we would do $50 million to $150 million this year.

We did $60 million in the quarter.

When you look at the bookings for future quarters, we're going to be solidly in that range that we said.

So, we feel good about how stimulus is flowing.

Japan has been very impressive.

We're starting to see funds flow in the US.

Obviously our instrument technologies are really being extremely well embraced by our academic and government customers.

So, we feel good about it.

Okay, great.

And one follow-up or I guess a second question, any chance you could just provide a little bit more color on the rationale to the Lilly deal and maybe talk about the margin profile of the agreement.

It sounds like this was mostly opportunistic rather than defensive.

Was this the case and should we envision other deals like this down the road?

We have a really attractive BioPharma services business.

It is one of our six core platforms in the Company.

We do a lot of partnering with our customers to really leverage our scale and expertise.

And our global footprint.

So, many, if not all of the major pharmaceutical and biotech companies work with us in the clinical trials process and we have crafted a number of partnership proposals over the years to leverage that.

Over the years, we've bought facilities and things of that sort.

We've helped them consolidate facilities and in this one, it is just a nice example of a company like Lilly which is a world-class company going through a change process where they were comfortable with us running their facility in their campus.

And leveraging our expertise.

So, it's not opportunistic, it is very core to how we operate.

We have the dialogue all the time.

With our big customers.

We think this is a really nice win for the Company.

I think it continues to allow us to demonstrate our market leadership in that part of our business.

Thanks for taking the questions.

Sure.

The next question comes from the line of Marshall Urist from Morgan Stanley.

Please proceed.

Hey, everybody, good morning.

Good morning, Marshall.

So, first question was just on guidance and maybe what's baked into your expectations over the balance of the year.

If you could just talk through some of the major end markets, industrials, BioPharma, top 20, academic, government, are you expecting adjusted for the day, but sort of current levels of spending or does this contemplate continued improvement from here?

We're assuming that it is pretty much at the current slowly recovering economy.

So, the conditions we saw in the first quarter would continue throughout the balance of the year.

That's how we're looking at it from a guidance perspective.

And by the market segments, that's pretty consistent across that group.

Okay, great.

Thanks.

Then Pete, just a question on kind of understanding gross margins in the quarter.

How big was the FX benefit and the benefits of absorption and higher sales levels and then sort of the underlying productivity improvements and should we think you guys see some gross margin pressure over the next couple quarters from volume or they're sort of more off X as we go through the year.

In terms of FX, it really doesn't change the rate.

We're pretty naturally hedged there.

So that pretty much FX revenues fall through to the bottom line at our averages.

So, that's not a factor.

The way to think about it is that productivity and inflation price and the investments that we're making kind of net out to zero.

And it is all volume pull-through.

Which sort of explains why, when you look into the second, third and fourth quarter, obviously the volume increase year-over-year is lower so we're expecting lower margin expansion overall.

For the rest of the year.

Okay.

Great.

Thanks a lot, guys.

The next question comes from the line of Dan Linner from First Analysis.

Thank you.

Two questions.

One, can you quantify the impact of the additional days in the quarter?

Well, as you know, it is very difficult to come up with a precise answer.

So, I can give you a range.

It is probably about a positive 4% to 5% benefit.

In the quarter.

Which of course, we'll lose 4% to 5% in Q4 because of that.

Okay.

Thank you.

And then Pete, how did your gross margin increase so much sequentially versus the fourth quarter on a lower level of revenue?

To be honest, I haven't done the sequential bridge.

Yes I haven't done the sequential bridge.

I think we probably had a few more of the kind of year end cleanup items in Q4 than we had in Q1.

But other than that, I don't think there's anything materially different.

Okay.

Thank you.

the next question comes from the line of Peter Lawson with Thomas Weisel Partners

Good morning, Peter.

Good morning, Marc I wonder if you could talk through the growth in the North American market, what was the major driver there?

Sure.

In North America, it was really nice to see customers clearly spending again.

Very, very strong performance in life sciences mass spec which we're very pleased with how the year started there.

We obviously had good showing at [Pitcan] and that's reflected in good activity across our instrument businesses more broadly in North America.

Lab equipment was very strong.

Across the board.

But North America, nice to see the lab equipment business picking up.

Then consumables specially on to the research laboratory again, a really strong start to the year.

Very broad-based improvement in North America.

Obviously we had a tough first quarter last year so the comparison is easier but nonetheless, a good start to the year.

Thank you.

Just one for Peter on bookings.

Assume they're ahead of revenue growth.

What was it like in the (inaudible) average and what was ahead of the (inaudible) average sounded like academia was ahead.

Obviously we don't track bookings at that level.

I can tell you that bookings were ahead of revenue as I said, by 2%.

The Analytical Technologies segment was up a little more than the average and laboratory products and services was up a little bit less than the average.

That's about the level of detail I have on that.

Thank you so much.

Sure.

The next question comes from the line of Tycho Peterson, JPMorgan.

Please proceed.

Good morning, Tycho.

Good morning.

Maybe starting off with a question on guidance.

You bumped up organic growth and you talked a minute ago about your thoughts in the end markets.

Can you talk at all as to whether factored into this is return on some of the higher R&D investment?

I mean to what extent do you expect that to start to kick in this year?

Tycho, I would say that we wouldn't anticipate any return on the increase because those are longer term projects and we had articulated that in our original guidance.

That's a late '11, 2012 time frame.

We're seeing the benefit of products that we have launched in 2009 and will launch in 2010.

This year.

But it wouldn't be attributable to the particular increase and spend.

That's a little bit longer term return.

Okay.

And then your comments a minute ago on stimulus, you mentioned Japan.

Was there an impact from the supplemental budget.

I know some of the other companies have called that out as a driver in the quarter.

That's part of what was going on.

It was a real desire by Japanese customers to get these products installed and ready to about by March 31st.

So, really a very dynamic market for us in the first quarter.

Then just one last quick one on, you had some questions a minute ago on the Lilly agreement.

Can you talk more generally as you go and work with your customers, are you getting more interest in longer term agreements, more strategic.

We hear this all the time in the CRO world about agreements with Pharma getting more broad and strategic.

Can you talk more about what your customers are asking for?

Our bigger customers are clearly asking for assistance with the challenges that they are facing.

That means they're looking for how do you get more productivity out of the R&D pipeline at the Pharma companies.

And there's no short term fix to that.

They're typically coming to a company like Thermo Fisher Scientific saying how are you going to help us be more productive on the scientific side.

That's longer agreements, working with us much more closely in a deeper fashion.

The Lilly example is one but many of the other large pharmaceutical companies are working with us with our channels business, with technology access, broadly across the Company to help them meet their challenges.

Okay.

Thank you.

You're welcome.

The next question comes from the line of Quintin Lai, Robert W.

Baird.

Please proceed.

Good morning, Quintin.

Good morning.

Congratulations on a nice start.

Hey, a lot of my questions have been answered.

Marc, you've continued to make really nice tuck-in acquisitions.

Could you kind of refresh us on your view, on the M&A landscape right now and especially on some of the smaller acquisitions.

Is the fact that you've got such a large sales channel attractive for maybe some of the sellers to try to join your organization?

Yes When you look at -- and I'll give a broad answer to this question.

You look at the M&A landscape, clearly, as I've said in the past, because 2009 was a relatively quiet period of time, especially the first half.

There's been more activity and more companies that have -- come up for sale.

We've looked at many and picked the ones that we feel are passionate about in terms of improving our offering to our customers and where we think we can create unique value.

In this particular year, we're very excited about building out our hand-held offering with Ahura continuing to strengthen our Bioscience reagents with Finnzymes.

And then Proxeon.

Obviously we have a really strong position in proteomics whether it's a reagent business or incredible mass spec portfolio .

We like their technology and we brought that part of the business.

When we evaluate acquisitions, we're looking at how do you generate returns.

One of the things we look at is what's the value we bring.

Because we have an incredible reach to customers globally, we have a high degree of confidence that we can drive revenue synergies.

We don't pay for revenue synergies per se.

That's something that's upside for our shareholders.

When we look at a lot of the deals that we did, we plug them into our channels and we're focused on accelerating organic growth and that incremental value we're able to create for our

Thank you very much.

You're welcome.

The next question comes from the line of Jon Wood from Jefferies.

Please proceed.

Good morning, Jon.

Hey, thanks a lot.

Marc, you mentioned double digit growth in the top 20 and could you tease out the consumables versus capital equipment trend within that?

I guess what I'm getting at is does the merger disruption we see more impact the instrumentation or the consumables in your view?

When you look at the top 20, I think the way you think about it is more customer specific than product specific.

And depending on where integrations are, customers are different phases of decision making.

And I think you can say for the top 20 is very much how we characterize what's going on in the BioPharma markets more generally which is capital is flowing but certainly more constrained.

Consumables and meaning that people are doing their daily work is stronger.

That's just the nature of where that customer set is right now.

Okay.

Thanks a lot.

One quick follow-up for Pete.

Can you quantify the benefit of the sourcing in PPI to the margins?

In the quarter?

Yes, the total productivity net of investments is a little over 1% in terms of margin expansion.

But, as I said, that's offset by the inflation.

So, it sort of nets to zero.

So, there was 1% or so core inflation in that?

It is actually a little bit higher than that.

Closer to 1.5%.

Then we picked up close to a half a percent in terms of price.

That's at the EBITDA level not at the gross margin level.

Thanks a lot.

Yes.

The next question comes from the line of Rob Hawkins from Stifel Nicolaus.

Please proceed.

Thanks.

Can you expand a little bit on the German global food testing lab and whether you guys envision expanding that to other regions of the world or is this going to be the one big one for you?

Yes, so we have a number of applications, laboratories around the world.

I was in Germany a couple of weeks ago to visit the facility.

Effectually, what we're doing here is a lot of the regulators in Brussels, it is the logical place for us to put it given our critical mass in Germany.

We have a dedicated lab to work on food safety and really focus on chemical contamination.

What we learned and we've got a lot of business out of the melamine scare and crisis over a year plus ago, there was in general, a lag in being able to respond to that crisis across the industry and the regulators, we followed up with them after the crisis and they basically said we have to be more proactive.

They do.

And the more we can help them, the better off we are.

We set this lab up.

We had an interesting opening where we had a number of customers come in, understand our capabilities, interact with our scientists.

They're aware if there is ever a problem we'll be right there partnering with them to get the methodologies put in place.

And be able to reduce the time to respond to contain any potential crisis.

I think one global center is the right approach here because effectively the food chain is pretty global and customers are going to be comfortable with the Dreieich as a logical location for that.

No competitive needs to be in South America, Asia, closer to where the stuff is manufactured?

It doesn't matter?

I think the reality is we have all of our commercial application teams in those markets.

It's more-- you're getting samples, basically, to a single laboratory.

So, I think this is at least how we're thinking about Europe and over time, if we need to expand elsewhere, we certainly can.

We have the global footprint to do that.

Thank you.

The next question comes from the line of Derik De Bruin, UBS.

Please proceed.

Good morning.

Good morning, Derik.

So, one quick question and one kind of philosophical.

So, what, Pete, are you using for kind of like your outstanding share count target for the end of the year?

It is around 415 million.

Okay, thank you.

Around I guess, Marc, you raise your organic revenue growth by a point.

The industrials are still lagging.

I guess what do you need, what do you need to really see to give you comfort you will consistently get to more of-- back to mid to single digit range.

(inaudible) industrial is (inaudible) are there other parts still out there in the economy that you need to see come back in?

Derik, thanks for this very important question.

A couple of different points.

We started the year, at one level of expectation getting the quarter behind us, we raised our organic growth outlook by a point of three to five.

You might recall there are a couple of company specific things that we face this year which is really around Biosite and flu comparisons.

Which is about a point.

So, that three to five, you can think about it.

We don't do a lot of these mental reconciliations but it is really four to six because of the company specific decision to move away from Biosite.

So, in our view is this is going to be a mid single digit year.

The things that, over time, will get incrementally more positive is going to be industrial, right?

It is probably late this year, early next year.

It is several quarters away.

But that's a positive.

But we already feel like we're going to be there this year in terms of that mid single digit organic growth.

Great.

Thanks, Marc.

That's very helpful.

You're welcome.

We have no further questions at this time.

I would now like to turn the call back over to Mr.

Apicerno.

Please proceed.

Marc, if you want to make a few comments?

Sure, So with a record first quarter, it is clear that we have emerged from the recession a stronger industry leader.

We're pleased to report another quarter of growth and excited about the many opportunities we have to build on that momentum.

I look forward to reporting on our progress throughout the year.

Thanks for joining us on the call.

And for your continued support of Thermo Fisher.

Thanks, everyone.

This concludes the presentation.

You may now disconnect.

Have a wonderful day.