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Thermo Fisher expects further reduction in tax rate, EPS growth in 2018

Thermo Fisher Scientific Inc. CEO Marc Casper expects the new U.S. tax reform legislation to have a positive impact and further lower the company's tax rate.

The new U.S. tax law's impact resulted in a one-time GAAP-only charge of $204 million for the fourth quarter of 2017. The benefit represents the transition tax on deemed repatriated earnings of foreign units, partially offset by the remeasurement impact of U.S. deferred tax balances at the new lower corporate tax rates.

As a result of the tax benefit, GAAP EPS in the quarter was $1.30, down 18% from the year-ago period, and $5.59 for the full year 2017, up 10% versus 2016, CFO Stephen Williamson said on the company's earnings call for the fourth quarter.

In addition, due to the tax benefit, Thermo Fisher plans to invest $34 million for a one-time bonus of $500 to be paid to nonexecutive employees globally. It will also invest $16 million for R&D programs, sustainability initiatives and philanthropic activities.

Williamson said the company expects no cash impacts from the transition tax charge. He added that Thermo Fisher anticipates cash taxes to be slightly lower than the adjusted profit and loss tax cost in 2018.

The company plans to return about $275 million of capital to shareholders this year through dividends, said Williamson. He added that the company expects an adjusted EPS in the range of $10.68 to $10.88 for 2018, resulting in a 13% to 15% growth over 2017.

The S&P Capital IQ consensus normalized EPS estimate for 2018 is $10.83.

Total net capital expenditure for 2018 is expected to be between $700 million to $730 million, which is an increase in comparison to last year due to the timing of projects and the full-year impact of Patheon NV, the company's recently acquired pharmaceutical development and manufacturing business.

Thermo Fisher also forecasts a free cash flow of about $3.8 billion in 2018 due to higher earnings. Revenue is expected to range between $23.42 billion and $23.72 billion, a growth of 12% to 13% over 2017, with acquisitions completed in 2017 contributing 7% to reported revenue growth in 2018.