Thermo Fisher Scientific Inc (TMO.N) is so convinced that automatic U.S. government spending cuts will kick in in March that the world's largest maker of laboratory equipment included that assumption in its 2013 forecasts.
Thermo Fisher Chief Executive Marc Casper said he has been planning for over a year for the automatic cuts known as sequestration that will occur if U.S. Congress fails to agree on a budget. His belief was bolstered by a conversation on Wednesday with Francis Collins, the head of the National Institutes of Health (NIH), and by meetings with Republican members of Congress last week.
"There are obviously scenarios where sequestration doesn't happen, but we think the most likely scenario is it does and that it's prudent to be prepared for that, and that's how we're acting," Casper said in a telephone interview.
For 2013, the company forecast earnings of $5.32 to $5.46 per share, excluding special items, and revenue of $12.8 billion to $13.0 billion. Wall Street is looking for $5.43 per share and sales of $12.94 billion.
Thermo also reported a higher-than-expected fourth-quarter profit on Thursday.
Mizuho Securities analyst Peter Lawson said the forecast appears to be "conservative and beatable."
Sequestration will likely cut more than 5 percent from the federal budget, Casper said. That would hurt NIH funding and hamper funding of grants to U.S. academic research institutions to which Thermo sells scientific instruments and equipment.
"For us, U.S. academic revenue represents somewhere between 10 and 15 percent of our total company revenue," Casper said. "We think sequestration affects us about half a (percentage) point of organic growth, and that's what's embedded in our guidance."
Thermo Fisher said fourth-quarter net profit rose to $376.4 million, or $1.04 per share, from $288.9 million, or 77 cents per share, a year earlier.
Excluding special items, the company, which also sells diagnostic and environmental safety products, reported earnings of $1.36 per share, topping analysts' average expectations by 8 cents, according to Thomson Reuters I/B/E/S.
Revenue rose 6 percent to $3.26 billion, beating Wall Street expectations of $3.14 billion.
Casper said business so far this year was consistent with what the company saw in the fourth quarter, "which is some softness in our industrial customer base and certainly some trepidation from our academic and government customers in the U.S. while they're waiting for the government funding situation to be finalized."
The 2013 forecast did not include any future acquisitions or divestitures, the company said.
Thermo is considering making an offer to acquire Life Technologies Corp (LIFE.O), Reuters reported earlier this week, citing sources familiar with the process. Such a deal would be by far the biggest for the company since the 2006 merger of Thermo Electron and Fisher Scientific International.
Casper declined to discuss the Life Tech report or the size of any deals the company might be comfortable making.
Thermo said fourth-quarter and 2012 results had benefited from prior acquisitions and growth in emerging markets, particularly China, which accounted for more than $700 million in 2012 sales, making it Thermo's second-largest market.
"We enter 2013 with confidence that China will continue to be a strong growth market for us and we're continuing to expand our presence in the high-growth areas of the world," said Casper, who also mentioned South Korea, Russia and Brazil.
Sales in all three business units rose in the fourth quarter, led by specialty diagnostics, which posted an increase of 12 percent to $792 million.
Sales in analytical technologies rose a modest 2 percent to $1.11 billion, while laboratory products and services sales rose 4 percent to $1.5 billion.
Casper said Thermo was pumping money into new products and would increase research and development spending to $400 million in 2013 from $375 million last year.
Thermo shares were up 1.1 percent at $71.16 on Thursday afternoon on the New York Stock Exchange.
(Reporting by Ransdell Pierson and Bill Berkrot in New York; editing by Roshni Menon, Jilian Mincer, Lisa Von Ahn and Matthew Lewis)