Thermo Fisher Scientific Inc. (NYSE:TMO)

The period under review demonstrates a consistent pattern of negative economic profit. Net operating profit after taxes (NOPAT) fluctuated over the five-year span, while the cost of capital remained relatively stable. Invested capital generally increased before declining in the most recent year. The combination of these factors resulted in a widening economic loss throughout the period.

NOPAT Trend

Net operating profit after taxes began at US$6,545 million in 2020, increased to US$7,465 million in 2021, then decreased to US$6,425 million in 2022. A more substantial decline was observed in 2023, falling to US$5,117 million, followed by a modest recovery to US$5,400 million in 2024. This indicates a volatile earnings performance.

Cost of Capital

The cost of capital exhibited minimal variation, ranging from 10.99% to 11.38% across the five years. This suggests a consistent required rate of return on invested capital. The slight increase in 2024 to 11.36% may warrant further investigation.

Invested Capital

Invested capital showed a clear upward trend from 2020 to 2023, increasing from US$61,158 million to US$85,573 million. However, a decrease to US$82,071 million was recorded in 2024. This suggests a potential shift in capital allocation strategy or divestiture of assets in the latest year.

Economic Profit

Economic profit was negative throughout the entire period, starting at a loss of US$-417 million in 2020. The loss progressively worsened, reaching US$-4,520 million in 2023, before slightly improving to US$-3,925 million in 2024. The increasing magnitude of the negative economic profit indicates that the company’s returns are consistently failing to cover the cost of capital.

The consistent negative economic profit, despite increases in invested capital for a portion of the period, suggests a potential issue with either operational efficiency or the effectiveness of capital deployment. The modest recovery in economic profit in 2024, coinciding with a decrease in invested capital, may indicate a positive, but limited, impact from capital management.

Net Income Attributable to Thermo Fisher Scientific Inc.

The net income shows an overall fluctuating trend during the analyzed period. It increased significantly from 6375 million US dollars in 2020 to a peak of 7725 million US dollars in 2021. However, this was followed by a decline over the next two years, reaching 5995 million US dollars in 2023. A modest recovery is observed in 2024, with net income rising to 6335 million US dollars, though it remains below the 2021 peak.

Net Operating Profit After Taxes (NOPAT)

The NOPAT values illustrate a pattern consistent with net income, with initial growth from 6545 million US dollars in 2020 to 7465 million US dollars in 2021. Subsequently, there is a notable decrease to 6425 million US dollars in 2022, followed by a sharper decline to 5117 million US dollars in 2023. A recovery phase occurs in 2024, where NOPAT increases to 5400 million US dollars, yet it still remains considerably lower than the earlier years.

Summary of Trends

The financial performance, as measured by both net income and NOPAT, peaked in 2021 and then experienced a downward adjustment for two consecutive years. Despite some recovery in 2024, neither metric returned to the highs seen in 2021. This pattern suggests a period of robust profitability followed by challenges that impacted the company’s earnings and operating efficiency, with partial improvement toward the end of the period.

The financial data reveals notable fluctuations in tax-related expenses over the five-year period ending in 2024. Two key categories, provision for income taxes and cash operating taxes, demonstrate distinct trends.

Provision for Income Taxes

The provision for income taxes exhibits significant volatility. Starting at 850 million USD in 2020, it increased sharply to 1,109 million USD in 2021. However, in 2022, the provision decreased substantially to 703 million USD, followed by a further decline to 284 million USD in 2023. A notable rebound occurs in 2024, with the provision rising again to 657 million USD. This pattern suggests variability in the company's tax liabilities or effective tax rate, possibly influenced by changes in pre-tax earnings, tax regulations, or one-time adjustments.

Cash Operating Taxes

Cash operating taxes show a generally upward trend with some minor fluctuations. Beginning at 1,227 million USD in 2020, these taxes increased substantially to 1,866 million USD in 2021. The level then remained relatively stable through 2022 at 1,806 million USD and slightly decreased to 1,701 million USD in 2023. In 2024, cash operating taxes resumed growth, reaching 1,946 million USD, the highest in the observed period. This steady increase indicates rising cash outflows for tax payments, which may reflect higher taxable income, changes in tax rates, or both.

In summary, while cash operating taxes demonstrate a mostly consistent upward trajectory, the provision for income taxes is marked by pronounced variability. The divergence in trends between these two items could imply timing differences between tax expenses recorded and actual cash paid or adjustments related to deferred taxes or tax planning strategies.

Total Reported Debt & Leases

The total reported debt and leases showed a significant increase from 22,545 million USD at the end of 2020 to 36,339 million USD in 2021. Subsequently, it remained relatively stable, with slight fluctuations around the 36,000 million USD mark through 2023, before decreasing to 32,775 million USD by the end of 2024. This pattern suggests a major debt acquisition or lease increase occurred between 2020 and 2021, followed by stabilization and moderate deleveraging in the final year observed.

Total Shareholders’ Equity

Shareholders’ equity demonstrated a consistent upward trend throughout the period, increasing from 34,507 million USD in 2020 to 49,584 million USD in 2024. The growth rate appears steady year-over-year, indicating sustained value creation and possible retained earnings or capital injections contributing to strengthening the equity base.

Invested Capital

Invested capital experienced a marked increase from 61,158 million USD at the end of 2020 to a peak of 85,573 million USD in 2023. However, in 2024, it declined to 82,071 million USD. The growth in invested capital through most of the period indicates expansion or investment activities, while the slight downturn in the final year could reflect divestitures, asset write-downs, or a moderation in capital expenditures.

The economic spread ratio demonstrates a consistently negative trend over the five-year period. This indicates that the company’s return on invested capital is less than its weighted average cost of capital, resulting in value destruction rather than value creation.

Economic Spread Ratio Trend

The economic spread ratio declined from -0.68% in 2020 to -5.28% in 2023, representing a substantial deterioration in economic profitability relative to invested capital. A slight improvement was observed in 2024, with the ratio increasing to -4.78%, though it remained negative.

The negative economic profit figures, ranging from US$417 million to US$4,520 million, corroborate the negative economic spread ratios. The magnitude of the economic loss increased significantly from 2020 to 2023, mirroring the worsening trend in the economic spread ratio. The decrease in economic profit in 2024 suggests a partial offset to the prior year’s loss, but the company still did not generate positive economic profit.

Invested Capital

Invested capital increased from US$61,158 million in 2020 to US$85,573 million in 2023, before decreasing slightly to US$82,071 million in 2024. This increase in capital employed, coupled with consistently negative economic profit, amplified the negative impact on the economic spread ratio.

The observed pattern suggests that while the company has been increasing its investment in operations, it has not been able to generate returns sufficient to cover its cost of capital. The modest improvement in the economic spread ratio in 2024, alongside the decrease in invested capital, may indicate early signs of improved capital allocation, but continued monitoring is necessary to confirm a sustained positive trend.

The economic profit margin demonstrates a consistently negative trend over the five-year period. Economic profit itself also exhibits a negative trajectory, increasing in absolute value over time, indicating a widening gap between the company’s cost of capital and the returns generated.

Economic Profit

Economic profit decreased from a loss of US$417 million in 2020 to a loss of US$4,520 million in 2023. A slight improvement was observed in 2024, with the loss decreasing to US$3,925 million, though remaining substantially negative.

Revenues

Revenues increased from US$32,218 million in 2020 to US$39,211 million in 2021, and further to US$44,915 million in 2022. However, revenues experienced a decline in 2023, falling to US$42,857 million, and remained relatively stable in 2024 at US$42,879 million. Despite revenue growth in the earlier part of the period, it has not translated into positive economic profit.

Economic Profit Margin

The economic profit margin deteriorated from -1.30% in 2020 to -10.55% in 2023, representing a significant decline. The margin improved marginally in 2024 to -9.15%, but remains considerably negative. This suggests that the company’s profitability, when considering the cost of capital, is worsening despite initial revenue increases.

The consistent negative economic profit margin indicates that the company is not generating returns sufficient to cover its cost of capital. While revenue increased initially, the increasing magnitude of economic losses suggests that cost of capital, operational inefficiencies, or a combination of both are impacting overall financial performance. The slight improvement in the economic profit margin in 2024, coupled with the reduced economic loss, may indicate early signs of corrective measures, but continued monitoring is necessary to assess the sustainability of this trend.