Thermo Fisher Scientific Inc. (NYSE:TMO)

The analysis of the annual financial ratios reveals notable shifts in revenue composition and profitability margins over the five-year period.

Revenue Composition

There is a clear decline in the proportion of product revenues relative to total revenues, decreasing from 78.55% in 2020 to 58.38% in 2024. Conversely, service revenues have increased significantly, rising from 21.45% to 41.62% over the same timeframe. This trend suggests a strategic shift towards service offerings or a change in market demand favoring services.

Costs and Gross Profit

While cost of product revenues as a percentage of total revenues has decreased from -35.41% to -29.21%, cost of service revenues has increased markedly from -14.92% to -29.51%. As a result, overall cost of revenues rose from -50.33% in 2020 to a peak of -60.1% in 2023 before slightly retreating to -58.72% in 2024. This escalation in costs, particularly of services, has pressured gross profit margins, which declined from 49.67% to 41.28% over the period.

Operating Expenses

Selling, general, and administrative expenses have remained relatively stable as a percentage of revenues, fluctuating narrowly around 20%. Research and development expenses showed a modest downward trend from -3.67% to approximately -3.2%. Restructuring and other costs, though small in magnitude, peaked at -1.07% in 2023 and then decreased to -0.89% in 2024.

Operating Income and Profitability

Operating income experienced a decrease from 24.19% in 2020 to 17.11% in 2024, with a low point of 16% in 2023. This contraction aligns with the pressures seen in gross profit margins and increased costs in service revenues, indicating operational challenges or investments impacting profitability.

Interest and Other Income/Expenses

Interest income increased substantially from 0.2% to 2.51%, while interest expense also rose, more than doubling from -1.72% to -3.24%. Other income (expense) remained minor and mostly negative but turned slightly positive by 2024.

Income Before Taxes and Net Income

Income before income taxes followed the operating income trend, declining from 22.44% to 16.41% with a decrease across the period. The provision for income taxes was reduced significantly, from -2.64% down to -1.53%, which helped mitigate some of the income decline. Net income attributable to the company declined from 19.79% in 2020 to 14.77% in 2024, reflecting the cumulative effect of cost pressures and reduced operational margins.

Noncontrolling Interests

Amounts attributed to noncontrolling interests have been negligible throughout the period, indicating minimal impact on overall profitability.

Overall, the data indicate a strategic and operational transformation marked by a revenue mix transition favoring services, increased cost burdens associated with this shift, and a consequent reduction in profitability margins. The company appears to be investing in or adapting to a changing market environment, but this has remained a challenge in terms of maintaining previous levels of net and operating incomes.