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 worsening economic profit position throughout the analyzed timeframe.

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 further decline was observed in 2023, falling to US$5,117 million, before a modest recovery to US$5,400 million in 2024. This indicates volatility in operational profitability.

Cost of Capital

The cost of capital exhibited minimal variation, starting at 12.90% in 2020, decreasing to 12.46% in 2021, and then fluctuating between 12.76% and 12.87% for the remaining years. This relative stability suggests consistent financing conditions.

Invested Capital

Invested capital showed an increasing trend from US$61,158 million in 2020 to US$85,573 million in 2023. However, it decreased to US$82,071 million in 2024. This suggests a period of expansion followed by a potential recalibration of capital allocation.

Economic Profit

Economic profit was negative throughout the entire period. It deteriorated from a loss of US$1,346 million in 2020 to a loss of US$5,803 million in 2023, before marginally improving to a loss of US$5,165 million in 2024. The widening gap between the cost of capital and NOPAT contributed to this negative trend. Despite the slight improvement in 2024, economic profit remains substantially below zero.

The consistent negative economic profit suggests that the company’s returns on invested capital are not exceeding its cost of capital. While NOPAT showed some fluctuation, it was insufficient to generate positive economic profit given the level of invested capital and the prevailing cost of capital. The decrease in invested capital in the final year did not translate into a significant improvement in economic profit, indicating that NOPAT remains a primary driver of the negative result.

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 consistent decline over the five-year period. Simultaneously, economic profit remains negative throughout the observed timeframe, and its absolute value increases before showing a slight decrease in the most recent year. Invested capital generally increases, though a slight decrease is noted in the final year.

Economic Spread Ratio

The economic spread ratio exhibits a clear downward trend, moving from -2.20% in 2020 to -6.78% in 2023 before marginally improving to -6.29% in 2024. This indicates a widening gap between the company’s return on invested capital and its weighted average cost of capital. The increasingly negative spread suggests diminishing value creation as the cost of capital exceeds the returns generated from investments.

Economic Profit

Economic profit is negative for each year presented. The magnitude of the loss increases from US$1,346 million in 2020 to US$5,803 million in 2023, signifying a growing shortfall in returns relative to the cost of capital. The decrease in the absolute value of the loss to US$5,165 million in 2024 represents a modest improvement, but economic profit remains substantially negative.

Invested Capital

Invested capital generally increased from US$61,158 million in 2020 to US$85,573 million in 2023. However, a decrease to US$82,071 million is observed in 2024. This suggests a period of expansion followed by a potential recalibration or reduction in the capital base. The increase in invested capital, coupled with declining economic spread, contributes to the growing negative economic profit.

The combination of a decreasing economic spread ratio, consistently negative economic profit, and increasing invested capital (until 2024) suggests a concerning trend in value creation. While the slight improvements in both economic profit and the economic spread ratio in 2024 are noteworthy, sustained negative economic profit indicates that investments are not generating returns sufficient to cover their cost.

The economic profit margin demonstrates a consistent decline over the five-year period. Economic profit itself exhibits an increasing negative trend, indicating a widening gap between the company’s cost of capital and the returns generated from its revenues.

Economic Profit

Economic profit decreased steadily from a loss of US$1,346 million in 2020 to a loss of US$5,803 million in 2023. A slight improvement was observed in 2024, with the loss decreasing to US$5,165 million, though remaining significantly negative.

Revenues

Revenues increased from US$32,218 million in 2020 to US$44,915 million in 2022, representing substantial growth. However, revenue growth stalled in 2023 and 2024, remaining relatively flat at US$42,857 million and US$42,879 million respectively. This suggests that revenue increases are not translating into improved economic profitability.

Economic Profit Margin

The economic profit margin deteriorated from -4.18% in 2020 to -13.54% in 2023, signifying a substantial erosion in the company’s ability to generate returns exceeding its cost of capital. While the margin improved slightly to -12.05% in 2024, it remains considerably lower than the 2020 level. The increasing negative margin, coupled with flat revenues in the most recent two years, suggests increasing inefficiencies or a rising cost of capital relative to revenue generation.

The observed trends indicate that despite revenue growth through 2022, the company’s economic profitability has been consistently declining. The stabilization of revenues in 2023 and 2024, combined with continued negative economic profit, warrants further investigation into the factors driving these results, such as cost structure, capital allocation, and the cost of capital.