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Thermo Electron reports 16% revenue growth and record operating income in the fourth quarter

2 February 2005

WALTHAM, Mass. Thermo Electron Corporation (NYSE:TMO) today reported fourth quarter 2004 revenues of $613 million, a 16 percent increase from $529 million in the fourth quarter of 2003. GAAP diluted earnings per share (EPS) increased to $.74 in the 2004 quarter, compared with $.37 in the year-ago period, primarily due to tax benefits that were recorded following the completion of prior-year tax audits, as well as improved operating performance. GAAP operating income for the quarter rose 25 percent, and GAAP operating margin increased to 10.8 percent from 10.0 percent in 2003.

Adjusted EPS grew 15 percent to $.38 in the fourth quarter of 2004, compared with $.33 in the 2003 period. Adjusted operating income increased 7 percent to record fourth quarter levels since the company's reorganization in 2000. Adjusted operating margin in the 2004 quarter was 13.1 percent, versus 14.2 percent in 2003. The margin in 2004 was reduced by 1.1 percent due to up- front costs associated with Sarbanes-Oxley compliance and the initial dilutive effect of acquisitions. Organic revenues, which exclude the effects of currency translation and acquisitions/divestitures, grew 3 percent in the quarter. Currency translation increased revenues by 5 percent, and the net effect of acquisitions/divestitures led to an 8 percent increase for the quarter.

For the full year, Thermo Electron reported a revenue increase of 16 percent in 2004 to $2.2 billion, up from $1.9 billion in 2003. GAAP diluted EPS in 2004 rose to $2.17, versus $1.20 a year ago, principally driven by tax benefits, large gains from the sale of discontinued operations, and improved operating performance. GAAP operating income grew 27 percent over 2003, and GAAP operating margin for the year increased to 10.8 percent, versus 9.9 percent in 2003.

Full-year adjusted EPS grew 15 percent to $1.25 in 2004, compared with $1.09 in 2003. Adjusted operating income was up 16 percent year to year, and adjusted operating margin was 12.7 percent. Organic revenues grew 4 percent. Currency translation increased revenues by 5 percent, and the net effect of acquisitions/divestitures increased revenues by 7 percent for the year.

Adjusted EPS, adjusted operating income, adjusted operating margin and organic revenues are non-GAAP measures that exclude certain items detailed at the end of this press release under the heading, "Use of Non-GAAP Financial Measures."

Year-end highlights

  • Adjusted EPS grew 15 percent
  • Reported revenues rose 16 percent
  • Organic revenues increased 4 percent
  • Cash flow from continuing operations rose 20 percent to $240 million
  • Manufacturing centers opened in China and Germany
  • Agreement announced in January 2005 to acquire Kendro Laboratory Products

"We're pleased to have achieved $.38 in adjusted EPS for the quarter, which is at the high end of our earnings guidance," said Marijn E. Dekkers, president and chief executive officer of Thermo Electron. "We also had an excellent year overall, with a 16 percent increase in revenues, 15 percent growth in adjusted EPS and strong cash flow. Our full-year adjusted EPS of $1.25 was also at the top of our guidance range, which we raised for continuing operations after the sale of Spectra-Physics.

"We made great strides during 2004 in changing our business mix to better serve our laboratory customers and reinforce our position as the world leader in analytical instruments. We sold Spectra-Physics, our only non-Thermo brand. We made a number of strategic acquisitions -- Jouan, USCS, InnaPhase, and the recently announced agreement to acquire Kendro -- to augment our offerings of laboratory equipment, software and services. And, we continue to make significant internal investments that allow us to strengthen our competitive position worldwide, such as new state-of-the-art manufacturing centers we recently opened in Shanghai, China, and Bremen, Germany.

"With a clear business focus, the ability to reinvest for growth and continuous efforts to improve productivity, we remain optimistic and expect to begin 2005 with strength. Our goal is to report $.29 to $.31 in adjusted EPS for the first quarter of 2005, versus $.27 in the year-ago quarter. For the full year, we are providing guidance of $1.40 to $1.45." (This guidance excludes approximately $.03 of expense per quarter from the amortization of acquisition-related intangible assets; results from the pending Kendro acquisition; the effect of new accounting rules relating to the expensing of stock options, which we expect to adopt in the third quarter of 2005; and the other items described in this press release under the heading, "Use of Non- GAAP Financial Measures.")

Life and laboratory sciences

The Life and Laboratory Sciences segment reported a 21 percent revenue increase in the fourth quarter of 2004 to $455 million, versus $377 million in 2003. Organic revenues grew 3 percent. The effects of currency translation and acquisitions increased revenues by 5 percent and 13 percent, respectively. We reported strong sales of mass spectrometry and molecular spectroscopy instruments, laboratory automation systems and laboratory informatics, where we have greatly extended our pharmaceutical offerings through the addition of InnaPhase. Partially offsetting these increases, we reported extremely weak sales of our rapid point-of-care test kits resulting from this year's light flu season compared with an exceptionally strong quarter in 2003.

GAAP operating income for the segment grew 24 percent in the 2004 quarter, with GAAP operating margin increasing to 15.3 percent from 14.9 percent a year ago. Adjusted operating income increased 19 percent in the 2004 quarter, and adjusted operating margin was 17.8 percent, compared with 18.1 percent in the 2003 quarter. The adjusted operating margin improved by 50 basis points in 2004 before the effect of acquisitions, which lowered the margin by 80 basis points. As we continue to integrate these operations, we expect margins to improve in future quarters.

Measurement and control

Fourth quarter revenues in the Measurement and Control segment were $158 million, up 4 percent compared with $152 million last year. Organic revenues grew slightly, at 1 percent, due to a difficult year-to-year comparison resulting from large shipments of our food-quality and security instruments in the 2003 quarter. The effect of currency translation increased revenues by 4 percent, while the net effect of acquisitions/divestitures decreased revenues by 1 percent.

GAAP operating income for the segment increased 29 percent from the 2003 quarter, and GAAP operating margin rose to 7.7 percent, versus 6.2 percent last year. Adjusted operating income and adjusted operating margin for the segment were virtually flat compared with 2003.

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