Stephen Williamson
Senior Vice President and Chief Financial Officer at Thermo Fisher Scientific
Thanks, Marc, and good morning, everyone. I'll take you through an overview of our first quarter results for the total company, then provide color on our four business segments and I'll conclude by providing our updated 2024 guidance.
Before I get into the details of our financial performance, let me provide you with a high level view on how the first quarter played out versus our expectations at the time of our last earnings call. In Q1, market conditions were as we'd expected. We had another quarter of excellent execution and this enabled us to deliver Q1 financials meaningfully ahead of what we'd assumed in our prior guidance. Core organic revenue was $150 million or 1.5% ahead. And adjusted EPS was $0.40 ahead. To give you some color on that $0.40, $0.19 was from very strong profitability pull-through on the revenue beat, $0.12 was from phasing of spending within the year, $0.07 was from lower FX headwinds and $0.02 was from lower net interest expense. So we're continuing to manage the business really well and are off to a great start to the year.
Let me now provide you with some additional details on our performance, beginning with earnings per share. In the quarter, we grew adjusted EPS by 2% to $5.11. GAAP EPS in the quarter was $3.46, up 4% from Q1 last year. On the top line, in Q1, reported revenue was 3% lower year-over-year. The components of our Q1 reported revenue change included 4% lower organic revenue and a slight contribution from acquisitions. Q1 core organic revenue decreased 3%. And in the quarter, pandemic-related revenue was approximately $200 million, including $175 million of vaccines and therapies related revenue.
Turning to our organic revenue performance by geography. In Q1, North America declined mid single-digits, Europe declined low single-digits and Asia-Pacific and China declined in the low single-digits.
With respect to our operational performance, the team used the PPI Business System to execute really well in the quarter, delivering $2.3 billion of adjusted operating income, which was 22% of revenue, 20 basis points higher than Q1 last year. Total company adjusted gross margin in the quarter came in at 41.8%, 150 basis points higher than Q1 last year. In the quarter, we continue to deliver very strong productivity, reflecting our continued focus on cost management as well as the carryover benefit from the cost actions put in place last year. This enabled us to more than offset the impact of lower volumes while appropriately funding investments to further advance our industry leadership.
Moving to the details of the P&L. Adjusted SG&A in the quarter was 16.5% of revenue. Total R&D expense was $330 million in Q1, reflecting our ongoing investment in high-impact innovation. R&D as a percent of manufacturing revenue was 7.2% in the quarter.
Looking at our results below-the-line, our Q1 net interest expense was $84 million, which is $70 million lower than Q1 2023 due to increased cash balances. Our adjusted tax-rate in the quarter was 10.5% and average diluted shares were $384 million in Q1, approximately $4 million lower year-over-year, driven by share repurchases net of option dilution.
Turning to free cash flow and the balance sheet. We had a strong start to the year with cash flow generation. Q1 cash flow from operations was $1.3 billion and free cash flow for Q1 was $910 million after investing $340 million of net capital expenditures. We continued to return capital to shareholders in Q1 with an 11% increase in our dividend and a $3 billion of share buybacks, which were completed in January. We ended the quarter with $7.25 billion in cash and short-term investments and $35.6 billion of total debt. Our leverage ratio at the end of the quarter was 3.3 times gross debt-to-adjusted EBITDA and 2.6 times on a net-debt basis. Concluding my comments on our total company performance. Adjusted ROIC was 11.8%, reflecting the strong returns on investment that we've been generating across the company.
I'll now provide some color on the performance of our four business segments, starting with Life Sciences Solutions. Q1 reported revenue in this segment declined 13% and organic revenue was 12% lower than the prior year quarter. This is driven by moderation in pandemic-related revenue in the segment as well as lower levels of activity in our bioproduction business versus the year ago quarter. Q1 adjusted operating income for Life Science Solutions increased 1% and adjusted operating margin was 36.8%, up 480 basis points versus the prior year quarter. During Q1, we delivered exceptionally strong productivity, which was partially offset by unfavorable volume pull-through. The team continues to do an excellent job to appropriately manage the cost base and deal with the unwind of the pandemic.
In the Analytical Instruments segment, reported revenue declined 2% and organic growth was 1% lower than the prior year quarter. We continue to deliver very strong growth in the electron microscopy business. And as a reminder, we had very strong comparisons in this segment in the quarter due to the high-level of instrument shipments in Q1 last year as we work down the backlog. In this segment, Q1 adjusted operating income decreased 5% and adjusted operating margin was 23.7%, 70 basis points lower year-over-year. In the quarter, we delivered strong productivity, which was more than offset by unfavorable volume mix and strategic investments.
Turning to our Specialty Diagnostics. In Q1, reported revenue and organic revenue were flat versus the prior year quarter. In Q1, we continued to see strong underlying growth in the core led by our transplant diagnostics and Immunodiagnostics businesses as well as in our healthcare market channel. Q1 adjusted operating income for Specialty Diagnostics increased 5% and adjusted operating margin was 26.5%, which is 120 basis points higher than Q1 2023. During the quarter, we delivered favorable business mix and good productivity, which is partially offset by strategic investments.
And finally, Laboratory Products and Biopharma Services segment, both reported revenue and organic growth decreased 1% in Q1 versus the prior year quarter. This was driven by the run-off of vaccines and therapies revenue. During the quarter, we delivered strong growth in our clinical research business. Q1 adjusted operating income declined 6% and adjusted operating margin was 13%, which is 80 basis points lower than Q1 2023. In the quarter, we delivered strong productivity, which is more than offset by unfavorable volume mix and strategic investments.
Turning now to guidance, as Marc outlined, given the strong start to the year, we're raising our 2024 full year guidance. We now expect revenue to be in the range of $42.3 billion to $43.3 billion and adjusted EPS to be in the range of $21.14 to $22.02. At the midpoint, that reflects a core revenue increase of just under $100 million. We continue to assume core organic revenue growth will be in the range of minus 1% to positive 1% for 2024. We continue to assume the market to decline low single-digits this year. Our growth strategy in PPI Business System execution will enable us to continue to take share once again.
In terms of adjusted EPS, the increase in the guidance at the midpoint is just over $0.10. The majority of this is from the core revenue raise, it's also $0.02 from assumed lower net interest expense versus our prior guidance. Our 2024 updated guidance range assumes an adjusted operating income margin between 22.4% and 22.8%, slightly improved from the prior guide. We continue to use the PPI Business System to enable excellent execution, manage costs appropriately and fund the right long-term investments to enable us to further advance our industry leadership. So a great start to the year and increase in the guidance outlook. We remain well-positioned to continue to deliver differentiated performance. I thought it would be helpful to remind you of some of the key underlying assumptions behind the guide that remain unchanged from the previous guidance. In 2024, we're assuming just under $100 million of testing revenue and $300 million to $400 million of vaccines and therapies related revenue. In total, this represents a year-over-year headwind of $1.3 billion to $1.4 billion or 3% of revenue.
We see that FX will be roughly neutral year-over-year to both revenue and adjusted EPS. Given the recent FX rate changes, we're assuming that the $0.07 beat that we saw in Q1 is offset in the remainder of the year, leading to no change for the year as a whole for FX versus our prior guide.
We expect the adjusted income tax-rate will be 10.5% in 2024, and we're assuming between $1.3 billion and $1.5 billion of net capital expenditures and free cash flow in the range of $6.5 billion to $7 billion. In terms of capital deployment, we're assuming $3 billion of share buybacks, which were completed in January. We expect to return approximately $600 million of capital to shareholders this year through dividends. We continue to assume that we'll close the Olink acquisition by mid-year. Full year average diluted share count is assumed to be approximately 383 million shares.
And finally, I wanted to touch on quarterly phasing. In Q2, we expect revenue dollars to step-up from the first quarter and organic growth will likely be 2 points better than Q1. And we expect Q2 adjusted EPS to be similar to Q1. This reflects the revised view of the phasing of spending within the year that I mentioned earlier. I think this view of Q2 is pretty close to what's currently baked into consensus right now.
So to conclude, we delivered on our commitments in Q1, and we're in a great position to deliver differentiated performance for all our stakeholders in 2024.
With that, I'll turn the call-back over to Raf.
