Good morning, ladies and gentlemen, and welcome to the there will be a question and answer session. Thermo Keypad. Thank you. I would like to introduce our moderator for the call, Mr. Kenneth Apicerno, Vice President, Investor Relations.
Mr. Apicerno, you may begin the call.
Good morning, and thank you for joining us. On the call with me today is Mark Casper, our President and Chief Executive Officer and Stephen Williamson, Senior Vice President and Chief Financial Officer. Please note this call is being webcast live and will be archived on the Investors section of our website thermofisher dotcom under the heading Webcasts and Presentations until February 26, 2016. A copy of the press Thurman's earnings release of our Q4 2015 earnings and future expectations is available in the Investors section of our website under the heading Financial Results. Thurman.
So before we begin, let me briefly cover our Safe Harbor statement. Various remarks that we may make about the company's future expectations, plans and prospects Thurman's comments. Thank you, Mr. Chairman. Thank you, Mr.
Chairman. Thank you, Mr. Chairman. Thank you, Mr. Chairman.
Thurman. Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors, including those firm's annual report on Form 10 Q for the quarter ended September 26, 2015 under the caption Risk Factors, firm, which is on file with the Securities and Exchange Commission and also available in the Investors section of our website under the heading SEC Filings. Thurman. While we may elect to update future looking statements at some point in the future, we specifically disclaim any obligation to do so, Thurman. Even if our estimates change, therefore, you should not rely on these forward looking statements as representing our views as of any date subsequent to today.
Thurman. Also during this call, we'll be referring to certain financial measures not prepared in accordance with Generally Accepted Accounting Principles or GAAP. Thurman. A reconciliation of these non GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our Q4 2015 earnings and future Thurman's presentation and also in the Investors section of our website under the heading Financial Information. So with that, I'll now turn the call over to Mark.
Thanks, Ken. Good morning, everyone, and thanks, of course, for joining us today for our Q4 year end call. Firm. As you saw in our press release, we ended the year on a very strong note, delivering excellent 4th quarter results. Our teams identified and capitalized on year end Thermologies, delivered our value proposition to help our customers meet their objectives and executed well to achieve our goals for the year.
Thurman. I think our performance demonstrates that no matter what we're facing in the macro environment, we have many opportunities to gain share. Firm. We will now begin to create value for all of our key stakeholders, customers, employees and shareholders. I'll cover some of my business highlights of the quarter Thurman.
And the year later on in my remarks, but first, I'll give you a summary of our financial performance, discuss our growth relative to our key end markets And wrap up with an overview of our annual guidance for 2016. So starting with the quarter. We grew our adjusted earnings per share by 7% to $2.12 continuing our long track record of strong adjusted EPS performance. Our revenue in Q4 grew 4% year over year. Thurman.
Our adjusted operating income increased 5%, and we expanded our adjusted operating margin by 40 basis points to 23.2%. Looking at our Q4 performance in the context of our key end markets, I'm pleased to say that we did a great job of capitalizing on year end opportunities single digit growth. Our industrial businesses remained soft, while our businesses serving applied markets continued to perform well, Thermometer, particularly our analytical instruments used for environmental and food safety applications. As an example, I'm very pleased with the performance Thermo Chromatography business. Some of this is due to the success of the Vanquish PLC system we launched a little over a year ago.
Firm. But fundamentally, the benefits of the Dionys acquisition in 2011 are really playing out. We're seeing strength across our entire portfolio Turning to Diagnostics and Healthcare. It was good to see stronger results in this end market in Q4. We delivered mid single digit growth with especially strong performance in our clinical diagnostics and immunodiagnostics businesses.
In academic and government, conditions in this end market were the strongest we've seen all year. We executed well to take advantage of strong spending at the end of the year in the U. S. And Europe, firm and we delivered mid single digit growth. It's good to see positive momentum in this end market and we're encouraged about our prospects here firm given the more favorable funding environment in the U.
S. In 2016. Last, I'm pleased to say that we capped off a very strong year in Pharma and Biotech Thermo segment with another outstanding quarter with growth in the mid teens. We're clearly benefiting from the underlying strength of this end market and the power of our customer value proposition, which is creating a significant competitive advantage for us and drove strong performance across our businesses services that serve this end market. Our results show that in this economic environment, our customers turn to us to help them be successful, firm.
Whether they're driving more innovation or increasing productivity to fund those R and D investments, our scale and depth of capabilities is a key differentiator that creates value for our customers across our end markets. So in summary, we took full advantage of the year end opportunities, executed well Thurman. The main takeaway is very clear. We achieved all the goals we set out to achieve. It wasn't the easiest of environments, Thurman.
But with thoughtful planning, great operational execution and intense focus on our customers, we delivered another strong year. Among our key objectives in 2015, we focused on meeting or exceeding our financial commitments, making good progress in advancing our growth strategy, Capturing the synergies from the Life Technologies acquisition and strengthening our balance sheet. I'm pleased to report that we accomplished each of these objectives, and firm. And I'll cover them in a bit more detail, starting with the financials. Obviously, it was a challenging environment from an FX perspective, firm.
We delivered $7.39 of adjusted EPS, $17,970,000,000 for the full year. Adjusted operating income increased 3% and we achieved adjusted Thermo's operating income margin of 60 basis points to 22.5%. Let me take a moment here to give you some insight into How we're thinking about margin expansion. As you know, we've been able to steadily expand our operating margins over the years. Thurman.
We do this by leveraging our PPI business system and all the levers we have to drive margins, whether it's pricing, sourcing or footprint optimization. Thermhmm. In 2016, we remain very focused on driving productivity by continuing to use our operational levers. Firm. We've also decided to take some additional actions that will help us further down the road.
We will fund those additional productivity actions to the benefits we gained from the temporary repeal of the medical device tax. This will enable us to further strengthen our operating margins going into 2017. We have a substantial opportunity to expand our margins and we still think it's reasonable to take them to the 24% to 26% range by 2018. Thurman. So we delivered solid performance for the year by staying true to our growth strategy and making sure that every decision we made put us in a stronger position in the eyes of our customers.
Now let me hit some of the highlights and accomplishments from the year and from the quarter in the context of our growth strategy. As you know, it's Thermometer. It's based on 3 elements: developing high impact innovative new products capitalizing on our scale in Asia Pacific and emerging markets Thurman and leveraging our unique customer value proposition. The success of this strategy creates significant competitive advantage for us firm. And that gives us many opportunities to gain share.
Starting with innovation, 2015 was another very strong year for us. Thurman. I covered our new product highlights during the course of the year, so I'm not going to get into much detail today. We did have strong launches serving the research scientists as well as for our customers working in clinical and applied markets. Starting with the research community, the big news last year was our launch of the Orbitrap Fusion Lumos TriBrid Mass Spectrometer for proteomics.
We actually just learned yesterday that the Lumos was voted by customers who read Select Science Magazine Thermometer as the best new drug discovery product of 2015. Our industry leading Orbitrap platform gives us a foundation for expansion into a range of applications and we continue to fully leverage that capability. We also had a number of exciting products launched in genetic analysis, But let me just mention a couple of them. One was our cloud enabled QuantStudio 3 and 5 real time qPCR systems, which support our increasing focus on oncology. The other was the new INS5 and S5XL product line, We introduced a number of new immunoassays during the year as well as a new Fadia instrument that effectively leverages our customers' capital investment by running tests for both allergy and autoimmunity.
One example from the quarter that I do want to highlight is our collaboration with the Karolinska Institute of Sweden on a groundbreaking clinical study aimed at developing a more effective test for prostate cancer. Using our proteomic, ThermoGenomics and Assay Technologies. This test can predict or more precisely distinguish between benign and aggressive cancers, Thus reducing the number of biopsies required without compromising the number of actual cancers diagnosed. These are early days and there's still much Thermo. There's more work here to be done, but it's very exciting and maybe an alternative to the PSA test.
This development would not have Thermometer. Without the ability to leverage all of these capabilities across our company. Turning to applied markets, our new QXactive ThermoDAR- to focus LC MS created a powerful alternative to Q TOF technology for a number of applications, including toxicology, pharma QAQC, Food and Environmental Analysis as well. The focus is really gaining traction and significantly contributed to our growth in our analytical instruments business in Q4. So as you can see, 2015 was another outstanding year for innovation.
We put our R and D dollars and expertise to work to deliver high impact products that help our customers achieve their goals. I look forward to discussing the exciting innovations we plan to launch during 2016 Thurman. Let me now turn to the second element of our growth strategy, which is about using our scale as a competitive advantage in Asia Pacific and emerging markets. You saw in our press release that we highlighted China growth. Well, I have to steal Stephen's thunder a little by telling you that we achieved high teens growth in China in Q4, really outstanding performance by the team.
The question I get a lot on with China is how we've been doing so well Given the magnitude of change taking place in that country. Well, from my perspective, I think it boils down to 2 things. First, China has challenges that we are in the best position to help our customers address, like poor air and water quality, Thermometer. The second reason is that we've taken advantage of our scale, Thurman, but also have a very localized approach to running our business there. We have a team that understands the markets and where the funding is and has executed very well.
Let me give you one example from the quarter, which is a new product we launched from our China Innovation Center in Shanghai. Contaminated water is a big issue there and some important new regulations were put in place by the government to control various water pollutants. We work closely with our customers to understand their requirements and launched the Orion 3,106 COD water analyzer in Q4. In addition to detecting pollutants, this new product will also help our customers lower their operating costs by reducing maintenance and reagent consumption. During the year, we also expanded our capabilities to capture opportunities in other emerging markets such as Southeast Asia.
Our most recent development was the November opening of a new GMP biopharma clinical services facility in Singapore Thurman to serve the growing needs of pharma and biotech customers in the region. Our strong performance in 2015 firm. Turn to our customer value proposition, the 3rd element of our growth strategy. I think the best example here is our successful integration of Life Technologies. We had high expectations for this business when we acquired it 2 years ago, and it's been a home run for us, not only in terms of the financial benefits, firm.
Regarding the financials, the metrics we laid out in early 2015, which were higher than the original deal model, were $115,000,000 of additional cost synergies and $60,000,000 of revenue synergies for the year. I'm very pleased to report that in 2015, we delivered $130,000,000 of cost synergies firm and achieved approximately $90,000,000 of revenue synergies in 2015, much faster than we anticipated. From a customer perspective, we have a clear advantage as a result of combining our capabilities across the company. Thermo. Our bioproduction and biosciences businesses are now growing faster than they were independently.
Having genetic and protein Thermometer analysis technologies in 1 company is creating exciting new opportunities like the prostate cancer test I mentioned earlier And the commercial presence we now have by combining our channel and e commerce capabilities is really starting to drive growth. In terms of our strategic position, at our analyst meeting last May, we said we expected Life Science Solutions to grow Thermo. Organically at 3% or better for the year, and I'm very pleased to report that the business grew organically at 5% in 2015, which contributed to our strong performance for the company overall. This is a great example of how we put our capital to work to create value for our customers and our shareholders.
Let me now give you
a quick update on our balance sheet. You know that last year, we were focused on delevering following the Life Technologies acquisition. Thurman. I'm pleased to tell you that we achieved our target leverage ratio of 3 times leverage at the end of 2015. Thurman.
This timing is slightly ahead of what we expected when we announced the transaction and we accomplished this while repurchasing $500,000,000 of our stock early last 3rd quarter and paying about $240,000,000 of dividends as well as spending $700,000,000 on 2 complementary bolt on acquisitions. Thurman. To remind you, ASI strengthened our capabilities, serving the high growth bioproduction market and Alpharezaur expanded our offering of chemicals for the research firm. So we put ourselves in a great position from a balance sheet perspective as we begin 2016 And we're able to kick off the year by announcing our agreement to acquire Affymetrix. Many of you are familiar with this business, which is a leader in cellular and genetic analysis.
Thermometer. Affymetrix has a strong position in flow cytometry and antibodies, which will strengthen our biosciences offering. It was also the pioneer of microarray technology firm. It will be a nice complement to our genetic sciences business. This transaction also offers attractive financial benefits.
We expect $0.10 of adjusted EPS accretion in the 1st full year of ownership and we also expect to generate $70,000,000 of Thermologies by year 3 following the close. So good financial returns and also a very good fit for our Life Science Solutions business. Let me now turn to our guidance for 2016. Stephen will cover the details and outline all of the assumptions for our revenue and earnings guidance. Firm.
I'd like to make a couple of comments. Our 2016 guidance reflects the fact that foreign exchange will continue to have A negative impact on our top and bottom line performance, although we anticipate to a lesser degree than it did in 2015 based on where rates are today. Thurman. So we're guiding to adjusted EPS in the range of $7.80 to $7.96 This would result in 6 8% growth over the 739 we delivered in 2015. In terms of revenues, we expect to deliver between 17.36 $17,560,000,000 in 2016.
So before I turn the call over to Steven, let me leave you with a few takeaways. Thurman. We focused on our customers and effectively navigated the macro environment to achieve our goals for the year. We continue to innovate, expand our global reach and enhance our customer value proposition in line with our growth strategy. We also strengthened our balance sheet so we can resume our normal capital deployment Thurman in 2016 and identify new opportunities to create shareholder value.
With that, I'll now hand over the call to Stephen Williamson, our CFO. Stephen?
Thanks, Mark, and good morning, everyone. I'll begin with an overview of our Q4 full year 2015 financial performance for the total company. Then I'll provide some color on our 4 segments and conclude with a detailed review of our 2016 guidance. So starting with our overall financial performance for the 4th quarter, Thurman. So starting with our overall financial performance for the Q4, as you saw in our press release, we grew adjusted EPS Thurman, up 6% from 2014.
The midpoint of our guidance that we gave you at the end of Q3 was $7.37 of adjusted EPS Q4 for the full year 2015. Subsequent to this guidance, the negative foreign exchange impact on Q4 increased significantly, resulting in a further $0.06 of headwind in the quarter. I'm pleased to say that we are able to offset all of this and still able to deliver $7.39 for the full year, dollars 0.02 more than the midpoint of our last guidance. GAAP EPS was $1.50 in Q4, up firm. 1% from $1.49 in the prior year's quarter and $4.92 for full year 2015, up 4% from $4.71 in 2014.
On the top line, we delivered 7% organic revenue growth this quarter and our reported revenue increased 4% year over year. Q4 reported revenue includes 1% growth from acquisitions and a 4% headwind from foreign exchange. For the full year 2015, reported revenue was flat year over year and organic revenue growth was 5%. Full year reported revenue includes 1% growth from acquisitions, net of divestitures and a 6% negative impact from foreign exchange. Looking at the growth by geography in Q4, North America grew in the mid single digits And Europe grew in the high single digits.
Asia Pacific grew in the low double digits. And as Mark mentioned, China was growing in the high teens. Rest of the world declined in the high single digits. For the full year, both North America and Europe grew in the mid single digits, Asia Pacific grew in the high single digits and China growing in the mid teens and the rest of the world declined in the low single digits. So looking at our operational performance, Q4 adjusted operating income increased 5% and adjusted operating margin was 23.2%, Thermo, up 40 basis points from Q4 last year despite an 80 basis points headwind from foreign exchange.
For the full year, adjusted operating income increased 3% Thurman. And adjusted operating margin was 22.5%, up 60 basis points from 2014 despite the 90 basis points headwind from foreign exchange. Firm. At a high level,
our adjusted operating margin expansion
from the quarter and the full year was driven by continued strong contribution from the PPI Business System productivity levers, including pricing, global sourcing and footprint optimization, as well as the continued contribution from cost synergies. In Q4, we realized $18,000,000 of cost synergy benefits from the Life Technologies acquisition, which is $130,000,000 firm for the full year 2015. And as Mark said, we were able to accelerate the capture of revenue synergies and realized $40,000,000 during Q4 $90,000,000 for the full year 2015. This puts us in great position to deliver on the 3 year run rate target of 100 and $50,000,000 of revenue synergies in 2016. We took advantage of our strong performance in Q4 to make additional strategic investments, firm primarily to strengthen our commercial capabilities and to accelerate growth.
Moving on to the details of the P and L, total company adjusted gross margin came in at 40 Therm. 7.7% in Q4, down 130 basis points from the prior year. For the full year, adjusted gross margin was 48.3%, Thermometer, down 50 basis points from 2014. The decreases in gross margin in both Q4 and the full year are primarily attributed to foreign exchange Thermometer and unfavorable business mix. Adjusted SG and A in Q4 was 20.6 percent of revenue, which is 150 basis points favorable Q4 2014, driven primarily by foreign exchange, cost synergies and our productivity actions.
For the full year, adjusted SG and A was 21.7%, 120 basis points favorable to 2014. And finally, R and D expense came in at 3.9 percent of revenue in Q4, 20 basis points favorable to Q4 2014 And full year R and D expense was 4.1%, flat to full year 2014. And R and D as a percent of our manufacturing revenue for full year 2015 Thurman. Net interest expense in Q4 was $94,000,000 down $13,000,000 from Q4 last year as a result of reducing our debt over the past 12 months. Thurman.
Net interest expense for the full year was $384,000,000 a decrease of $48,000,000 from 2014. Adjusted other income for Q4 was negative $7,000,000 $16,000,000 lower than Q4 2014 And for the full year, it was $6,000,000 which is $7,000,000 lower than last year, both driven primarily by non operating foreign exchange net losses in 2015 firm compared to net gains in 2014. Our adjusted tax rate in the quarter was 13%, twenty basis points below last year. Thurman. Our full year rate was 13.7%, down from 14.5% in 2014, primarily as a result of realizing our benefits of our acquisition Thurman's line.
And average diluted shares were $402,400,000 in Q4, down $1,700,000 year over year, primarily as a result of the share buybacks firm from 2014. Turning to cash flow and the balance sheet. Cash flow from continuing operations for the year was $2,830,000,000 And free cash flow was $2,420,000,000 after deducting net capital expenditure of $405,000,000 This is slightly lower than our previous guidance due to additional investments in working capital. We ended the year with $455,000,000 in cash and investments. During 2015, we continued to return capital to shareholders with $500,000,000 of share buybacks in Q1 and $240,000,000 of dividends, Thurman, including $60,000,000 of dividends in Q4.
We also continue to make strategic acquisitions in 2015, spending $300,000,000 in Q1 to acquire ASI $400,000,000 in Q4 to acquire Alpha Azar. Our total debt at the end of Q4 was $12,500,000,000 down $800,000,000 sequentially from Q3, and we achieved our year end target leverage ratio of 3 times total debt to adjusted EBITDA. And wrapping up my comments on our total company performance, we continue to make progress on our ROIC. Our trailing 12 months adjusted ROIC in Q4 was 9 point Thermometer. 5%, up 20 basis points sequentially from Q3 and up 60 basis points from Q1 2015 ThermoLite Technologies acquisition was fully included in the average investment base.
So with that, Thurman. I'll now provide you with some color on the performance of our 4 business segments. As I highlighted for the total company, foreign exchange continued to be a significant headwind for the top line for our segments firm. Reported revenue increased 2% in Q4 and organic revenue grew 5%. In the quarter, we continued to see strong growth in our Thermo Nutrition and Biosciences businesses.
For the full year, reported revenue grew 6% on organic growth of 5%. Q4 adjusted operating income in Life Science Solutions increased 5% and adjusted operating margin was 31.6%, up 80 basis points, firm. Benefiting from very strong productivity and incremental cost synergies, partially offset by some unfavorable product mix, significantly unfavorable foreign exchange and strategic growth investments. For the full year 2015, adjusted operating margin was 30.1%, Thermo. 110 basis points higher than the prior year.
In the Analytical Instruments segment, reported revenue increased 3% in Q4 and organic Therm. Revenue growth was 7%. In the quarter, we had strong growth in our chromatography and mass spectrometry businesses, partially offset by weaknesses that we continue to see in some of our core industrial markets. For the full year, reported revenue declined 1% and organic growth was 4%. Q4 adjusted operating income in Analytical Instruments increased 13% and adjusted operating margin was 22.1%, up 190 basis points.
We delivered very strong productivity in this segment, partially offset by foreign exchange, unfavorable mix and strategic growth investments. Thurman. For the full year 2015, adjusted operating income increased 5% and adjusted operating margin was 19.1%, a 120 basis points higher than 2014. Turning to Specialty Diagnostics segment. In Q4, total revenue grew slightly Thermo.
And organic revenue growth was 4%. This was driven by good growth in our immunodiagnostics and clinical diagnostics businesses, Partially offset by the expiration of the OEM contract that I mentioned on our Q3 call. For the full year, reported revenue declined 3% And organic growth was 3%. Adjusted operating income in the segment decreased 3% in Q4 Thermo. And adjusted operating margin was 26.2%, down 90 basis points from the prior year.
In the segment, we drove very good productivity. However, this was more than offset by the expiration of the OEM contract, unfavorable foreign exchange and strategic growth investments. Thurman. For the full year 2015, adjusted operating income decreased 5% and adjusted operating margin was 26.9%, down 50 basis points from 2014. And finally, in the Laboratory Products and Services segment, Q4 reported revenue increased 8% Thermo.
And organic revenue growth was 10%. This segment continues to benefit from our strong performance in the pharma and biotech end market Thermo with our biopharma services channel and laboratory products businesses all delivering very strong growth. For the full year, reported revenue grew 1% and organic revenue grew 7%. Adjusted operating income in this segment increased 9% and Thermo. And adjusted operating margin was 14.7%, up 20 basis points from the prior year.
Margin expansion in the quarter was driven by productivity improvements, Thurman. Adjusted operating margin was 15%, up 10 basis points from the prior year. So with that, I'd like to review the details first question of our 2016 guidance. Consistent with our usual practice, our guidance does not include any future acquisitions or divestitures. Thurman.
As a result, it does not include the impact of our recently announced Affymetrix acquisition, which we expect to close by the end of Q2. Firm. We will update our guidance after that deal closes. As Mark mentioned, we're initiating a 2016 adjusted EPS guidance range Thurman over our 2015 adjusted EPS of $7.39 In terms of revenue, Thurman. Our guidance range is $17,360,000,000 to $17,560,000,000 which represents growth of about 2.5% 3.5% versus our reported revenue of $16,970,000,000 in 2015.
On an organic basis, our revenue range assumes an organic growth midpoint of about 4%. As Mark mentioned, we're seeing another year of negative impact on both the top and bottom line as a result of the continued strengthening of the U. S. Dollar firm versus major foreign currencies. As always, we're focused on our reported numbers, but I thought I'd give you a bit more color on the foreign exchange to give you firm.
And just to give you some perspective on how it's impacting our guidance. On the top line, foreign exchange is lowering our revenue by approximately $290,000,000 firm, which equates to just under a 2% revenue headwind. Foreign currency is reducing our adjusted EPS growth by $0.19 or just over 2.5%. If you look at our 2015 guidance sorry, 2016 guidance on an FX neutral basis, Adjusted EPS growth would be in the range of 8% to 10%, which represents another strong year of underlying operating performance. Thurman.
Consistent with past practice, our guidance assumes current foreign currency exchange rates and we haven't attempted to forecast future changes in rates. Moving on to the details of our guidance. Acquisitions completed in 2015 are expected to contribute about $100,000,000 Thermo segment. We're 60 basis points to our reported revenue growth in 2016. Giving some color on our assumptions on growth by end market, starting with pharma and biotech, We expect strong performance in this market in 10 market in 2016 and assume mid to high single digit growth over our very strong low teens growth Thurman in 2015.
In academic and government, with a better funding environment in the U. S, we expect growth in this end market to improve to around the company average. We expect growth in Diagnostics and Healthcare to be slightly better in 2016 as well, also growing around the company average. And in Industrial and Applied, we don't expect any improvement year over year with growth remaining flat to 2015. Turning to adjusted operating margin, we're expecting around 60 to 70 basis points of expansion year over year.
Firm. Strong productivity and acquisition synergies will be partially offset by strategic growth investments and the impact of foreign exchange. I'll walk you through how each of these elements of our margin expansion, starting with productivity. Here we will continue to use the proven productivity levers of our PPI business system, including pricing, volume leverage, global sourcing and footprint optimization. These will continue to have a very positive impact on our margin profile.
In terms of synergies from the Life Technologies acquisition, firm. We expect to deliver $55,000,000 of year over year cost synergy benefit in 2016, and we expect to realize a further $60,000,000 of revenue synergies, firm, which will yield approximately $20,000,000 of adjusted operating income benefit. This will enable us to deliver the 3 year goal of $350,000,000 of total cost and revenue synergies in 2016. During the year, we will continue to make strategic firm. Thank you, Steve.
Good morning, everyone. I'm very pleased to report that we are very pleased with the thermal device tax and the recently approved federal budget. Unfortunately, it's only repealed for 2 years, not eliminated entirely. However, as Mark mentioned, we're going to take advantage of this opportunity and plan to reinvest the approximately $15,000,000 of annual impact of the repeal back into the business. The majority will go towards accelerating our long term productivity initiatives to help counteract some of the impact that foreign exchange has had on our operating margins.
In terms of pull through on the foreign exchange headwind, we're expecting an unfavorable impact on the bottom line totaling $90,000,000 30% average margin. This creates 10 basis points of adjusted operating margin dilution. So If you look at our 2016 adjusted operating margin guidance on an FX neutral basis, our margin expansion will be 70 to 80 basis points. We will continue to look for ways to minimize the impact of foreign exchange on our P and L. Moving below the line, we expect net interest expense to be in the range of $370,000,000 to $380,000,000 about $10,000,000 lower than 2015, primarily as a result summary of the debt reduction actions taken in 2015.
For 2016, we're assuming that we will refinance our debt as it matures, but we are not We're expecting our adjusted income tax rate to be about 14%, slightly higher than 2015. And in terms of capital deployment, we're assuming that we'll return approximately $240,000,000 of capital to shareholders this year through dividends. Thurman. The guidance assumes a total of $500,000,000 of share buybacks in 2016, which we've already completed in January. There is no other capital deployment assumed in this guidance.
Full year average diluted shares are estimated to be in the range of $401,000,000 to $402,000,000 down slightly from 2015 with the impact of the buybacks offsetting option dilution. We're assuming net capital expenditures to be approximately $440,000,000 And finally, in terms of full year 2016 free cash flow, We're expecting between 2.68 expecting about $2,680,000,000 up $260,000,000 compared to 2015. As a final note on guidance, I wanted to highlight the calendar timing within 2016. And our Q4 2016 fiscal calendar has 4 less days than Q4 2015 with no net overall impact for the year. As you know, we do not give quarterly guidance, but given the scale of the days difference, I thought it'd be helpful to give you some insight on what we're expecting for Q1 2016.
With about 4% organic growth for the full year 2016, we're assuming about 7% growth in Q1. In terms of margin expansion, because we have 4 extra days of cost in Q1 2016, we're assuming that margins will be flat versus Q1 2015. As always in interpreting our revenue and adjusted EPS guidance ranges, you should focus on the midpoint as the most likely view and how we see things playing out. Results above or below the midpoint will depend on the relative strength of our markets as well as foreign exchange rate fluctuations during the rest of the year. So in summary, we're pleased to deliver a strong finish to the year and that positions us well to achieve our financial goals for 2016.
With that, I'll turn the call back over to Ken.
Thanks, Stephen. Operator, we're ready to take questions.
Thank you. The as quickly as possible. But in order to allow everyone in the queue an opportunity to address Thermo Fisher management team, please limit your questions on the call to one question and only one follow-up. Your first question comes from the line of Derik De Bruin from Bank of America. Please go ahead.
Hi, good morning.
Good morning. Good morning.
Thurman. Great. So I think we're all a little bit surprised that the EPS guidance is a little bit lower for 2016 than we had anticipated. Thurman. I guess, I mean, Stephen, you went through, I think, a number of the ones, I think, where our model was off.
I think we had share count was a little higher Thurman and the interest expense is a little bit higher. I think, sorry, giving the biggest hits there. But could you just talk a little bit more about Thurman. Sort of like the mix impacts and if I remember correctly from the old Invitrogen Life Days, as that business sort of picks up, it has A much bigger impact in terms of the hit to the gross margin on that business from FX. I guess, could you talk a little bit more about sort of like the mix dynamics, how that's firm playing out and sort of, you obviously are seeing stronger strength in the LPS business and just sort of walk through what's going on and just sort of how you're thinking about sort of the product next year and how
So Derek, I'll start and I know Stephen will add to it. So thanks for the question. There's $0.19 of FX headwind in the 20 So that's actually what the big thing that is needs to be understood, right? There was 0 point 0 $6 incremental after our guidance in the Q4 that we drove past and actually beat. So when you take it, 6% to 8% is our guidance for the year.
Firm. On an FX neutral basis, it's 8% to 10%. And obviously, it's only assuming the $500,000,000 of capital deployment, which The buybacks we already did in 2016. Obviously, we're going to get the benefit of Affymetrix later in the year, and we obviously have tremendous amount of capacity to do other things. We just don't want to decide exactly what we're going to do sitting here at the end of January.
But Thurman. There are things that we will do to drive more, but we wanted to provide absolute clarity of very strong underlying operating performance, big FX headwind
Positive or negative in 2016.
Great. And just one quick follow-up question. Thurman. When you sort of look at the end markets, what are sort of your expectations in terms of China and Latin America and sort of how does that
firm. So from a geographic perspective, we executed very well in China Thurman. During the course of last year, we clearly gained share from everything that we've read from others. And we're expecting China to be 1 of our fastest growing markets, probably low double digit type growth. It's hard to predict exactly, but firm.
But it will be a nice contributor to our growth for this year. For Latin America, Brazil was very soft last year. It's not a huge market for us, and We're not assuming any improvement in our numbers. You can see, as Steve was talking about rest of world, that's primarily Latin America firm. Declined a little bit last year and we're assuming similar type environment.
Great. Thanks. I'll get back in the queue. Thank you, Derek.
Thurman. Your next question comes from the line of Ross Muken from Evercore ISI. Please go ahead.
Thurman. So I guess as you guys were sort of staring at the consensus estimates in the $8.18 range and you guys were contemplating where the guidance was and you were feeling where there were pushes and pulls in the P and L and where the Street had sort of firm. I mean, I guess, what was sort of the internal debate around what you could firm. Push forward, whether or not AFI, which obviously pushed off some capital allocation, e. G, you could have done more buyback, had you not done that, and that may have helped, I guess, versus the range, but longer term may not have been the right decision.
I guess, what was what were the some of the key debate points? And then from a messaging perspective, Do you feel like you kind of outlined enough for us to have figured this out more so than we did? Or do you think it really was some of the macro moves, whether it Thermo. FX, etcetera, in the back half of the year that stuff was moving around too much that it was difficult to sort of message.
So Ross, great question. There was no debate. We run the company to do the right thing for our shareholders and for our customers. We don't sit there and say that the consensus is right or wrong. We say what is great operating performance firm.
And that's why you heard longer remarks today to really provide clarity on how we're thinking about the world. I think the things that I would take away so that you can Look to the future is 1. When we started out 2015 and you looked at our guidance range, firm. We said the following. We would do all of our best without damaging the bright future that the company has to offset the FX headwinds.
Thurman. Last year, we picked up 2% incremental EPS headwinds after our original guidance. We offset all of it Thurman. And we're able to deliver the high end of our original guidance. When we look at this year, we have a number of actions that were taken to chip away at FX, Which is why Stephen and I talked a little bit about we don't just stop.
We're actually taking other actions that ensure that if we continue to live in a tough FX environment that 2017 will also be a fantastic year for the company. So we're very proactively managing Thurman business. In terms of the capital deployment, hey, we spent committed $1,800,000,000 in the first 2 weeks of the year. I think firm. We're being pretty aggressive and it doesn't matter which month these different things happen.
We're using our competitive position to create value for shareholders. So We have incredibly bright prospects and I know that the analysts will look at
the numbers and feel good about them.
So when you think about, obviously, again, this is a tough macro. So clearly, the underlying ex FX, pretty good growth. Where do you see the biggest pushes and pulls just from an economic perspective in terms of some of the volatility? Obviously, We look at what's happened to the biotech sector and people worry about funding. There's been obviously in the industrial side, Some dislocations in parts of the world, FX movements have been a big deal.
When you look at where the pushes and pulls are in the guide where you can really have Thurman. On a top line basis, sort of a differentiated outcome, where do you see the most sensitivity, I guess?
Yes. So Ross, so if you think about last year, we entered the year with challenging environment. We delivered our strongest organic growth of 5% in a long time, right, And delivered it very solidly despite the fact that not every end market was robust. When we think about this year, Thurman. We're assuming as we did last year, we'll finish with about 4%.
That's what we're targeting, but if we can do better, we will. And if I think about the environment. 1, academic and government will be a little bit better than last year because of NIH funding. So we're expecting to be at the company average, which is better than the low single digits last Diagnostics and Healthcare. We're also expecting to be at the company average or about the company average, which is a little bit better than last year.
The big swing factor is going to be biopharma and it's not going to be the end market conditions. It's just going to be we had a teens growth or low double digit growth last year. And we're assuming from a starting point that we're going to grow mid to high single digits against the tough comps. Thurman. That's the swing factor on the upside to it.
And the team has done a good job over the last 5, 6, 7 years of executing in that segment, and firm. We'll keep you posted on how we do. So I think it gives you a good sense of the how we're thinking about the world. Great. Thanks.
Thanks, Ross.
Thurman. Your next question comes from the line of Tycho Peterson from JPMorgan. Please go ahead.
Hey, thanks. Question on the restructuring initiatives. You talked about if you look at kind of what's going on in the industrial world, all these companies are taking pretty aggressive restructuring actions. Can you maybe talk about Thurman. Whether this is the first of potentially several steps, whether you think you're doing enough with this initial step, and how you came to kind of the magnitude of the initial restructuring?
Our business is growing 5% organically. So it's not we're not in restructuring mode. What we're doing is saying we want to ensure we're going to drive strong profitability growth for the long term and there are things that we can do, that have good paybacks, but cost a bunch Tremonty upfront in terms of optimizing facilities and you have double costs, those kinds of things. So we're getting them underway now so that When those things are put into place, basically in 2017, you get a further tailwind on restructuring. We've managed this company through multiple recessions.
Thurman. Both Steve and I have been here 15 years, right? So but right now end markets are good, bookings were very strong, right? So if something happens that firm. We know how to take the actions to drive short term profit growth to deal with a tough environment, but Thurman.
We ended the year with our best quarter in many years and very strong bookings. So we're just doing the prudent things to drive earnings growth and we'll monitor the end markets very, very
And then on capital deployment, as you get back in the back half of the year, should we think about maybe more On buybacks in light of the multiples you're seeing from an M and A standpoint right now?
Yes. What I would say is that we have a Significant capacity to deploy, and we will look at what is the right thing for the shareholder base Thurman. As the months unfold this year, whether it's more buybacks or more M and A opportunities, we're evaluating the different choices. We firm. We've got a good M and A pipeline.
We have an attractive stock. So you'll see us continue to be active as the year unfolds.
Okay. And then last one for Steven. Can you just quantify the extra day impact?
The extra day impact in Q4? Correct. I'm sure it contributed to the overall number, but it's not a significant part of the growth.
Okay. Thank you.
Thanks, Heiko.
Your next question comes from the line of Steve Shah from Morgan Stanley. Please go ahead.
Hi, good morning and thanks for taking the questions. I'm going to do my best to try to put words in your mouth. As I listen to the commentary around the strength of the order funnel, the commentary around end market outlooks Slowing is just a normal and appropriate degree of caution around pharma just because the comps are simply tough, no signal of slowing in the order funnel. So as I look at the model and I say, okay, there's a guide for 7% organic in the Q1, 4% for the full year. It implies some slowing over the balance of the year.
I want to say that's just because we're taking a conservative view on how pharma plays out here in the early days of the year. Is that the right way to think about it?
Steve, everything is accurate up until the Calendarization issue. So we're being prudent on the full year guidance because we have a tough comparison in biopharma. Our aspirations, of course, will firm. Hi, and we'll keep you posted. The layout for the calendarization is we literally have almost a full extra week in Q1 and obviously a full almost firm.
Last week in Q4. So from a modeling perspective, roughly 7% in the first quarter And obviously a bigger offset in Q4, kind of still gets to the 4%. So we're actually assuming kind of level activity And the calendar just leads you to 7% in the Q1. So don't read into anything beyond that.
And an extra week historically has generated maybe 2, 3 points of incremental growth. Is that a fair number?
The last time we had an extra week, we were coming off one of the worst recessions ever. So I don't think there is a norm when it comes to it. So we feel good at this point about about 7%
firm. Got it. And then just one housekeeping question for me. I wonder if you could put numbers around some of the items that we're thinking about on the P and L for this year. I mean, we've got a little bit of a tailwind from the NIH, maybe that's a couple of pennies.
The R and D credit you called out, and I'm sorry, the MedTech tax you called out, the R and D credit, I know was passed and we have that for 2016. Could you quantify any of these for us?
Well, the medical device tax credit is about $15,000,000 And as we said, we're going to reinvest that. Thurman. The R and D tax credit is about $23,000,000 impact and that's in both years. So there's no year over year impact. And NIH is part of the organic growth that we outlined in terms of the tailwind.
Yes, organic growth. So the way to think about that one, Steve, would be For the company, it should be about 30 basis points of a growth tailwind organically, Roughly a little more than a point in the academic and government end market. So when you saw us being low single digits last year And about the company average this year that really reflects the improved NIH funding. So hopefully that frames that up pretty well.
Got it. Thanks so much.
Thanks, David.
Your next question comes from the line of Isaac Ro from Goldman Sachs. Please go ahead.
Thurman. Good morning, guys. Thanks. I wanted to ask a question about your 2015 guidance as it relates to gross margin. I don't think you guys gave a lot of color on what firm.
But as I look at the Q4 performance, obviously, LPS had a great result and that tends to be your lowest margin division. So As I think about what you're looking for this year, should we assume that the outperformance in LPS could weigh a little bit on gross margin and have an accordingly drop through to EPS as well. I'm just trying to square up the other questions on the 2016 EPS guide.
Yes. So I'm expecting a slight improvement in gross margins year over year in aggregate, and then the rest of the expansion comes from SG and A. So in terms of mix, I'm not expecting a dramatic change in mix the way that we're assuming that the payout over the coming year.
Okay. So if I do kind of deconstruct the delta between sell side 2016 kind of consensus EPS and your guidance, it looks like it's mostly FX And then maybe to a lesser extent, share repurchase?
I don't know. I don't know what you're modeling. So We gave the detailed guidance of what we're assuming in our model.
Right. But assuming you guys have
a view on consensus numbers we're looking at. I just want to make sure I understood the sources of the delta.
Honestly, I have no idea what people are assuming for foreign exchange. It's the estimates Give a top line and give an EPS number and I don't see any detail there. So I can tell you what we have in our assumed in our model going forward.
Right, right. I got the FX guidance. Thanks a bunch.
Thank you.
Your next question comes from the line of John Groberg from UBS. Please go ahead.
Great, thanks. And first of all, congratulations on a strong quarter. I think it was your highest growth rate since Q1 of 'ten, if we're right here. So congratulations on that.
Thank you.
I guess if I'm doing the math, it looks like on your organic growth Thurman. Plus the life synergies that you laid out, the life EBITDA synergies, that kind of gives you $0.66 or so, and then you're talking about a 2% headwind firm from FX. You don't include any of the capital deployment. I guess I'm thinking a little bit further out, Mark, if you think about what you laid out at your Analyst Day in 20 2018, sounds like you went out of your way to highlight that you still think the margin target is achievable. Thurman.
What's your view on what you laid out at 2018 is what the EPS could look like? Has that changed at all today?
Obviously, John, we'll get into that in May. We've never firm. We've been concerned even if we didn't take the actions about the ability to get to the 24% to 26% or drive the very strong performance that we outlined in May. But our goal is not to be at the lower end of that range. Our goal is to be at the higher end of that range, right?
So we're taking the actions now to put us higher up in those ranges. So, if I think about last year, One of the things we got tremendously positive feedback was talking about philosophy and the philosophy of how we're dealing with FX. And I think what you're getting today is we're telling you about the philosophy that we when we laid out our commitments in May, the world looks Savita, when we laid out our commitments in May, the world looks different and we sort of don't care. We're going to navigate through it Thurman and deliver outstanding short and long term financial performance. And hence, while picking a very small point around a $15,000,000 investment, I think it gives you the sense of the philosophy firm that we're very proactive in managing the business to deliver really great financial performance.
Okay, that's helpful. And then just a quick follow-up. Firm. Looks like one, just to clarify, it looks like you're not going to provide book to bill anymore. And then what are your pricing expectations for 2016?
Yes. So, John, so I didn't give book to bill information. It's just not that relevant a metric for the company now. We have over 75% recurring revenue stream. So yes, for a large instruments business, it's a relevant metric.
For us, it's we just don't see it as that relevant. So I didn't include it in my script. I mean, we don't include it in the recon package. Firm. Just so you know what the number is, it's actually slightly positive, it's 0.5% for Q4.
So, but it's as I said, it's just not that relevant of a metric for us. And then in terms of your second I've completed what your second question was.
Just in terms of pricing benefit you expect in 2016?
Sure. So, I think about the underlying pricing environment hasn't really changed from what we're seeing of our end markets from the last Really the last sort of 3, 4 years, including this year. Now what we did in 2015 was drive some FX offset actions with some additional targeted price actions, which brought our pricing number up. I will get a little bit of carryover from that. So pricing year over year in 2016 will be very similar to 2015, so just over 0.5 percent of price.
But underlying that I think the pricing dynamics are significantly different in the industry.
Thanks.
Thanks, Sean. Thanks. So, operator, we have time for one more.
Certainly, your last question comes from the line of Jack Meehan from Barclays. Please go ahead.
Hi, thanks. Good morning. I'm curious For the Q4, we've now seen a few years where the Q4 was seasonally stronger. I guess, I'm curious what your view was on budget flushes firm. Toward the end of the year, what was sort of true growth in the Q4 and what might have what we can be expecting in terms of the Q1, whether There are some moving parts there.
Jack, good question. So, the way the world is playing out over the last few years is that Customers generally are being conservative early in the year. And I don't mean just 1 quarter, but literally in the 1st 3 quarters of the year Thurman to deal with kind of unexpected adverse events, whether they're macroeconomic or geopolitical. So we're seeing it across wide range of customers where there's a conservatism. Thurman.
And as the year unfolds and bad things really haven't happened, there's a much stronger year end money and we're very well positioned to capture it. Our team did a great job. When we look at the Q1 because customers do a lot of activity late in the year, their demand is going to be a little bit softer, but it's been a little bit softer in each of the previous Q2. So I think as Steven laid out the outlook for the year, that reflects the fact that customers start out conservatively And then build their spend as the year goes on. So I think we've got that well characterized.
Got it. And then just one follow-up similar to that, the academic segment specifically, just given the NIH budget getting wrapped up toward year end, what is your view? I think Historically, it's been more the visibility around funding than the actual rate of growth itself. Just curious around the pace of some of that new funding going to work, what your expectations are for 2016?
Yes. So obviously, it's good news that our customers know that they can have better budgets. Firm. We think that some of that will be in Q1, but more likely Q2, Q3 is where you'll see the strength on the NIH So let me wrap it up. We're very pleased to deliver another solid year.
We're obviously looking forward to continuing that momentum in 2016. And of course, thank you for your support of Thermo Fisher Scientific. Thank you, everyone.
This concludes today's conference call. You may now disconnect.