Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific 2014 First Quarter Earnings Conference Call. At this time, all participants are in listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. Vice President of Investor Relations. Mr.
Casaerta, you may begin the call.
Good morning and thank you for joining us. On the call with me today is Mark Caster, our President and
Chief Executive Officer and Pete Wilbur, Senior Vice President and Chief Financial Officer.
In 2014. A copy of the press release of our 20 14 Q1 earnings and future expectations is also available on our website and the heading financial results.
Thank you, Ken, and good morning, everyone. Thank you for joining us today for our Q1 call. I'm pleased to report that we achieved a number of significant milestones in 14 months of the year and our performance positions us well to meet our goals for 2014. And then traveling to our new sites in the U. S.
And Europe to do business reviews, both town halls with our new colleagues and visit with our customers. I continue to be impressed by the caliber of people like me, the innovative technology being developed and then the passion that the team has for increasing science to make a real difference in the world. We have a number of months planned for the integration so that the teams are able to hit the ground running immediately after the close. Synergy 2014 from the Life Technology transaction and have no doubt that we'll accomplish that goal. Geomodulation and Magnetic E Businesses.
We were pleased to be able to complete this transaction expeditiously. Last but very important, our team remains intensely focused on our customers and executed very well to deliver solid financial results in Q1. As you saw in our press release, our results in Q1 include Life Technologies since early February and exclude the divestitures as of late March. That said, our total revenue for the quarter was 22% year over year. Adjusted operating income was $830,000,000 in the quarter.
And we expanded our adjusted operating margin by 200 basis points to 21.3%. The additional biotechnology businesses and growth in certain customer segments, This is a key competitive advantage. One quick anecdote on the top. Our Laboratory Equipment Center of Excellence in Asheville, North Carolina was recently recognized as one of the best plants in the U. S.
By Industry We Magazine. I visited the plant in March to congratulate the team for the great work they've done to achieve the distinction. This is actually the 2nd time one of our factories has won this award. Both plans have aggressively implemented the PTCI business system across our operations and both of the great examples of the impact that PPI can have. Our PPI business system is already being implemented at our new sites Now let me give you my perspective on our performance in the context of our 14 end markets.
I'll start by saying that in aggregate, Overall, We said last quarter that these customers will probably be spending money under the new appropriations at around midyear. Our view on that has changed and Immuno Diagnostics businesses. As the year plays out and utilization increases, we expect growth for the full year to be in line with the company average. In the industrial side, we delivered mid single digit growth as conditions this year continue to improve. We're pleased with our ongoing strength in our photogrammetry and we saw a nice pickup during the quarter in our portable analyzer business.
And the massive competition businesses. It's clear that our platform customers continue to recognize benefits of our unique value proposition. We have a solid strategy for increasing share gain with other customers to drive growth. It's based on 3 core elements: technology innovation, our unique customer value proposition and our scale in Asia Pacific and emerging markets. My point today is that we will continue to execute this strategy to best serve our customers and strengthen our position as an unrivaled industry leader.
Percent. This new version allows customers to control their mass spec instruments on a single digit platform with gas, time and liquid chromatography instruments. We have a good momentum in our chromatography and mass spec businesses and this industry leading software package is in the mouth strap step in further strengthening our competitive position. This is a growth problem and you may have seen in the news last week about thousands of bottles containing the SARS virus that were lost in a prestigious European research lab. Which is used automatically compared DNA samples before they loaded into the Ion ORG sequence.
Quarter. Let me
start with China where we reported
a low double digit growth during the quarter. We continue to have excellent momentum serving healthcare, And then the additional biotechnology builds on our leading presence across Asia Pacific. In Southeast Asia, for example, But at a high level, we're raising our revenue guidance for 20 14 to a new range of $16,840,000,000 to $17,000,000,000 for 29% to 30% revenue growth year over year. We're also raising our adjusted EPS guidance to a range of $6.80 $6,0.95 which would result in 25% to 28% adjusted EPS growth over our strong performance in 2013. We did the very best of the quarter in terms of technology division with many product launches.
And we continue to build on our scale and that puts us in an excellent position to continue to gain share. With that, now now to you, Pete.
Thanks, Mark. Good morning, everyone.
I'll begin with an overview of our Q1 financial performance of the total company, then provide some color on each of our 4 segments and conclude with our updated 2014 guidance. Before I get into the details of our results, as we stated in our press release, Our financial results for the quarter include Life Technologies as of February 4 and exclude the related divestitures as of March 22. And as I mentioned last quarter, at the total company level, we're reporting organic revenue growth using our standard methodology. That means we'll exclude the results of Life Technologies until we reach the 1 year anniversary date of the acquisition. However, for the Life Sciences Solutions segment, which consists primarily of the Life Technologies businesses and our remaining Biosciences businesses, we're providing organic revenue growth on a pro form a basis As if we had owned Life Technologies for all of 2013 2014.
We're doing this to give you insight into the growth performance of that segment. So starting with our overall financial performance, we delivered a solid quarter resulting in a 12% increase in adjusted EPS to 1.53 GAAP EPS was $1.36 in Q1, up 46% from $0.93 in Q1, twenty thirteen, primarily as a result of the gain on the divestitures. Starting with the top line, Q1 total revenue increased 22 percent year over year and we delivered 2% organic growth. Q1 reported revenue includes 20% growth from acquisitions net of divestitures and an immaterial positive impact from foreign exchange. We strengthened our backlog in the quarter with bookings exceeding revenue by 2%.
By geography, North America declined organically in the low single digits. Europe grew in the mid single digits and Asia Pacific grew in the high single digits with China growing low double digits. Rest of the world grew in the low single digits. Looking at our operational performance, Q1 adjusted operating income increased 35% and adjusted operating margin was 21.3%, up 200 basis points from Q1 last year. Our adjusted operating margin expansion for the quarter was driven primarily by the addition of Life Technologies, which had a higher overall margin rate compared to standalone thermal Fisher.
However, we also continue to see contribution from our primary productivity levers, global sourcing, site consolidations and our PPI business system. In total, operating performance for standalone Thermo Fisher contributed about 30 basis points to adjusted operating margin expansion in the quarter. We realized benefits from our restructuring actions of $13,000,000 in Q1 and are on track to achieve about $45,000,000 of benefit for the full year. We also realized synergy benefits of $17,000,000 in Q1 in line with our guidance of $85,000,000 for full year 2014. In terms of supporting our growth initiatives, We continue to make strategic investments primarily to strengthen our presence in emerging markets and continue our growth momentum in those regions.
Moving on to the details of the P and L. Total company adjusted gross margin came in at 48.2% in Q1, up 4 20 basis points from the prior year. This was primarily due to the acquisition along with solid productivity. Adjusted SG and A in Q1 was 23.1 percent of revenue, 140 basis points unfavorable to the 2013 quarter, again primarily as a result of the acquisition, partially offset by volume leverage and our productivity actions. Finally, R and D expense came in at 3.8% of revenue for the quarter, seventy basis points above the prior year.
This reflects the relatively higher level of investment in R and D in the Life Sciences Solutions segment. R and D as a percentage of manufacturing revenue in Q1 was 6%. Looking at our results below the line, Net interest expense in Q1 was $106,000,000 up $49,000,000 from last year, driven primarily by the debt we raised to fund the Life Technologies acquisition. Adjusted other income for Q1 was $3,000,000 about the same level as Q1 last year. Our adjusted tax rate in the quarter was 16.0%, 430 basis points above last year.
This is primarily as a result of higher than average credits in the prior year related to the foreign related to foreign tax credits and the double R and D tax credit, which has not yet been approved for this year. Although this quarter's rate is slightly above our full year adjusted tax rate guidance of 14.5 to 15.5%. This was assumed in our previous guidance as we only included a partial quarter of benefit from the acquisition tax synergies in Q1. So we're maintaining our full year adjusted tax rate guidance and we expect that our adjusted tax rate will be below the Q1 rate for the balance of the year. In terms of returning capital, we paid out $55,000,000 in dividends to our shareholders in the quarter.
Average diluted shares were $398,400,000 in Q1, up $36,700,000 or 10% from last year, primarily as a result of the shares we issued to partially fund the Life Technologies acquisition and to a much lesser degree option dilution. Turning to cash flow and the balance sheet. There are a lot of moving pieces primarily related to the acquisition and related divestitures. The headline numbers for Q1 are $102,000,000 of cash flow from continuing operations and free cash flow of only $1,000,000 after deducting $101,000,000 of net capital expenditures. This compares to $236,000,000 of free cash flow in the prior year.
In the quarter, we incurred $240,000,000 of one time payments related to the acquisition close that were netted against operating cash flow, including financing fees, transaction fees and restructuring costs. In our acquisition model, these outflows were primarily included as upfront deal costs. Cash flow from working capital in the quarter was reduced by about $50,000,000 as a result of the close timing and related opening balance sheet amounts. And our tax payments were $115,000,000 higher than the prior year, primarily because of the quarterly phasing of last year's payments. This will even out through the rest of the year.
So as I said, a lot of moving pieces this quarter. We ended the quarter with $1,520,000,000 in cash and investments, down $4,300,000,000 sequentially from Q4 as a result of funding the Life Technologies acquisition. Our total debt at the end of Q1 was $17,400,000,000 up $6,900,000,000 from Q4 as a result of drawing down our $5,000,000,000 term loan and issuing $500,000,000 of commercial paper to fund the acquisition as well as assuming $2,300,000,000 of Life Technologies debt. Our cash balance at the end of the quarter was about $1,000,000,000 higher than we need to maintain on an ongoing basis because the divestiture proceeds were received very late in Q1. These proceeds were used to pay down debt early in Q2.
Let me wrap up my comments on the total company with a quick update in terms of return on invested capital. Our trailing 12 months adjusted ROIC in the Q1 of 2014 was 9.5%, down 60 basis points from Q4 as a result of the Light Technologies acquisition. As we normally do, we'll give you a longer term view of ROIC at our analyst meeting on May 20. So with that, now I'll walk you through the performance of our 4 business segments. Starting with the new Life Sciences Solutions segment.
In Q1, total revenue grew significantly to 836,000,000 from $173,000,000 in the prior year, primarily as a result of the Life Technologies acquisition net of divestitures. On a pro form a basis, assuming Life Technologies was owned for the entire quarter in both the current and prior years, organic revenue grew 1%. In the quarter, we saw good growth in our bioprocess production business and in next gen sequencing, partially offset by a tough comparison in licensing revenues. Q1 adjusted operating income for Life Sciences Solutions also increased significantly primarily as a result of the acquisition with adjusted operating margin of 550 basis points to 29.3%. Because of the timing of the acquisition close, Life Sciences Solutions Q1 reported results include only February March, which historically have higher margin than January as a result of the phasing of revenue versus expenses throughout the quarter.
As a result, we expect adjusted operating margin in the segment to be about 250 to 300 basis points lower in Q2 compared to Q1, But this should increase throughout the year as revenue and synergies increase. In the Analytical Instruments segment, In Q1, total revenue and organic revenue both grew 4%. In the quarter, we had very strong growth in our Life Sciences Mass Spec and chromatography businesses, which benefited from good performance in Europe and Asia Pac. Q1 adjusted operating income in analytical instruments increased percent and adjusted operating margin was 17%, up 70 basis points. The margin expansion was driven by strong pull through on top line growth and good contribution from productivity actions, partially offset by strategic growth investments and unfavorable foreign exchange.
Turning to the Specialty Diagnostics segment. In Q1, total revenue grew 1% and organic growth was modestly positive. In the quarter, we continued to deliver good growth in our transplant diagnostics business and our immunodiagnostics business grew in the mid single digits. As Mark noted earlier, we believe this was more than offset by weak healthcare utilization in the U. S.
Adjusted operating income in this segment declined 1% in Q1 and adjusted operating margin was 27.2%, down 50 basis points from the prior year. In this segment, we delivered good productivity. This was more than offset by strategic growth investments and some unfavorable mix. In the Laboratory Products and Services segment, both reported revenue and organic revenue grew 2% in Q1. Our Clinical Trials Logistics business continued to deliver very strong growth.
But softness in the U. S. Academic and government end market, as Mark mentioned, And adjusted operating margin was 14.7%, down 10 basis points as good productivity was more than offset by strategic growth investments and unfavorable foreign exchange. So with that, I'd like to review the details of our full year 2014 guidance. As you saw in our press release, on the top line, we're raising both the low and high end of our reported revenue range, primarily as a result of the acquisition and divestiture timing as well as more favorable foreign exchange.
This leads to a new full year 2014 revenue guidance range of $16,840,000,000 to $17,000,000,000 which represents growth of 29% to 30% compared to our reported revenue of $13,100,000,000 in 20.13. To bridge the $190,000,000 revenue increase from the midpoint of Previous guidance. We picked up $120,000,000 related to the acquisition, primarily as a result of an earlier close date than our previous assumption $45,000,000 as a result of more favorable FX rates on Thermo Fisher standalone and $25,000,000 as a result of the divestitures closing later than our previous assumption. On an organic basis, we're still guiding to standalone organic growth for full year 2014, up 3% to 4%, consistent with our previous guidance. As I mentioned earlier, this measure of organic growth does not include the results of Life Technologies.
For the Life Sciences Solutions segment, We still expect 2% to 3% pro form a organic growth for full year 2014, also consistent with our previous guidance. In terms of FX, assuming recent rates, the year over year foreign currency impact on our revenue will now be slightly positive. However, we're still expecting a slightly unfavorable margin impact resulting from the mix of currencies with the stronger euro and British pound offsetting the weaker Japanese yen, which pulls through at a much higher rate. The Life Technologies acquisition net of related divestitures is expected to contribute about 26 percentage points of our total revenue growth in 2014. And consistent with past practice, We haven't attempted to forecast future foreign currency exchange rates and our guidance does not include any future acquisitions or divestitures.
Moving to adjusted EPS, we're also raising both the low and high end of the range in line with the change in our revenue guidance. This results in new full year 2014 adjusted EPS guidance range of $6.80 to 6.95 which represents growth of 25% to 28% over our 2013 adjusted EPS of $5.42 To bridge the roughly $0.08 increase in adjusted EPS from the midpoint of our previous guidance, we added about $0.10 from the acquisition net of divestitures and about $0.02 from more favorable FX, which was partially offset by increased investments and some segment mix. Turning to adjusted operating margin. We're maintaining our previous guidance for the full year of 220 basis points to 250 basis points of expansion. We continue to expect solid contribution from our productivity actions and about $85,000,000 of synergy benefit in 2014 from the Life Technologies acquisition.
Moving below the line, we're expecting net interest expense to be in the range of $430,000,000 to $440,000,000 up $10,000,000 from our previous guidance. This is driven by the timing of the acquisition and divestiture close dates. Q2 interest expense will increase by about $10,000,000 from Q1 as a result of having a full quarter of outstanding debt and then will decrease throughout the year as we use our cash flow to pay down debt. As I mentioned earlier, we're still forecasting our adjusted income tax rate to be in the range of 14.5% to 15.5% consistent with our previous guidance. And we're still assuming that we'll return approximately $240,000,000 of capital to shareholders, all in the form of dividends.
And that in addition to the proceeds of the divestitures, we'll use the bulk of our free cash flow to pay down short term debt. Full year average diluted shares are estimated to be in the range of $402,000,000 to $405,000,000 up 10% to 11% from 2013. And similar to interest expense, our share count will increase by about 4,000,000 shares in Q2 compared to Q1 as a result of having the acquisition related shares outstanding for the full quarter. We're still expecting net capital expenditures to be in the range of 4 $70,000,000 to $490,000,000 And in terms of free cash flow, nothing has changed in our assumptions as to our year end cash balance for the speed at which we expect pay down our outstanding debt. However, solely as a result of the reporting of acquisition and divestiture related cash flows, We now expect reported full year free cash flow to be about $2,200,000,000 which is below our previous guidance of $2,550,000,000 to $2,650,000,000 One final note on guidance.
We don't normally provide detail other than annual guidance, but similar to last quarter, there are a lot of moving parts related to the acquisition and divestitures in our Q1 results. So I thought it would be helpful to give you some insight into what we're expecting for Q2. In terms of revenue, we're expecting Q2 to represent about 25% of our full year revenue guidance. And in terms of adjusted EPS, we're expecting Q2 as a percentage of our full year guidance to represent a couple of points less than the comparable revenue percentage as a result of the acquisition synergies and revenue building throughout the year. As always, in interpreting our full year revenue and adjusted EPS guidance ranges, you should focus on the midpoint as our most likely view of how we see the year playing out.
Results above or below the midpoint will depend on the relative strength of our markets during the year. In summary, We completed a number of significant milestones this quarter, while delivering a solid operational results, which positions us well to achieve our financial goals for the year. With that, I'll turn the call back over to Ken.
Thanks, Pete. Stephanie, we're ready to open it up for Q and A.
Our first question comes from Jon Goldberg with Macquarie. Your line is open.
Hey, good morning and congratulations on Navigating all the moving parts in the Q1 and reporting a very good quarter. I guess the first question Mark for you is North America now is going to be a slightly larger part of your Given life and obviously still a little bit weaker. Can you maybe I know you talk about government academic, healthcare utilization, but could you maybe give us a little bit more detail first? Kind of by segment what you're seeing in North America and maybe how you see that playing out throughout the rest of the year?
Sure. In terms of North America, John, in aggregate things were fairly similar to What we've seen over the last year or 2 with 2 exceptions, right? Healthcare utilization is typically at your peak in Q4 and at your trough or lowest level of utilization in Q1. So it's a pattern that started in 2013 continues to be even a little bit more dramatic as you get to 2014. So you have that dynamic and we expect that that improves as the year unfolds.
From an academic and government perspective, the appropriations is a positive. And as we said on our original call in February, we expect funds to flow from the appropriations to happen in the second half of the year, which is kind of customary in terms of how that works. Clearly, as we've talked to a number of our customers, they work fewer days in the early part of the year And that had some effect in our industry in terms of consumable demand and that should obviously be just a one time factor that will not repeat as the year goes on.
And some of the what were kind of some of the applied markets or some of the more industrial markets in, I guess, those markets in North America?
Yes. From a North American perspective, not really big changes. Industrial and Applied continues to strengthen and first? And Pharma Biotech continues to be an area of strength for the company. So those are clearly positives.
Okay. That's helpful. And then if I could just quickly on you mentioned Enerflex and I have to say I was there and looking at the opportunities with your bag business and giveco and just obviously the more you dig into this, you look it looks like there's a lot of opportunity from a revenue synergy standpoint. I know it's not something you've talked about as much in the investment community because it's hard to get credit for it. But Maybe as now you've met with people, Mark, you're traveling around, as you said, you're examining opportunities that they're going to be going over to Asia.
I'm just curious, From a revenue synergy opportunity, how are you thinking about the acquisition with Life relative to maybe Where you were 6 months or so ago?
From our perspective, we're very excited about The logic of the combination and the revenue synergies that we're going to capture over time, in fact, they'll be one of the themes that we cover at our Analyst Day, Mark Stevens, I'll walk through some of the things that we're working towards. Not going to have a big impact in 2014. We've assumed that there won't be any revenue This year, I assume, will deliver something in the later half. That's small. But they really ramp up in 2015 and beyond.
First? In the area of the one that you actually saw yourself in Interfax, it's when we didn't assume a lot of revenue synergies because we were doing a divestiture and so forth, but it's a great combination Having the single use technologies from our Thermo Scientific brand being combined with the Life Technologies position in the media, Sarah, as well as the downstream analytics. So That combination should actually be quite powerful and over time should put us in a position to gain significant share in that market segment. Other areas of revenue synergy, clearly, our e commerce capabilities are strengthened by the combination, great strength in Asia Pacific and emerging markets And good opportunities to leverage our complementary channel strength, both our Fisher Scientific channel as well as the strength that Life Technologies brings to the company. So lots of opportunities for the company to capture revenue synergies.
Great. Thanks, Billy. Congrats again.
Thanks, Sean.
Our next question comes from Ross Muken with ISI Group. Your line is open.
Good morning, guys, and congrats.
Thank you, Ross.
So I guess on the core growth number for the quarter, how did it sort of pace Relative to your expect as sort of the quarter went on and relative to sort of your view coming in? And how do we put in context the book to bill, which is not a metric we look at for you guys that often as it's usually around 1, but it was sort of Particularly robust this quarter. How do we put all of that in context?
Yes. So when we looked at our original Growth outlook for the year in our guidance call at the beginning of the year. We looked at 3% to 4% organic growth for Thermo Fisher and 2% to 3% for the Life Science Solutions segment. The Q1 performance, nothing has changed in terms of our expectation for the full year. We're very confident in our ability to achieve both of those milestones.
When I look at the Q1 And the question around phasing. January February were softer than normal. March was a strengthening. And obviously bookings also were much better than revenue and that's really driven by Just the timing. As customers got back to work later in the quarter, we had good bookings momentum, which gives us confidence as we Continue through the year to achieve our organic growth goals.
I guess just relative to growth in China, we had run at 20% for a long time. It came down to kind of mid upper teens and now we're kind of in the low double digits. I mean, as you think about that geography going forward, obviously, the PMIs haven't been great. It seems like the healthcare piece is quite healthy. The industrial is a lot more mixed.
I mean, Any sort of pacing there or change there in terms of how you're thinking about that as a growth contributor maybe on a near versus longer term basis?
First? I'm actually heading off to China next week. My view is a couple of things. We continue to have a very strong position. We delivered good growth, albeit a little bit slower than we haven't delivered over the last couple of years.
Healthcare is very strong and that's been a continuing trend. And I agree kind of industrial is a bit mixed. First? We'll spend time with the team. We'll spend more time with the team.
Basically nothing has changed with the long term outlook in terms of our view on China. We still believe it's going to be in the range of mid teens as the year progresses.
And just one quick one for Pete. I mean, did you call out maybe I missed it the actual dollar contribution in the quarter from life? I know you gave us a net number. Are you going to be providing that so we can kind of back in?
Yes. What I said is the operating performance of Thermo Fisher standalone was about 30 basis points of margin Yes, it was at the top of my head, I don't know the number. I believe it's in my script.
Okay. Thanks, Pete.
Thank you, Ross.
Our next question comes from Tycho Peterson with JPMorgan. Your line is open.
Hey, thanks for taking
the question. Mark, first question just on the pharma channel. It's obviously been a busy week in M and A world for Pharma and Healthcare in general. Can you maybe just talk about your view on the trajectory? I know you previously guided for deceleration in the Pharma business, but your kind of latest thinking as we think about all the potential M and A here?
Yes. So Tayo, thanks for the question. The first thing is Another very strong quarter of performance in our biopharma customer set, a little bit stronger than The full year guidance that we gave in February. So team executed well. Obviously, a lot of corporate repositioning announced over the last 24 or 48 hours, I guess, with our customer set.
And I think as companies look for synergies, we typically gain share, Right. They have targets. We have incredibly strong relationships with the executive team and we bring them ideas on how they can get Higher impact for the dollars of spend. And in fact, 2 of the CEOs that were involved in those repositionings and I already communicated about some opportunities, So we have very strong real time relationships with these customers.
Okay. And then as we think about the integration initiatives, I mean, obviously, you've highlighted PPI for your own business, can you just talk maybe about how easy it is to pour over that process to the Life business and other kind of big next steps?
I guess you'll get into
a lot of this at the Analyst Day, but How do we think about applying PPI to the underlying license?
Yes. Even though we've only owned the business for a couple of months, first? The reality is they're already starting to use our business processes right through in terms of how we operate our business. And We already have our PPI methodology being implemented and we'll highlight some of the impacts of that. But first?
That's something that we start right at the beginning and start with the training, start with the impact. And it's part of the synergies that we deliver and it's Part of the ongoing productivity that we'll be able to drive for that business and certainly improve our customer experience, which positions us to accelerate growth and gain share.
And then last one Pete can you quantify the weather impact? And it's a tricky thing I'm sure, but I'm just wondering if you've got a number you
flu and pollen were down versus the prior year. It's about a 1 percentage point impact on the quarter.
Okay. Thank you.
Thanks, Tayo.
Our next question comes from Derik De Bruin with Bank of America Merrill Lynch. Your line is open.
Hi, good morning. So hey, Pete, just a question. I'm getting some questions from people on The Q2 guidance that you're basically saying or the sort of the trajectory there. I assume the midpoint of that's a little bit lower than The Street Number for the EPS number, if you sort of use your math. I assume that's just on all relative to the timing of synergies and when things are coming through.
And I guess, could you sort of talk about Sort of your plans in terms of how you're looking at synergies and what the different phases are with that?
Yes. So just one thing to keep in mind in terms of Q2, we always have a seasonal impact in Q2 because that's when we do salary increases. So that In terms of the synergies, we obviously realized $17,000,000 in Q1 already. Those were the duplicative public company costs that we're able to eliminate pretty much on day 1. And then as we go through the year, We're continuing to eliminate duplicative corporate costs.
So for corporate functions and we're beginning to integrate the biosciences business. The businesses of legacy Thermal Fisher that were combined into Life Technologies to create Life Sciences solutions. So Those will build throughout the year.
Great. And I guess, just there been anything that sort of Mark, has there been anything that sort of stuck out in life in terms of once you sort of got under the hood and looked for potential, I would say revenue surprises in the sense of More opportunities to develop new products, more potential downstream synergies in terms of revenues, potential for the company, new product investments. I'm just getting curious in terms of thinking how you're thinking about the business now that you got your hands on it?
Yes. As we've thought over the last couple of months, part of the activity is for myself and other members of the team first? Just to get visibility to our new colleagues, visit customers jointly and really look at the opportunities. And first. One of the things that to me has been a real highlight is I spent quite a bit of time meeting with some of our new scientists, not new to the company, but new to Thermo Fisher And they're working on great technology.
So we're bringing a really a complementary suite of technologies. And we're already brainstorming long term on what are the new solutions that we can bring out from combining the 2 companies suites of technology capabilities. So long term, I'm very excited about what the both companies bring. From a customer perspective, feedback is incredibly positive, right? They see great synergy between the company and that positions us The opportunity to gain share.
So no surprises, but it's been very positive and The business is performing as we expected. So we're off to a good start.
Great. Thanks.
Thanks, Terry.
Our next question comes from Doug Schenkel with Cowen and Company. Your line is open.
Hi. This is actually Chris Flynn on for Doug today. Thanks for taking my question. I guess just to start, Is
there anything
you could share regarding the changes in allocation of investment in Life Technologies product pipeline or commercial infrastructure You have implemented or are implementing since the deal closed?
So Chris thanks for the question. From my perspective, first? What we do from an innovation perspective is make sure that we're maximizing the impact of our investment. Innovation is a core part of our strategy. And as part of the reason that we're meeting with our scientific leaders and scientists just to really get an understanding of what's in the pipeline.
It's business as usual right now, which is teams working on great things and they're doing a good job and that's what they're focused on. And then certainly we're looking for what are the new opportunities that the combined company has going as we get later into the year and into 2015. So it's a very exciting time from a scientific and innovation perspective.
Okay. Thanks. And also, I guess a bit more specific question, but I think it's sort of interesting and relevant product line question. So with One Lambda and Life under Thermo, can you just talk about The development efforts of sequence based HLA typing. I mean, this is a rapidly growing market and 1 of your biggest competitors announced earlier this year that it will be making a push into this market.
So how are you thinking about competitive dynamics and The sequencing market size, HLA sequencing.
Sure. So thanks. In terms of our transplant diagnostics business, it's doing really well. It's been a great acquisition growing well above what the acquisition model assumed in 2012. So I feel great about that.
We have integrated the HLA capabilities from a sequencing perspective that Life Technologies brought to Thermo Fisher into that business already. So that's a combined offering that we're working on and we feel good about our prospects in that area. So thanks.
Great. Thank you.
Our next question comes from Steve Willoughby with Cleveland Research. Your line is open.
Thanks for taking my question. I was wondering if you could provide a little bit more color as it relates to the growth rates within the Life Science Solutions segment. Specifically, if you strip out the standalone or existing Thermo business, what did that grow versus what did the Life Technologies business grow? And then my second thing was just on the analytical instruments business. I heard you said that mass spec and chromatography both saw strong growth.
I wonder if you could just talk about the remaining piece of that business and what the trends are with those products? Thank you.
Sure. So in terms, Steve of the Analytical Instruments business, what else is in there is a lot of our Industrial Chemical Analysis Businesses. So you obviously had great strength in chrome and mass spec. You still have some weakness in the Later cycle longer lead time products. So that would be what you'd see there.
Although I was encouraged in the quarter by the strengthening in our portable instruments business. Kind of the shorter cycle industrial business, so that saw a nice pickup in the quarter. So there's some signs of a continued economic recovery in the industrial markets. From the Life Science Solutions perspective, we're already integrating that business. So we're thinking about that as one Unified Business as we put our Biosciences business in there.
The growth rates are pretty similar between what would have been legacy first? Thermo Fisher products and what was the Life Technologies product. So they both grew around the same rate in aggregate. So that's the view on the splits there, Steve.
Our next question comes from Tim Evans with Wells Fargo Securities. Your line is open.
Hi, thank you. Just a follow-up there on the commentary on the question from Steve. In the Life Science Solutions business, could you maybe give us a little bit more commentary around the clinical end markets that that business serves, particularly in molecular diagnostics products or the products going into that market?
Yes. So Tim, let me give maybe a little bit more color in aggregate on the Life Science Solutions segment just to frame and I'll cover clinical as well in that, right? When I look at the performance of the business and the outlook, first of all, we feel confident about the 2% to 3% growth Organically this year. Within Life Science Solutions, you really have 3 main businesses, right? Bioproduction, which is our fastest growing portion of the portfolio.
You have biosciences which is our market leading position in our high-tech bioscience reagents. And you have genetic sciences, which is made up of our qPCR franchise, our applied markets such as human identification, you have animal and food testing as well. You have our next gen sequencing business as well as our Sanger sequencing franchise. Within the Next Gen Sequencing and Sanger Sequencing businesses. You actually have a nice clinical presence as well as there's adoption of both of those technologies there.
And we continue to have good momentum in that part of our portfolio. In terms of highlights, As I thought about it for the quarter, what I would say is I was very encouraged to see that QPCR had a good quarter in terms of growth. We have really nice momentum in next gen sequencing. So I think that's really a really nice complement first? How the Life Science Solutions team has started off the year.
Okay. I mean, I guess, so given those dynamics though and kind of the 1% growth, the headwind from the licensing and maybe some other pieces of the business must have been fairly significant.
Yes. So headwinds, the OEM licensing royalties were all headwinds versus what was a strong Q1 of 2013. We saw some headwinds in portions of our Sanger sequencing business as well. So those would be the headwinds that one would have seen in Q1.
Okay. Thank you.
You're welcome, Tim.
Our next question comes from Isaac Ro with Goldman Sachs. Your line is open.
Good morning, guys. Thanks for taking the question. Pete, just wondering if you could put a little color on the pricing environment this quarter and kind of your expectations for the year in the context of your core growth guidance?
Sure. In the quarter, we did realize positive price, but it was between 0 50 basis points. So pretty much Consistent with what we've seen for the last really every quarter in the prior year, so slightly positive. That's basically what we're assuming for the full year around 5 basis points.
Got it. And then just Mark a follow-up to the earlier question on pharma, the M and A activity there. If we were to compare the share gains that you typically get in those types of opportunities against the overarching cuts that you typically see in the combined R and D budgets those accounts. Is it fair to say the net effect of those two forces is typically a positive for your business in those accounts?
Yes. I mean, as we've said in years past, typically You get a little bit of a dampener as companies are figuring out exactly what they're going to be doing. But we typically then gain share, because we're part of their synergy program and they typically move spend to us as part of their process and it nets out to be over time
Markets. Your line is open.
Hey, Mark, you had mentioned the handheld market and that kind of a leading indicator for these applied markets improving. Have you been surprised how slow it's taken the industrial market to improve?
I'm not surprised, Paul. I mean, we're in this New normal of more slow recovery economically globally. And so we're seeing the improvements now in our shorter cycle business and that's good news. And then that should lead to at least we have stabilization in the longer Lead time businesses. So we didn't come out of the last recession with a big spring back in terms of growth, but it's something that we assumed and We're managing through them, which is why the use of PPI and really managing our costs effectively positions the company so well.
We've been able to deliver great earnings growth in a muted top line environment. And we feel like we're very well positioned to capitalize on the opportunities that are out there.
And specifically the 9 ton analyzer probably in the metals mining market you're seeing I guess stability there?
First? Yes. We're seeing growth again in our handhelds, which is a good leading indicator for us.
And then you cited mass spectrometry. I think that must be what stable pharma and biotechnology capital
first? So from our perspective, we have a really exciting pipeline of demand for what we launched at ASMS last year. And We're looking forward to ASMS coming up again in later in the spring and a new suite of products as well. So it's a combination of good biotech funding. Are
you on?
Our next question comes from Jeff Elliott with Robert W. Baird. Your line is open.
First. Yes. Thanks for the question. I guess
just a follow on to Paul's question there. Can you give a little more color on where you're seeing the growth in MS and in chromatography and perhaps an update on the competitive environment?
Yes, sure. So the Orbitra Fusion, Tribird is doing great, right? High end research, academic, biopharma, extremely strong adoption. So that's been a very positive driver. From a chromatography perspective, applied markets, industrial markets have been good for chromatography.
We have strength in liquid chromatography. We had strength in ion chromatography in the quarter and feel like we're well positioned there. So first? Those are 2 businesses that had very good growth in the quarter.
Thanks. And just a follow-up on China.
I guess Can you give a
little more color on some of the growth rates you're seeing in other areas there like some of the more applied areas environmental and whatnot?
Yes. So I would say industrial and implied, not dramatic changes from what we've seen over the last few quarters. We saw a little bit of a slowness in the release of funds from government customers in China. And that happens from time to time. That seemed to That'll be a factor that played out a little bit in the quarter.
All right. Thank you.
Stephanie, we have time for just one more.
Our final question comes from Brandon Couillard with Jefferies. Your line is open.
Hey, thanks. Good morning.
Good morning.
Pete, on the free cash flow revision,
could you elaborate on the moving parts that are contemplated in the new outlook relative to the prior view?
Sure. So as I said, nothing has really changed in the operational side of our free cash flow guidance. But as I said, there's lots of moving pieces just in the way that acquisitions and divestitures are reported. I said, in Q1, we had about $240,000,000 of payments related to the acquisition that hit free cash flow, $50,000,000 of working capital impact. And then just to give another example that we'll experience later in the year, The gross proceeds of the divestitures are excluded from free cash flow, but in fact the tax payments that we'll make But reported cash flow will take a hit of over $200,000,000 as a result of that.
So the change in the range of $400,000,000 Again, nothing operational. It doesn't change our year end cash balance forecast or how fast we think we're going to pay down debt. It's just simply the moving pieces of how the acquisition and divestitures are reported.
Okay, thanks. And then Mark, you spoke to the government and academic markets in the U. S, but curious what your view would be for that end market in the European and Asian geographies?
Generally, Europe in its entirety continues To be consistent, we had mid single digit growth in the quarter, continuing to benefit from stability and that's been a positive. There's been some exciting R and D initiatives that are government funded that bode well for long term European demand. So I feel good about that. We had I don't think we mentioned as much, but we had good position and good strength in Japan in the quarter. There's some initiatives around a tax increase that went effect April 1 that Encourage customers to spend some money.
So that's off to a good start as well. So that's a quick view on academic and government around the world. First? Let me wrap it up with just a couple of quick comments. As I think back on the quarter, we made significant progress in Q1.
I think we delivered solid results and positioned ourselves well to deliver another strong year. Thanks for the support of Thermo Fisher Scientific and certainly we look forward to updating you next quarter. Thanks everyone.
Ladies and gentlemen, that does conclude today's conference. You may all disconnect and everyone have a great day.