To The Moon

• Thermo Fisher reported a good quarter as it looks to recover from its trough period from the surging COVID-19 demand.
• Vertiv reported a strong quarter, but the outlook was slightly below expectations, triggering a sell-off in the stock.
• Waste Connections continues to be a consistent earnings beater as it grows.
• Northrup Grumman reported a great quarter as management raised its full-year guidance.
• Honeywell International beat estimates, but the mixed outlook triggered a sell-off in the stock.

Thermo Fisher Scientific Inc. (TMO): The company reported revenue of $10.54 billion (beating Wall Street estimates by $20 million) for the second quarter of 2024. Adjusted EPS rose 4% to $5.37 (beating Wall Street estimates by $0.24) compared to the same quarter in the previous year. Given that the company is in its trough year and overcoming the tough comparisons from the COVID demand surge, we had lowered expectations for the company, as we estimated the company would earn $5.23 per share on a revenue basis of $10.47 billion. Thermo Fisher reported a revenue decline of 1.4% as the company’s two most significant revenue segments, Life Sciences Solutions and Lab Products & Biopharma Services, had revenue declines of 4.4% and 1.3%, respectively.

Despite the revenue decline, Thermo Fisher expanded its margin as management integrated its acquisitions, producing synergies and controlling costs. The company’s operating margins came in at 17.3%, up from 14.8% in the same period last year, while the net income margin went up 2% to 14.7%. The company launched several high-impact products, including the Thermo Scientific™ Stellar™ mass spectrometer. Thermo Fisher expanded its clinical trial supply services with a new ultra-cold facility in the Netherlands and an innovation lab in Pennsylvania as they look to increase their productivity. Thermo Fisher completed the acquisition of Olink, enhancing its proteomics research capabilities.

Looking at free cash flow, Thermo Fisher has generated $2.58 billion year-to-date, up from $1.54 billion. Thermo Fisher ended the quarter with $8.82 billion in cash and short-term investments to enable them to make strategic bolt-on acquisitions. The company returned $3.28 billion to shareholders in dividends and share buybacks, up from $3.25 billion. The company updated its 2024 guidance, raising its adjusted EPS forecast to $21.29 to $22.07. Thermo Fisher expects its 2024 revenues to be between $42.4 billion and $43.3 billion. The stock reacted well to the earnings report, up 4%, as investors are starting to see the company out of its trough period. We like what the company reported, and we think management will be able to integrate its Olink acquisition, so we continue to hold onto our shares.

Vertiv Holding Co. (VRT): Vertiv Holdings Co (VRT) reported its Q2 2024 earnings with a total revenue of $1.95 billion (beat Wall Street estimates by $10 million), marking a significant increase from the previous quarter’s revenue of $1.63 billion. Basic earnings per share (EPS) for Q2 2024 were $0.67, beating Wall Street analyst estimates of $0.57. The company reported solid headline beats as Vertiv Holdings shows it is one beneficiary of the AI buildout and has a place in the AI value chain. The company reported a revenue growth of 12.6%, as orders were up 57% from the same period a year ago. The Americas still remains the leading geographic region with revenue growth of 16.9% as the surge in data centers continues to benefit the company. The other geographic regions in EMEA and APAC reported 11.5% and 3.4% revenue growth, respectively.

The company’s gross margin improved to 38%, up from 34.3% in the same quarter of the previous year, signaling better profitability and cost management. Vertiv Holding’s operating income grew 63.3% to $336 million, representing an operating margin of 17.2%, up from 11.9%. The company’s net income doubled to $178.1 million, representing a net income margin of 9.1%, up from 4.8%. Vertiv’s free cash flow also significantly increased to $344.3 million, up from $227.8 million in the previous quarter, providing the company more liquidity and financial flexibility. The company reduced the money paid to shareholders as it looked to capitalize on its growth plan and increased demand.

For Q3 2024, Vertiv has forecasted an EPS of $0.7019, indicating the company’s optimistic outlook for continued growth. Management raised its full-year guidance for revenue, profit, and free cash flows but did not exceed investor expectations. This resulted in the stock getting sold off close to 13%, and we capitalized on this sell-off to add to our stock position. We think the stock was priced for perfection and caught in the sector rotation from AI-related stocks to small & mid-cap stocks. The positive earnings report and financial performance of Vertiv Holdings Co for Q2 2024 suggest a strong market position and potential for future growth. Investors and analysts will likely closely watch the company’s upcoming quarterly reports and forecasts to gauge its trajectory.

Waste Connections Inc. (WCN): Waste Connections Inc. (WCN) reported Q2 2024 earnings with revenue of $2.25 billion, a 1.26% increase over analyst estimates. The earnings per share (EPS) for Q2 2024 were $1.24, surpassing the Wall Street consensus estimate of $1.17. This performance marks an improvement from the previous year’s earnings of $1.02 per share. Waste Connections continues to be a solid performer in our portfolio, and it exceeded our estimates of earnings of $1.21 per share on a revenue basis of $2.23 billion. The company reported revenue growth of 11.2%, which was accelerated further by the strategic bolt-on acquisitions. The company is looking to close a further $150 million of company acquisitions.

Synergies from Waste Connections acquisitions helped to expand the company’s margins. The operating margin went up by 1.9% to 18.9%, while the net income margin went by the same margin to 12.3%. Waste Connections generated $402.6 million in free cash flow, up from $355.9 million, which allowed the company to increase its dividend payout from $131.1 million to $147.3 million. Given the high interest rate environment, the $900 million net debt increase as the company made some acquisitions is an area we will be monitoring. Management raised its revenue outlook for the year by $100 million, and we think the company reported a solid quarter. Waste Connections has consistently demonstrated financial growth, with the latest earnings reflecting a strong fiscal quarter. We think the company’s stock is a hold, and if we get a pullback in the name, we would like to add to our position.

Northrup Grumman Corporation (NOC): Northrop Grumman Corporation (NOC) reported Q2 2024 earnings with total revenue of $10.22 billion, surpassing the Wall Street consensus Estimate by $200 million and marking a 6.7% increase from the previous year’s quarter. On the earnings front, the company reported earnings of $6.36 per share, beating Wall Street estimates by $0.45. Going into the earnings report, given the last quarterly earnings report, we had low expectations for the company. Based on that, we estimated Northrup Grumman would earn $5.88 per share on a revenue basis of $10 billion, so the headline numbers were a welcome surprise to read in the report. The company’s Q2 sales reflect a 7% year-over-year increase, driven by a ramp-up in military ammunition programs, higher volume in the Integrated Battle Command System program, and increased order quantities in the Guided Multiple Launch Rocket System.

Looking at the sales numbers in depth, the company’s Aeronautics Systems segment was the report's highlight, with 14% revenue growth, and the Defense Systems segment had the biggest operating income jump of 23%. The defense systems business posted a significant 7% increase in revenue for Q2, reaching $1.5 billion, attributed to increased activity in key military programs. Northrup Grumman’s operating margin improved by 60 basis points to 10.7%, while the net income margin rose 0.7% to 9.2%. The company ended the quarter with an order backlog of $83.1 billion. Northrup Grumman’s free cash flow improved year to date, generating $129 million, up from a cash burn of $396 million. The company returned $2.34 billion to shareholders, up from $1.49 billion. Northrup’s cash balance increased by $163 million to $3.27 billion, allowing the company to raise its dividend by 10%.

Northrop Grumman raised its 2024 sales outlook to between $41 billion and $41.4 billion and adjusted EPS to $24.90-$25.30, indicating strong performance and future confidence. The earnings call transcript for Northrop Grumman’s Q2 2024 highlighted the company’s ability to meet U.S. and international customer requirements with advanced capabilities, leading to robust sales growth and solid program performance. This was a great quarter for Northrup Grumman, as indicated by the stock going up over 6%, and this made us feel good about adding to our stock position in June. We think the stock has momentum to pass $500/share.

Honeywell International Inc. (HON) reported strong Q2 2024 earnings, meeting or exceeding the company’s guidance. The reported sales were $9.58 billion (beating Wall Street estimates by $161 million), marking a 4.7% increase year-over-year, with organic sales growing by 4%. Earnings per share (EPS) for the quarter were $2.36, a 6% increase from the previous year, and the adjusted EPS was $2.49 (beating Wall Street estimates by $0.07), an 8% year-over-year increase. The company’s headline numbers exceeded our fund estimates of earnings of $2.46 per share from a revenue basis of $9.44 billion.

The Aerospace Technologies segment led the growth with double-digit organic sales (16%), contributing to the overall positive performance across multiple business segments. Building Automation and Energy & Sustainability Solutions had single-digit revenue growth, while Industrial Automation continues to struggle with a revenue decline of 8%. Honeywell’s margins were mixed. The operating margin expanded by ten basis points to 20.7%, while the net income margin declined by ten basis points to 16.3%. Management must improve these margins by executing and extracting more synergies from new acquisitions. Honeywell had some significant capital deployment activities, including closing a $5 billion acquisition of Access Solutions, announcements of a $1.9 billion acquisition of CAES Systems Holdings, and a $1.8 billion acquisition of Air Products’ LNG business.

Operating cash flow remained stable at $1.4 billion, with free cash flow also steady at $1.1 billion. Due to this M&A activity, the company’s cash balance has slightly decreased to $2.18 billion. Honeywell’s chairman and CEO, Vimal Kapur, highlighted the company’s alignment with megatrends such as automation, the future of aviation, and energy transition, all supported by digitalization. Management raised the company’s full-year guidance, but segment margins would be hampered, and free cash flow projections were revised down. This spooked investors as the stock sold off 5%, and we added to our position. We think management will improve its margins as it integrates its recent acquisitions.

Disclosure: Cresco Investments is long Thermo Fisher Scientific Inc. (TMO), Vertiv Holding Co. (VRT), Waste Connections Inc. (WCN), Northrup Grumman Corp. (NOC) and Honeywell International Inc. (HON).

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is intended for information, engagement & entertainment purposes only and is not to be construed as investment advice or direction. Investors are strongly encouraged to perform due diligence and consult with their financial advisor(s).