Kenneth J. Apicerno - Vice President-Investor Relations Marc N. Casper - President, Chief Executive Officer & Director Stephen Williamson - Senior Vice President and Chief Financial Officer.

Tycho W. Peterson - JPMorgan Securities LLC Derik De Bruin - Bank of America Merrill Lynch Ross Muken - Evercore ISI Jonathan Groberg - UBS Securities LLC Jack Meehan - Barclays Capital, Inc. Doug Schenkel - Cowen & Co. LLC Daniel Arias - Citigroup Global Markets, Inc. (Broker) Isaac Ro - Goldman Sachs & Co. Steve C. Beuchaw - Morgan Stanley & Co.

LLC Brandon Couillard - Jefferies LLC Jeff T. Elliott - Robert W. Baird & Co., Inc. (Broker).

Good morning, ladies and gentlemen and welcome to the Thermo Fisher Scientific 2015 Third Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. 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 Marc Casper, our President and Chief Executive Officer and Stephen Williamson, Senior Vice President and Chief Financial Officer.

Please note that this call is being webcast live and will be archived on the Investors section of our website, thermofisher.com, under the heading Webcasts & Presentations until November 6, 2015.

A copy of the press release of our third quarter 2015 earnings and future expectations is available in the Investors section of our website under the heading Financial Results. 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 constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including those discussed in the company's Annual Report and on Form 10-Q for the quarter ended June 27, 2015 under the caption Risk Factors, 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.

While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, 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.

Also, during this call we'll be referring to certain financial measures not prepared in accordance with generally accepted accounting principles, or GAAP.

A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our third quarter 2015 earnings and future expectations 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 Marc..

Thanks Ken and good morning everyone. Thanks for joining us today for our Q3 call. I'm pleased to report that we delivered a solid quarter with good growth on the top and bottom line. Q3 is another example of how we're successfully executing our growth strategy and increasing our depth of capabilities to gain market share.

We had another great quarter for innovation with important new product launches across our businesses. We are leveraging our scale in APAC and emerging markets as a key differentiator and we had another strong quarter in China.

We also continued to make good progress in capturing revenue synergies using our expanded technology portfolio, our commercial capabilities and global reach to show our customers the power of our value proposition. With a strong nine months behind us, we're on track to achieve our growth goals for the year.

Before I get into the business highlights for the quarter, let me start with the financial overview and some color commentary on our end markets. Then I will conclude with our updated guidance outlook for the year. So in terms of the financials, our revenue in Q3 was $4.12 billion. Our adjusted operating income increased 2% to $934 million.

We achieved adjusted operating margin of 22.6% which represents 70 basis points of margin expansion. And finally we extended our track record of consistently delivering strong adjusted EPS growth. We achieved $1.80 of adjusted EPS which is a 5% increase over Q3 of last year.

We drove good pull through on our top line growth, using our PPI Business System to increase our operating efficiencies and provide the highest quality products and services to our customers. Our solid results again this quarter demonstrate our ability to effectively manage the business, despite the FX headwinds and achieve our growth goals.

So starting with our performance by end market, we didn't see much change in Q3. In industrial and applied our performance was similar to what we've seen all year with low single digit growth. Our core industrial businesses remained soft, while those serving applied markets again performed well.

We had good growth in our analytical instrument businesses serving environmental and food safety markets. We also had another strong quarter in our chromatography business. Turning to diagnostics and healthcare, our performance in this end market was pretty similar to what we've seen in first half of the year with growth in the low single digits.

The key contributors in Q3 were our clinical diagnostics business and our healthcare market channel, which continued to grow well. In academic and government, we grew again this quarter in the low single digits. Conditions in this end market were basically similar to what we experienced in Q2.

Last, I'm pleased to say that we had another excellent quarter in pharma and biotech which grew for us at just over 10%. We continue to capitalize on the strength of this end market overall and effectively leverage our unique value proposition, which really resonates with these customers.

We had strong performance across our businesses that serve this end market and particularly in biosciences, bioproduction, and biopharma services. Let me now highlight some of our accomplishments from Q3 in the context of our growth strategy. We continue to make great progress on all fronts which positions us for another successful year.

As you know, our growth strategy is centered around high impact technology innovation, leveraging our scale in Asia Pacific and emerging markets and delivering our unique value proposition to best serve our customers and gain share.

In terms of innovation, Thermo Fisher has by far the largest R&D budget in our industry at approximately $700 million annually and we continue to target those investments that create the most value for our customers. Let me hit some of the highlights from Q3.

First, in September we introduced the new Ion S5 and Ion S5 XL, next-generation sequencing systems. This is a significant development that builds on our Ion Torrent platform. It makes targeted sequencing more accessible to customers working in academic, translational and clinical research labs.

The key advantages of both systems are that they're cost effective and flexible, giving scientists the ability to sequence gene panels as well as small genomes, exomes and transcriptomes on a single platform. We're also making great progress in developing new products that improve the speed and accuracy of test results in the clinical laboratory.

At the Annual Meeting of the American Association for Clinical Chemistry, we launched a number of new Thermo Scientific instruments and assays designed to help clinicians improve patient diagnosis and treatment. Let me mention a couple of them. We launched three new immunoassays that have been FDA cleared for detecting autoimmune diseases.

These new EliA assays can help diagnose multiple conditions that could be precursors to kidney disease. We also introduced the Phadia 2500E instrument which is now configured to run both our EliA autoimmunity and ImmunoCAP allergy tests to significantly increase lab productivity.

In our analytical instruments business, we introduced a new HPLC system, a Thermo Scientific Prelude LX-4 MD which is listed with the FDA as a class I medical device for general in vitro diagnostics use. The Prelude LX-4 significantly enhances sample throughput for high volume clinical settings.

Also worthy to note, during the quarter we obtained CE marks for our Prelude MD HPLC, Endura MD mass spec and related ClinQuan MD software, which were all previously introduced in the U.S. This designation gives clinical labs in Europe access to advanced technologies for analyzing patient samples using laboratory developed tests.

Let me take a moment now to highlight an example that demonstrates how our customers are recognizing the value we can create through our unique depth of capabilities and our reputation as a scientific thought leader.

We've been collaborating with the Biotech Research and Innovation Center at the University of Copenhagen to help researchers better understand how gene mutations can lead to cancer progression. Scientists there recently published two landmark studies in the scientific journal, Cell.

Their work was based on results generated by our Orbitrap Fusion mass spec and our Ion Torrent next-gen sequencing technologies. These studies offer insight into human cell biology that may eventually lead to more effective cancer treatments and better outcomes for patients.

This is a great example of the new capabilities we're now able to deliver to our customers, based on our successful integration of Life Technologies. Just to give you a quick update on where we are relative to our revenue synergy target, we continue to make great progress in Q3 building on the momentum we've had all year.

With nine months behind us, we're at $50 million, which positions us to slightly exceed our revenue goal for the year. Turning to APAC and emerging markets, China seems to be on the top of everyone's mind, and I've been getting a lot of questions about it.

I'm pleased to report that we had another strong quarter in China which contributed to good growth for us in APAC overall. Our China strategy is clearly working and we delivered 15% growth in Q3. We continue to work with the government and our customers to meet their goals for improving healthcare, the environment, and food safety.

Back in August, I had the opportunity to visit some of these customers with our team in China, and their feedback reinforces why our technologies are well positioned there. Here are a couple of observations from my trip. It's great to see our high-end instruments in customer labs there.

Our Q Exactive HF and Orbitrap Fusion Lumos mass specs are being used for proteomics research and our next-generation sequencing technologies are helping to advance oncology research. We also supplied our gas and particulate monitors to ensure that air quality was safe after the widely publicized chemical warehouse explosion in Tianjin.

I think this is an example that illustrates why the diversity of our technology portfolio is a key advantage in addressing China's needs. The investments we've made in our China Innovation Center are also bearing fruit and we have a number of our products soon to be launched that have been designed specifically to meet the needs of the local market.

So we have great momentum with our customers, our team is executing well and we continue to feel good about our prospects for growth in China. In other emerging markets, we continued our strategy of expanding our presence to position us for growth. And the most recent example is an investment that we made in Brazil.

We opened a new Customer Experience Center in São Paulo to serve markets across Latin America. This center is a showcase for our analytical capabilities and allows us to partner with customers to help them achieve their goals by developing new methods using our technologies.

We made this investment in Brazil despite the current economic challenges that this country is facing in the short term because we believe it will position us for market share gains as the customer and funding environment improves. Before I move on to our guidance, I'll make a quick comment on capital deployment.

Just after quarter end, we completed our acquisition of Alfa Aesar for approximately $400 million, to expand our offering of laboratory chemicals. This is a nice complementary bolt-on that gives our customers access to a much broader portfolio, whether working in research or production.

It's another great example of how we strengthen our strategic position by leveraging our scale and customer reach. In terms of capital deployment, we bought back $500 million of stock in January. We deployed $700 million to make two strategic bolt-on acquisitions and we continue to return capital to our shareholders through our quarterly dividend.

So, we've deployed a total of $1.4 billion for the year-to-date in order to create value for our customers and our shareholders. Now, let me give you a quick update on our guidance for 2015. As you saw in our press release, we're raising both our revenue and adjusted EPS guidance.

We now expect revenue for the year to be in the range of $16.81 billion to $16.91 billion. We're also raising our adjusted EPS guidance to a new range of $7.33 to $7.41. This equates to 5% to 6% growth over our strong results in 2014. So in summary, it was a great quarter. We delivered solid financial performance.

We made excellent progress in executing our growth strategy and we continue to make wise investments to create shareholder value. With that, I'll turn the call over to our CFO, Stephen Williamson.

Stephen?.

Thanks, Marc, and good morning, everyone. As usual, I'm going to begin with an overview of our total company financial performance, then provide some color on our four segments and conclude with our updated 2015 guidance.

So starting with our overall financial performance for the third quarter, as you saw in our press release, we grew adjusted EPS by 5% to $1.80. GAAP EPS in Q3 was $1.18, up 1%. On the top line, we achieved organic revenue growth of 4% this quarter, and our reported revenue was down 1% year-over-year.

Q3 reported revenues included a 6% headwind from foreign exchange and a neutral impact from acquisitions net of divestitures. And please note that the components of the Q3 change in revenue do not sum due to rounding. And bookings were slightly less than revenue in the quarter but grew organically in all four segments.

Looking at our growth by geography, both North America and Europe grew in the mid-single-digits. Asia Pacific grew in the high-single-digits, with China growing in the mid-teens, and rest of the world declined in the mid-single-digits.

Looking at our operational performance, Q3 adjusted operating income increased 2% and adjusted operating margin was 22.6%, up 70 basis points from Q3 last year, despite 110 basis points of headwind from foreign exchange.

At a high level, our adjusted operating margin expansion for the quarter was driven by continued strong contribution from our primary productivity levers, global sourcing, footprint optimization and our PPI Business System, as well as continued contribution from cost synergies.

To add some color on our synergies, we realized $32 million of incremental cost synergies in Q3, in line with our full year target of $130 million. And revenue synergies during the quarter were $25 million. And, as Marc mentioned, this puts us in a great position to slightly exceed our full year, 2015 target of $60 million of revenue synergies.

We've been able to accelerate our actions and are on track to deliver the $150 million of revenue synergies in 2016. In Q3, we continued to make additional strategic growth investments and primarily to strengthen our core technology platforms and commercial capabilities.

Moving on to the details of the P&L, total company adjusted gross margin came in at 48.3% in Q3, down 80 basis points from the previous year. The decrease was driven primarily by foreign exchange and unfavorable business mix.

Adjusted SG&A in Q3 was 21.5% of revenue, which is 140 basis points favorable to Q3 2014, driven primarily by foreign exchange, cost synergies and our productivity actions. And, finally, R&D expense came in at 4.2% of revenue, flat to Q3 last year, and R&D, as a percent of our manufacturing revenue in Q3, was 6.5%.

Looking at our results below the line, net interest expense in Q3 was $93 million, down $13 million from Q3 last year as a result of reducing our debt over the past 12 months. Adjusted other income for Q3 was $2 million, which is flat to Q3 last year.

Our adjusted tax rate in the quarter was 14%, 80 basis points below last year, primarily as a result of realizing the benefits of our acquisition tax planning. And average diluted shares were 402 million in Q3, down 1.7 million year-over-year, primarily as a result of share buybacks we completed in Q1 and partially offset by option dilution.

So turning to cash flow and the balance sheet, cash flow from continuing operations through Q3 was $1.6 billion. And free cash flow was $1.31 billion after deducting net capital expenditures of $286 million.

We ended the quarter with $505 million in cash and investments, down $265 million, sequentially from Q2 as we used surplus cash on the balance sheet, as well as cash generated in the quarter, to reduce debt.

We returned $60 million of capital through dividends in the quarter and just after the quarter end, we spent approximately $400 million on the acquisition of Alfa Aesar.

Our total debt at the end of Q3 was $13.3 billion, down $700 million sequentially from Q2, and our leverage ratio at the end of the quarter was 3.2 times total debt to adjusted EBITDA. We still expect to achieve a leverage ratio of about three times by the end of 2015.

And wrapping up my comments on the total company performance, we continued to make progress on our ROIC, a trailing 12 months adjusted ROIC in Q3 was 9.3%, up 20 basis points sequentially from Q2. So with that, I'll now provide you with some color on the performance of our four business segments.

As I highlighted for the total company, foreign exchange continued to be a significant headwind to the top line for our segments and impacted the year-over-year revenue growth and adjusted operating margins to varying degrees. Starting with the Life Sciences Solutions segment, reported revenue increased 1% in Q3, and organic revenue grew 5%.

In the quarter, we continued to see strong growth in our bioproduction and bioscience businesses. Q3 adjusted operating income in Life Sciences Solutions increased 9% and adjusted operating margin was 30.8%, up 220 basis points.

In the segment, adjusted operating margin benefited from very strong productivity and incremental cost synergies, along with some favorable product mix, partially offset by significantly unfavorable foreign exchange. In the Analytical Instruments segment, reported revenue decreased 1% in Q3 and organic revenue growth was 5%.

In the quarter, we had strong growth in our chromatography and service businesses, which was partially offset by the continued weakness we've seen in some of our core industrial markets. Q3 adjusted operating income in Analytical Instruments increased 6% and adjusted operating margin was 18.8%, up 130 basis points.

In the segment, we delivered very strong productivity and we experienced favorable product mix, which was partially offset by unfavorable foreign exchange and strategic growth investments. Turning to the Specialty Diagnostics segment, in Q3, total revenue decreased 4% and organic growth was 1%.

This was driven by good growth in our clinical diagnostics and healthcare market channel businesses, partially offset by the expiration of an OEM contract within this segment. Adjusted operating income in this segment decreased 9% in Q3 and adjusted operating margin was 26.4%, down 120 basis points from the prior year.

In the segment, unfavorable foreign exchange, product mix, and strategic growth investments were partially offset by productivity initiatives. Finally, in the Lab Products and Services segment, Q3 reported revenue increased 1% and organic growth was 7%.

This segment continues to benefit from our strong performance in the pharma and biotech end markets, with our biopharma services business delivering very strong growth, along with good growth across the rest of our businesses in this segment.

Adjusted operating income in this segment increased 1% and adjusted operating margin was 15.2%, up 10 basis points from the prior year. Margin expansion in the quarter was driven by productivity improvements, partially offset by strategic growth investments. So with that, I'd like to review the details of our full year 2015 guidance.

As you saw in our press release, we're increasing both the top and bottom line guidance, primarily as a result of somewhat better foreign exchange rates and the acquisition of Alfa Aesar which, as I mentioned, closed shortly after the quarter end.

From a revenue standpoint, we're raising both the low and the high end of our guidance range, and increasing the midpoint by $70 million. This leads to a new full year 2015 revenue guidance range of $16.81 billion to $16.91 billion.

Of the $70 million increase in the midpoint, approximately $40 million is due to the slightly improved foreign exchange environment and $30 million relates to the addition of Alfa Aesar. So we're still expecting organic revenue growth of about 4% for the full year 2015, consistent with our previous guidance.

Acquisitions net of divestitures now contribute a little over 1% to our reported revenue growth in 2015. Moving to our adjusted EPS guidance, we're raising the low end by $0.05 to a new range of $7.33 to $7.41. This range represents a year-over-year growth 5% to 6%. The midpoint of the new range is $7.37, a $0.025 increase from our previous guidance.

And to bridge the $0.025 we're driving about $0.01 of improvement from the acquisition of Alfa Aesar, $0.01 from improved foreign exchange, and about $0.005 from below the line items. Our current adjusted EPS guidance has a $0.69 or 10% negative impact from foreign exchange.

If you look at our guidance on an FX neutral basis, adjusted EPS would be growing 15% to 16%, representing very strong underlying operating performance. On the top line, foreign exchange is now lowering our revenue by just over $900 million, or about 5%, so our reported revenue growth guidance would be 5% on an FX neutral basis.

And in terms of adjusted operating margin pull through on the FX revenue headwind, we now expect a total impact of about $325 million, representing an average pull through of 36%, and 80 basis points of adjusted operating margin dilution.

The change in foreign exchange compared to our previous guidance is an increase in revenue of about $40 million, with a pull through of approximately 15%. Consistent with past practice, our guidance assumes current foreign currency exchange rates and we haven't attempted to forecast future changes in rates.

And as I mentioned previously, the guidance now includes the acquisition of Alfa Aesar, but does not include any other future acquisitions over divestitures. Turning to our adjusted operating margin guidance, we expect 70 basis points to 80 basis points of expansion year-over-year, which is unchanged from our previous guidance.

On an FX neutral basis, our margin expansion would be a very strong 150 basis points to 160 basis points, also unchanged from previous guidance.

Moving below the line, we're expecting net interest expense to be about $385 million, slightly higher than our previous guidance and we're forecasting our adjusted income tax rate to be about 14%, consistent with our previous guidance.

In terms of capital deployment, we're still assuming that this year we'll return approximately $240 million of capital to shareholders through dividends as well as $500 million through share buybacks which we completed in January.

Full year average diluted shares are estimated to be $402 million, slightly lower than our previous guidance, and we're expecting net capital expenditures to be in the range of $395 million to $410 million, down $40 million from our previous guidance.

And finally, we're still expecting about $2.6 billion of free cash flow for full year 2015, consistent with our previous guidance. As always, in interpreting our revenue and adjusted EPS guidance ranges, you should focus on the midpoint as our most likely view of 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 delivered another solid quarter in Q3, which positions us well to achieve our 2015 financial goals. With that, I will turn the call back over to Ken..

Thanks, Stephen. Operator, we're ready to take questions..

Thank you. Your first question comes from the line of Tycho Peterson from JPMorgan. Please go ahead..

Hey, thanks. First, I'm wondering actually if you can call out Japan. I didn't hear that in the prepared comments. Obviously that's been a source of weakness for some of the other companies in this space.

I know it was a little bit soft last quarter, so can you maybe just touch on dynamics there?.

Sure, Tycho. Good morning. Asia Pacific was strong for us in the quarter. We had great strength in China. Japan grew but in a muted fashion, not materially different than we would have expected.

There's clearly some government budgeting challenges, which means that the next quarter may be a little muted, but given the strength we have in China, it shouldn't be a significant factor for Thermo Fisher..

Okay. And then a question on visibility in some of the core end markets. I mean, if we look at kind of what's going on in the industrial world, obviously the data points have not exactly been encouraging from some of the companies that have reported thus far; in particular, with oil and gas exposure.

Can you maybe talk on your visibility into the industrial channel over the next couple of quarters? And then similarly with pharma, you've obviously had great strength there over the past year, maybe just talk about the sustainability of those trends and obviously, with the biotech funding window shutting, whether maybe there is some sensitivity around that?.

Yeah, so in terms of those end markets, Tycho, the core industrial business that we serve has been weak now for a protracted period of time and our assumption is it's going to continue to be in that state. So we did not see a further deceleration. It's been a soft end market and we've been able to power through that in terms of our driving results.

So that is what it is. Applied markets, however, are continuing to have good strength. Our environmental markets, food safety was strong and, as I look forward to the next couple of quarters, the applied markets also benefit from a very nuance thing, which is in the U.S.

the Coal Miner Safety Act actually has a deadline in terms of when air monitoring has to be done. And that goes into effect February 1.

So we had a couple of nice things going on on the environmental side that helps us on the applied and we're making the assumption that at least for the next couple of quarters, if not longer, we're going to be in a muted industrial outlook..

And then biopharma?.

Yeah. In terms of pharma and biotech, I could talk about pharma and biotech forever. We're well positioned there and the market is doing great. 10% growth in the market. Clearly, as we saw in the last few quarters, the market is a little better than what it has been, say, in the previous few years.

That's primarily because drugs are getting through the FDA process and getting approved. So the customers are getting a return on their R&D investments and they're spending money. And we are really well positioned with this customer set. We have incredible access to the executives at all level in these organizations.

They understand our technologies and how we help drive both their productivity and innovation. And you are seeing very strong momentum across our entire portfolio from bioproduction, based on a lot of what's going on on the biotech front.

Biosciences, it's a result of the synergies, if you will, in terms of leveraging the Thermo Fisher strength with these customers and biopharma services is just a great business that continues to drive momentum. So we feel good about the position for biopharma.

Clearly lots of headlines about pricing and it seems to be a political hot potato that obviously is something we pay attention to, but as long as drugs are getting through the pipeline and they are making progress there, we feel that this is going to continue to be a good solid end market for us..

And then just lastly, with valuations getting cheaper in the market, does that change the pace of maybe some of the M&A discussions?.

Yeah, in terms of the M&A, we always have this huge pipeline of activity where we're always exploring different opportunities, and then it becomes a question of when the value creation is going to work for us.

So we're looking at things as we have for the last many years and we have an interesting pipeline and should the right deal line up then you'll see us do it, and if not, we'll just get back to normal capital deployment, which is coming up soon, we're only a couple of months away from 2016. Thanks, Tycho..

Thanks..

Your next question comes from the line of Derik De Bruin from Bank of America Merrill Lynch. Please go ahead..

Hi, good morning..

Good morning, Derik..

Can you talk a little bit about the OEM customer in Specialty Diagnostics and sort of what's the monetary impact of that is? I mean, what would have growth been without it?.

Yeah, so good question. In terms of the Diagnostics business, we had sunsetted or we had an expiration of a contract with one OEM customer at the end of 2014. The particular customer was acquired by a competitor somewhat before that, so we knew that contract was going to come to an expiration.

It was about two points of organic growth headwind in the segment in the quarter. It will be about a one point of headwind in the fourth quarter and then it is gone. It was totally baked into our guidance at the beginning of the year. It's something we knew.

We knew it's more of a backend impact on this particular segment and so it's one of those things that will be behind us and positions our diagnostics business well through the other actions we're taking..

Great. And then just my other quick one. So you're tracking in the Life Sciences Solutions business at about 4.6% averaging organic revenue growth, so nice 5% average.

Is that a sustainable, something in that 4% to 5% range going forward, given where the markets are?.

So as we said back in May, we raised our outlook from 3% for this segment to 4% and every quarter that we are doing 4% or better will give us more confidence that it could be higher, but we want to deliver this for a while before we create a new norm. But the team is doing a really good job of executing in our Life Sciences Solutions business.

They're leveraging the capabilities of the rest of Thermo Fisher to drive growth and improve our competitive position, so more to come on that over time..

Great. Thank you..

You're welcome, Derik..

Your next question comes from the line of Ross Muken from Evercore. Please go ahead..

Good morning, guys. I guess I just want to get back to the emerging market discussion. So obviously some of the more industrial focused countries, Russia, Brazil, et cetera have been troubled for some time, but I guess many of us are kind of surprised by the resilience of China.

I guess, Marc, you spent a ton of time over there, as you think about sort of the underlying drivers, your confidence in the duration, a little context would be helpful.

And then help us understand the pacing, I realize you don't have anything out there formally for next year, but the pacing of that market as we get into 2016, just because it seems like the comps will get a little more difficult.

So help us frame what that trajectory could look like?.

Sure. So, Ross, in terms of emerging markets, for us this year, China is performing very well. India is performing very well. Obviously, Russia is really, really soft, right? So it is what it is. And if I go back and I think about my 15 years at the company, there's always puts and takes in emerging markets.

There's very few periods where everything is robust. So it's kind of a portfolio, which is why you typically invest in the downturn in some of these markets, so you're positioned when the funding improves.

While the investment we made in Brazil was not large by any sense, it was more of a statement that we're in these markets for the long term, we have important customers and as things improve we're capitalizing to seize on where the funding is. In terms of China, the team has doing a really good job.

They're really executing very well and they're gaining shares as far as we can tell, through all the data we look at. What I would say is the industrial business there has been pretty muted for a while.

And what's driving the growth really is the applied markets and the needs on the applied markets are very, very, very substantial, right? In terms of water issues, air pollution issues, and food safety issues, there's a huge need.

And what was encouraging was to see that the food safety portion of the business is clearly picking up, which gives a encouraging view that some of those spend will be positive. China, in this environment, is very hard to forecast. So, we're certainly not in a position to talk about 2016 yet.

What I can say is that we had good bookings in the quarter which positions us for a solid year in terms of China for 2015 and that's good. To me, it's about making the most of the opportunities and our team is doing a good job of pivoting to where the funding is in the Chinese market..

Got it. And maybe just on Specialty Diagnostics, we'll stick back there. So a lot of dislocation, at least amongst the public players, in the diagnostic universe. You play in some unique niche markets.

How do you think about the evolution of your strategy there and where you sit today and how to think about some of the dislocations that have happened, whether it's from an M&A standpoint or a warning of staying away from certain markets.

And then your appetite maybe to move upstream and to other parts of that complex, or maybe other things with sort of a more medical bias?.

Sure. So, Ross, in terms of the end markets and in this sort of the market landscape, it's a very fragmented market. We pick very carefully where we play and where we don't play. Right? We want to have good, sustainable industry structure in this segment so that you can maintain really nice profitability with a reasonable rate of growth.

And that's how we played it out. We've built enough scale so that when we launch new technologies we can reach those customers easily. You know we have a focus in clinical oncology. In the sequencing business, you are hearing us talking about some launches from our analytical instruments. That all leverages the scale we have in that market.

So over time, do I think there's going to be bolt-on M&A activities in the diagnostic realm? Absolutely, it's incredibly fragmented. We've got a good track record in the acquisitions that we've done there in generating really good returns. So when we see the right opportunities, we'll pick them up.

And what's important to reinforce, there's nothing we have to do here, right? We have a great portfolio with a great position. So we look at them and say where do we think we can uniquely make businesses better and create value for our shareholders.

Great. Thanks, Marc..

You're welcome..

Your next question comes from the line of Jon Groberg from UBS. Please go ahead..

Thanks, and congratulations, Marc, on a solid quarter and the team. I guess the main question I have for you, Marc, is if you look at book-to-bill, it's below one, it's kind of for first time in a while. I know you kind of don't – you recommend don't getting too focused on book-to-bill.

So I'm just curious how you're thinking about that metric and, maybe, where you saw orders that didn't come in as quickly as revenues in the quarter?.

Hi, good morning, Jon. This is Stephen. So, I'll take this question. The book to bill was just below 1. For the year-to-date, it's actually just slightly above 1. And we had good bookings growth across all four segments this quarter, so no areas of concern on the book-to-bill..

Okay. Great. And then I guess, Marc, if I look at again at acquisitions for the year, you've been kind of silent, and I'm curious. I guess, I have a little different take.

Do you think that given the pull back in some of the public equity prices; do you think that makes M&A more or less likely? You have some sellers who maybe are still thinking about valuations where they were.

And how would you expect M&A to influence your 2016?.

Yeah, I like the acquisitions that we've done. I like ASI. It serves the bioproduction segment, which is one of our fastest growing businesses and that integration has gone smoothly. Alfa Aesar is an incredibly complementary acquisition in terms of strengthening both our channel business and our global chemicals business.

And I think we'll generate very strong returns there as well. In terms of the landscape, we're always looking at things, and the way that I think about it is the depressed stock prices relative to two months ago, probably doesn't reduce the price you pay for an acquisition, but it certainly would increase the odds of an acquisition happening.

And I'm not saying there really is... I don't think you get a bargain because the stock is down from where it was a short while ago, but I think people say, well, God, I have to work hard to get back to it. So it becomes a little bit easier on some of those things. So I don't think it's materially different, Jon, but that's how I would handicap it..

Your next question comes from the line of Jack Meehan from Barclays. Please go ahead..

Hi, thanks, and good morning. I wanted to start and just ask about the Lab Products and Services segment. Now two quarters with really nice high-single digit growth.

Just what are your thoughts on the sustainability of that growth in the near term? And what have been some of the areas of strength there?.

A great question. So, generally, the way we think about this is a business that generally grows in line with the company average. It has a larger exposure to biotech and pharmaceutical end market, given that the biopharma services business resides there and our channel business resides there that has strong presence.

So what you're seeing right now is with a very robust performance by us in the biotech and pharma market. That shows up there disproportionately, but it also shows up in Life Sciences Solutions, it shows up in our chroma and mass spec business with Analytical Instruments. But it really gets highlighted in Lab Products and Services segments.

So as long as biotech and pharma continues to do well and we continue to execute well there, we should be driving pretty good growth out of LP&S..

Got it, that makes sense. And then just one bigger question, I guess, related to something that was asked earlier. Just around all the change that's happening in the market today around lab reimbursement, I was curious how you thought that could impact the business for Thermo or for some of your customer segments? Thanks..

Yeah, thank you. So In terms of reimbursement, there's a lot of recent press around U.S. reimbursement for certain lab tests. We've been in this environment globally for a while, right? Where you have a situation where countries are trying to keep their healthcare costs under control.

And we've been able to navigate that successfully by working with our customers to help them maximize the reimbursement that they can get for their capabilities. We're making substantial investments in our health economics team, which is really what justifies why health systems around the world should be using our products.

So that's part of the response. When I think about the most recent dialog in the US, clearly it would affect some of our customers, particularly in the drugs of abuse area.

It's not a huge business for us, but given that we offer different methodologies that have different reimbursement rates, a lot of what we're doing with our customers now is helping them position the testing in a way that they can get properly reimbursed for their products.

So we will work hard to navigate through any impacts from what's going on in some of the preliminary discussions on U.S. reimbursement..

Your next question comes from the line of Doug Schenkel from Cowen & Company. Please go ahead..

Good morning..

Good morning, Doug..

Let me just start with a couple of, I guess, follow-up questions. On pharma, revenue growth has ranged between mid-single digits to mid-teens for the past seven quarters. I don't have the 2013 figure in front of me, but I think that was a pretty good year for that end market as well.

So recognizing what you said in response to Tycho's earlier question, the comps are getting tougher and there are some building concerns about some recent developments in this end market.

So as we think about the next few quarters ahead, are the fundamentals and, frankly, the value proposition that's unique to Thermo enough to overcome what really is, if nothing else, a mathematical challenge of continuing to drive growth in this end market that has been close to 10% for at least a couple of years?.

Yeah, when I think about the performance, and I was looking back to 2013 as well, we grew high single digits in 2013 in pharma and biotech. We've been able to deliver that mid to high-single digit growth. Obviously, this year we've had a couple of quarters above that. Again, some difficult comparisons.

We're going to have difficult comparisons next year, but we're really well positioned here. And when I think about our end markets in aggregate, I feel good about our outlook. There's always some puts and takes in the various markets, but we're well positioned here.

When I think about the dialog we're having with our big pharmaceutical customers and the dialog we're having with our small biotech customers, there are so many of them, I remain bullish about the outlook for these end markets.

Okay.

And then really a follow-up on China, I don't know if you would be willing to get this specific, but could you share anything on the book-to-bill there and would you confirm that assumptions that you have embedded into full year guidance specific to China remain unchanged? And then any insight you could provide on what you think we should expect with the release of the new five year plan over the next few weeks?.

Good morning, Doug. So the book-to-bill is a positive book-to-bill. It's over 3% above revenue. So we've had good bookings all year really for China..

Yeah. So in terms of the outlook for the year, we didn't really do much in terms of guiding by China. We kind of called it – we took a pass on it saying it was just the company average because it was hard to forecast at the beginning of the year.

Clearly, China is growing meaningfully above it and has offset some other things, right? So we feel good about delivering the 4% organic growth for the full year, and like every other year, you do it using a slightly different way than what you think you're going to do at the beginning of the year because it's our job to put the resources where the best opportunities are.

So China has been good, the team has executed well. It's offset some softness in other markets and we feel good about the short-term positioning there..

Okay.

And then the five-year plan, any insight there, Marc?.

The five-year plan only to the respect that at least – obviously, they don't release it early. The priorities that have been driving our growth over the last number of years around health care expansion, food safety and environmental seem to be highly likely that those will continue to be priorities.

So while they haven't published it yet, we feel like these are things that have been a priority for China and are likely to continue to be a priority going forward..

Okay. Thanks so much for taking the questions, guys..

Thanks, Doug..

Your next question comes from the line of Dan Arias from Citi. Please go ahead..

Hi, good morning. Thanks..

Good morning..

Maybe just one for me on the biopharma side. Marc, you're obviously having a lot of success with the large players there.

Can you just talk a little bit about how you're finding the ability to be a strategic partner with some of the smaller emerging biotech companies? And the reason I ask is I'm just trying to understand how spending might be post a funding event for these guys over time?.

We're well positioned with the smaller biotech. You may recall a couple of years ago we started to expand our coverage model. We always called on those customers, but calling on them as a company level as opposed to a business level and that's worked really well.

Even if the spend might be pre-IPO, it might be $1 million or $2 million with a decent-sized startup, over time, those spends really can grow with the ones that have product developments making it through the pipeline. So we're serving those customers well. We're doing a really good job of leveraging our capabilities there.

So we think that in terms of biotech, as they convert their cash into products moving through the pipeline, we'll be one of the beneficiaries of that..

Okay. Thanks for that.

And then maybe if I could just move to the academic markets, could you just give a sense of how you are seeing spending there? Is there any reason to believe that spending patterns in the fourth quarter will be different than previous periods where you've had a CR or is there some dynamic ahead of 2016 that you might think would be pertinent?.

Yeah, we've been growing low-single-digits in the end market. It's very hard to forecast what's going to happen with the U.S. government. Clearly, we play a very active role in making sure that the government stays open and I do actually spend time on that because it's disruptive to our customers when we get into that debate.

But right now, it looks like at least for the next month or two, it looks like things will continue to be funded and hopefully we'll get to a period where we get out of this very short term environment. There's some really better things on the mid-term, the 21st Century Cures and so just a general dialog around the NIH is much more positive.

So if we can ever get to a period where we can get a budget done, we should benefit as our customers will benefit from improved funding..

All right. Okay. Thanks very much..

You're welcome..

Your next question comes from the line of Isaac Ro from Goldman Sachs. Please go ahead..

Good morning, guys. Thanks a bunch.

First question on pharma, could you maybe comment on the strength you saw this quarter, the extent to which you thought market share might have helped relative to the actual growth rate in the underlying end markets?.

Isaac, it's pretty hard to pin down what the market share is versus the end market. I need to see what some of the other companies report to get the very crisp feel to that. But what I would say is in that growth there's not, like, big account flips.

What it really is is just good share of wallet execution, just picking up share at our existing customers, driving more biosciences revenue, capitalizing on our strength of biopharma services, and bioproduction continues to be very strong for us..

Great. And then just a follow up on diagnostics, if we look at sort of the nine months year-to-date trend over a couple of years, the two-year stacked comp, so to speak, kind of looks like a low-single-digit number. I imagine your ambitions in diagnostics are to grow a little faster.

What do you think is going to take to sort of realize the sustained growth rate that's above the corporate average?.

Yeah, so in terms of the business there, when I think about the mid-term for the business and the long-term, we have some really cool products in the product development pipeline that we've foreshadowed a little bit and you're seeing some of the earlier versions of those. That will help drive very good long-term growth.

In the short-term at this level, I would say primarily, what you're looking at is you've got one contract that we're just sunsetting at the end of the fourth quarter that creates a little bit of a headwind this year. But other than that, it's pretty normal rate (52:32) in terms of where it is.

So I love the long-term outlook and it's a great profit generator for us with moderate growth in the very short-term as we've been going through this expiration..

Got it. Thanks a bunch..

You're welcome..

Your next question comes from the line of Steve Beuchaw from Morgan Stanley. Please go ahead..

Hi, good morning and thanks for taking the questions. Just a couple of follow-ups. Maybe I'll start first on the revenue synergies. You spoke in some detail about how revenue synergies with the integration are going this year, tracking a little ahead of plan.

I wonder if you could give us a bit of incremental color on how that's tracking, specifically where are you seeing things play out a little bit better than you might have expected..

Steve, great question. So really what you are seeing is things are driving results faster. They are materializing a little faster than we expected, so basically our revenue synergy plans were kind of zero in year one, $60 million in year two, $150 million in year three. That was roughly the ramp-up.

And we'll do a little better than $60 million and it puts us in a great position to achieve the $150 million. The thing that is a real highlight for us in this year, in the second year of our integration, really is is how effectively the channel business and our Life Sciences Solutions businesses are working together.

So that execution has gone very well. What's to come is more around the e-commerce platform and leveraging that. And you probably have noticed that the thermofisher.com looks differently than it did a few months ago. And you now see it much more commerce-oriented as we integrated a couple of our key web properties.

And you'll see more product access on that platform over time. So we have a lot of really cool things in process. Our customers are recognizing it and it's really helping drive nice growth for the company and nice growth for the Life Sciences Solutions segment..

And then the last one for me actually comes back to pharma, maybe a little bit of a finer point.

As you think about end of year and the tendency for budget flush in pharma, how are you budgeting for that potential budget flush? Do you assume that there is a budget flush? And if so, is it similar to last year, higher or lower? How are you thinking about those dynamics?.

So – Steve, thanks. It is always challenging to know how customers will spend at the end of the year. The last two years we've had very strong year end spending. We assume a reasonable level of year-end spend.

And when I think about the fourth quarter, as I just think about, sort of, how to look at the revenue growth, what you have is the benefit of an extra day, which is good. And you have a very challenging comparison, which is a headwind.

But when we put it all together, we still feel very good about our ability to deliver the 4% organic growth for the full year. So that's our view and you really don't know on the budget flush, literally until the last two weeks of the year, is really how that plays out..

Got it. Thanks again..

You're welcome..

Your next question comes from the line of Brandon Couillard from Jefferies. Please go ahead..

Thanks. Good morning..

Good morning..

You've done a solid job this year offsetting the FX headwinds with cost actions.

Should we expect any variable costs to come back into the model next year?.

No. In terms of the way we've managed through it, basically, we've pushed pricing harder, selectively. We're having a good year on pricing. We did manage our cost base tightly. We always manage our cost base tightly. We put a little bit more emphasis. But we did the right things for the long-term health of the business as well.

So you're not going to see cost come back in because of something we did this year. In fact, you'll see us drive meaningful productivity as we get into 2016 as well..

Thanks. And then one more follow-up for Stephen. In terms of the full year free cash flow outlook of $2.6 billion. I mean, that would imply about as much cash as you've generated year-to-date coming in the fourth quarter.

Can you just help me bridge the dynamics of really how you get there in the fourth quarter? Is there anything one time or unique?.

Yeah, sure, Brandon. So, yeah, so we're just over $1.3 billion year-to-date. And when I look at Q4, Q4 is always, historically, our strongest cash flow quarter.

And then when you think about the year-over-year dynamic, two significant items, really, cash taxes and cash interest in 2015 have pretty much largely been done in the first three quarters, which wasn't the case last year. So very little cash tax, cash interest payments in Q4, which helps us drive a strong cash flow – free cash flow in Q4..

Super. Thank you..

And operator, we're going to take one more..

Your last question comes from the line of Jeff Elliott from Robert W Baird. Please go ahead..

Yeah, thanks for sneaking me in. Really, had two follow-ups on the last set of questions. Marc, you talked about pricing being strong selectively. I guess, can you give us an update on where pricing is at? And the second follow up is on PPI. Obviously, that program has been a huge home run for you guys.

Can you talk about your visibility into future initiatives to help keep up that strong pace of margin expansion that you've been seeing?.

Yeah. So pricing, which over the last few years has bounced around between 0.5% and 1%, it's probably in the range of about 0.75% year-to-date, Q3 was stronger than that. So we're having a good year on pricing from that perspective. And in terms of PPI, it's who we are.

Right? I mean it's how we operate, it's how we come to work every day in terms of driving productivity and efficiency and it will drive meaningful opportunities.

When we talked about our longer term goals of getting our margins to 24% to 26%, PPI is a key contributor to doing that and it gives us great confidence in our ability to have really solid growth prospects in terms of earnings for many, many, many years to come..

So with that let me wrap it up with just a couple of quick things. One, thanks for joining us today. We had another solid quarter. We're in a great position to deliver another very strong year at Thermo Fisher Scientific and we look forward to reviewing our year-end results in early February. Thanks, everyone..

This concludes today's conference call. You may now disconnect..