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Illumina (ILMN) Beats Q3 Earnings, Revenues Miss the Mark
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Illumina Inc. (ILMN - Free Report) reported adjusted earnings per share (EPS) of 97 cents in the third quarter of 2016, which exceeded the Zacks Consensus Estimate by a solid 11.5%. Adjusted earnings also improved from the year-ago number by 21.3%.
Higher revenue growth and lower expenses primarily aided Illumina’s bottom line in third-quarter 2016. Moreover, the quarterly adjusted EPS included a dilution of 5 cents and 2 cents from the company’s GRAIL and Helix investment, respectively.
Including one-time items, the company reported earnings of 87 cents per share, reflecting a solid year-over-year improvement of 10.1%.
In the reported quarter, Illumina's revenues grew 10.3% year over year to $607.1 million, lower than the company’s earlier expectation of $625–$630 million. Moreover the top line remained below the Zacks Consensus Estimate of $617 million.
Per management, growth in sequencing consumables and strong demand from microarrays primarily supported the top line, offset by a decline in sequencing instruments.
Revenues by Business Categories
Product revenues (84.6% of total revenue) increased 9.1% year over year to $513.7 million. Within this business, revenues from consumables were up 23% at $396 million on the back of solid growth in sequencing consumable revenue driven by growing installed base of instruments and particular strength in HiSeq X and NextSeq consumables.
Service and Other (15.4%) revenues climbed 18% year over year to $93 million. The year-over-year improvement was primarily owing to strength in genotyping services and sequencing instrument maintenance contracts associated with the larger installed base, partially offset by an expected decline in NIPT service revenue, given customer migrations to in-house testing.
Operational Update
Illumina's adjusted gross margin (considering stock-based compensation as regular expense) came in at 72.5%, reflecting a contraction of 70 basis points (bps) year over year, owing to higher investment in sequencing consumable and array manufacturing capacity as well as clinical capabilities, partially offset by favorable consumable mix.
Adjusted research and development (R&D) expenses were flat year over year at $114 million and adjusted selling, general & administrative (SG&A) expenses fell 7.9% to $117 million. Consequently, adjusted operating margin of 34.4% declined 160 bps from the year-ago period, due to the company’s increased investment in head count, GRAIL and Helix.
Financial Update
Illumina exited the third quarter of 2016 with cash and cash equivalents and short-term investment of $1.54 billion, up from $1.43 billion in the prior quarter. The company generated $407.1 million in cash flow from operations over the past nine months, compared to $419.2 million in the year-ago period.
2016 Guidance
For 2016, Illumina expects to deliver revenue growth of 12%. On the bottom-line front, the company has reduced its guidance for adjusted EPS to the range of $3.27–$3.32, from the previous guidance of $3.48–$3.58. The current Zacks Consensus Estimate for Illumina’s 2016 bottom line is pegged at $3.34, above the guidance range. GRAIL dilution for the year is expected to be approximately 30 cents. Helix dilution is estimated to be 10 cents.
For the fourth quarter, Illumina projects revenues to be flat to slightly up compared to the third quarter. The current Zacks Consensus Estimate for fourth-quarter revenue is pegged at $646.6 million.
Our Take
Illumina ended the third quarter on a mixed note with earnings comfortably beating the Zacks Consensus Estimate while revenues missed the mark as well as the company’s expectation. Reduced EPS guidance for the full year further raises our concern about the stock reflecting no chance for the company to deliver higher profits in the near term.
Revenues in the Americas witnessed slower pace of growth primarily due to lower-than-expected HiSeq 2500 and 4000 instruments and HiSeq 2500 reagent shipments, as well as a challenging HiSeq X comparison. Overall, the huge year-over-year surge in sequencing instrument revenue due to the challenging HiSeq X comparison marred the entire performance. On a positive note, the company performed well in the Asia Pacific and Europe. We are also impressed with the robust sequencing and array consumable growth in the third quarter.
Zacks Rank & Key Picks
Illumina currently holds a Zacks Rank #5 (Strong Sell). Better-ranked medical stocks are GW Pharmaceuticals plc , Baxter International Inc. (BAX - Free Report) and Bovie Medical Corporation . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
GW Pharmaceuticals surged 67.5% year to date compared to the S&P 500’s 3.3% over the same period. The company’s four-quarter average earnings surprise is 41.6%.
Baxter international rallied 22.91% year to date, above the S&P 500’s 3.3%. It has a trailing four-quarter average positive earnings surprise of 27%.
Bovie Medical recorded 20.1% gain in the past one year, above the S&P 500’s 2.4%. The company has a trailing four-quarter average earnings surprise of 6.3%.
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Illumina (ILMN) Beats Q3 Earnings, Revenues Miss the Mark
Illumina Inc. (ILMN - Free Report) reported adjusted earnings per share (EPS) of 97 cents in the third quarter of 2016, which exceeded the Zacks Consensus Estimate by a solid 11.5%. Adjusted earnings also improved from the year-ago number by 21.3%.
Higher revenue growth and lower expenses primarily aided Illumina’s bottom line in third-quarter 2016. Moreover, the quarterly adjusted EPS included a dilution of 5 cents and 2 cents from the company’s GRAIL and Helix investment, respectively.
Including one-time items, the company reported earnings of 87 cents per share, reflecting a solid year-over-year improvement of 10.1%.
ILLUMINA INC Price, Consensus and EPS Surprise
ILLUMINA INC Price, Consensus and EPS Surprise | ILLUMINA INC Quote
Revenues
In the reported quarter, Illumina's revenues grew 10.3% year over year to $607.1 million, lower than the company’s earlier expectation of $625–$630 million. Moreover the top line remained below the Zacks Consensus Estimate of $617 million.
Per management, growth in sequencing consumables and strong demand from microarrays primarily supported the top line, offset by a decline in sequencing instruments.
Revenues by Business Categories
Product revenues (84.6% of total revenue) increased 9.1% year over year to $513.7 million. Within this business, revenues from consumables were up 23% at $396 million on the back of solid growth in sequencing consumable revenue driven by growing installed base of instruments and particular strength in HiSeq X and NextSeq consumables.
Service and Other (15.4%) revenues climbed 18% year over year to $93 million. The year-over-year improvement was primarily owing to strength in genotyping services and sequencing instrument maintenance contracts associated with the larger installed base, partially offset by an expected decline in NIPT service revenue, given customer migrations to in-house testing.
Operational Update
Illumina's adjusted gross margin (considering stock-based compensation as regular expense) came in at 72.5%, reflecting a contraction of 70 basis points (bps) year over year, owing to higher investment in sequencing consumable and array manufacturing capacity as well as clinical capabilities, partially offset by favorable consumable mix.
Adjusted research and development (R&D) expenses were flat year over year at $114 million and adjusted selling, general & administrative (SG&A) expenses fell 7.9% to $117 million. Consequently, adjusted operating margin of 34.4% declined 160 bps from the year-ago period, due to the company’s increased investment in head count, GRAIL and Helix.
Financial Update
Illumina exited the third quarter of 2016 with cash and cash equivalents and short-term investment of $1.54 billion, up from $1.43 billion in the prior quarter. The company generated $407.1 million in cash flow from operations over the past nine months, compared to $419.2 million in the year-ago period.
2016 Guidance
For 2016, Illumina expects to deliver revenue growth of 12%. On the bottom-line front, the company has reduced its guidance for adjusted EPS to the range of $3.27–$3.32, from the previous guidance of $3.48–$3.58. The current Zacks Consensus Estimate for Illumina’s 2016 bottom line is pegged at $3.34, above the guidance range. GRAIL dilution for the year is expected to be approximately 30 cents. Helix dilution is estimated to be 10 cents.
For the fourth quarter, Illumina projects revenues to be flat to slightly up compared to the third quarter. The current Zacks Consensus Estimate for fourth-quarter revenue is pegged at $646.6 million.
Our Take
Illumina ended the third quarter on a mixed note with earnings comfortably beating the Zacks Consensus Estimate while revenues missed the mark as well as the company’s expectation. Reduced EPS guidance for the full year further raises our concern about the stock reflecting no chance for the company to deliver higher profits in the near term.
Revenues in the Americas witnessed slower pace of growth primarily due to lower-than-expected HiSeq 2500 and 4000 instruments and HiSeq 2500 reagent shipments, as well as a challenging HiSeq X comparison. Overall, the huge year-over-year surge in sequencing instrument revenue due to the challenging HiSeq X comparison marred the entire performance. On a positive note, the company performed well in the Asia Pacific and Europe. We are also impressed with the robust sequencing and array consumable growth in the third quarter.
Zacks Rank & Key Picks
Illumina currently holds a Zacks Rank #5 (Strong Sell). Better-ranked medical stocks are GW Pharmaceuticals plc , Baxter International Inc. (BAX - Free Report) and Bovie Medical Corporation . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
GW Pharmaceuticals surged 67.5% year to date compared to the S&P 500’s 3.3% over the same period. The company’s four-quarter average earnings surprise is 41.6%.
Baxter international rallied 22.91% year to date, above the S&P 500’s 3.3%. It has a trailing four-quarter average positive earnings surprise of 27%.
Bovie Medical recorded 20.1% gain in the past one year, above the S&P 500’s 2.4%. The company has a trailing four-quarter average earnings surprise of 6.3%.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>