Cerner Corporation reported adjusted second-quarter 2018 earnings of 62 cents per share which beat the Zacks Consensus Estimate by 3.3%. Earnings also improved by a penny from the year-ago quarter.

Revenues of $1.37 billion rose 5.9% on a year-over-year basis, which also surpassed the Zacks Consensus Estimate of $1.33 billion.

In the past year, Cerner’s shares have declined 0.2% against the industry’s gain of 3.3%.

The stock carries a Zacks Rank #3 (Hold).

Bookings Detail

Bookings in the reported quarter totaled $1.78 billion, up 8.5% from the prior-year quarter. Per management, the figure is well above the guidance issued by the company earlier. The upside can be attributed to initial task orders for the Veterans Affairs contract, announced earlier this year.

Bookings also saw noteworthy contributions from the Middle East and the United Kingdom.

Segment Details

Instead of reporting in three revenue categories — system sales, support maintenance and services — Cerner reported in seven segments in the second quarter.

Licensed software revenues increased 10.6% to $172.4 million. Per management, the growth was primarily driven by strong licensed software bookings in the reported quarter.

Technology resale revenues came in at $75.3 million, up 2.9% on a year-over-year basis.

Sales from Subscriptions grossed $83 million, down 30.2% year over year.

Professional services revenues totaled $447.3 million, up 12.9% from the prior-year quarter. Per management, revenues at the segment were largely driven by growth in Works businesses.

Revenues in the Managed services unit totaled $285.6 million, up 9.1% from the prior-year quarter.

Support and maintenance revenues came in at $279 million, up 7.5% year over year.

Reimbursed travel revenues declined 5.5% year over year to $25.3 million in the reported quarter.

Margins

In the quarter under review, gross profit totaled $1.13 billion, up 5.6% on a year-over-year basis. Gross margin was 82.5%, down 20 basis points (bps) in the quarter.

Operating income in the quarter came in at $208.3 million, down 16.5% year over year. Operating margin was 15.2% which contracted 410 bps in the quarter.

Financial Position

Cerner exited the second quarter with free cash flow of $121 million. Operating cash flow in the quarter totaled $300 million.

Long-term debt and capital lease obligations were $438.8 million in the quarter.

Guidance

Revenues for 2018 are expected between $5.33 billion and $5.45 billion. The Zacks Consensus Estimate is pegged at $5.38 billion, within the guided range.

Notably, 2018 adjusted earnings per share are expected between $2.45 and $2.55. The Zacks Consensus Estimate is pinned at $2.50, within the range.

For the third quarter of 2018, revenues are expected between $1.34 billion and $1.39 billion. The Zacks Consensus Estimate is pegged at $1.35 billion, within the projected range.

Earnings per share for the third quarter are anticipated between 62 cents and 64 cents. The Zacks Consensus Estimate is pinned at 65 cents, higher than the guided range.

Third-quarter bookings are expected between $1.45 billion and $1.65 billion.

Our Take

Cerner exited the second quarter on a solid note. The company saw consistent growth in its EHR platform and revenue cycle management solutions. Legacy systems like Cerner Millennium and Cerner ITWorks continue to drive results. Growth in Licensed Software and Professional services is noteworthy. Solid year-over-year bookings growth is another positive. The second quarter saw crucial transactions which drove bookings. Cerner also gained from its ambulatory business. Its CommunityWorks organization also continues to perform well in the small hospital market space. Solid international growth also paints a bright picture. Management is optimistic about solid bookings contributions from Australia, Canada, the Middle East and Europe in the second half of 2018. A positive guidance for 2018 is encouraging.

On the flip side, decline in subscription and Reimbursed travel revenues is a negative. Significant decline in operating income and margin is likely to mar Cerner’s prospects. High long-term debt is a negative. Competition in the niche space adds to the woes.

Q2 Earnings of MedTech Majors at a Glance

A few better-ranked stocks in the broader medical space, which reported solid earnings this season, are Thermo Fisher Scientific Inc. (TMO), Intuitive Surgical, Inc (ISRG Quick QuoteISRG - Free Report) and Illumina, Inc (ILMN Quick QuoteILMN - Free Report) .

While Intuitive Surgical and Illumina sport Zacks Rank #1 (Strong Buy), Stryker carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical reported adjusted earnings of $2.76 per share in the second quarter of 2018, which beat the Zacks Consensus Estimate of $2.48. Adjusted earnings improved 38% year over year.

Thermo Fisher reported adjusted earnings per share of $2.75, which beat the Zacks Consensus Estimate by 4.6%.

Illumina reported adjusted earnings of $1.43 per share, beating the Zacks Consensus Estimate of $1.11.

Will You Make a Fortune on the Shift to Electric Cars? 

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

 

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

 

It's not the one you think.

 

See This Ticker Free >>