Luminex's 3Q Mixed, Records Profit

Luminex Corporation (LMNX - Analyst Report), a developer of biological testing technologies, reported third-quarter fiscal 2011 earnings of 5 cents a share, narrowly missing the Zacks Consensus Estimate of 6 cents.

The Texas-based company, however, turned in a profit in the quarter on the back of solid sales and lower tax. Luminex posted a profit of $1.9 million in the third quarter versus a loss of $0.7 million (or 2 cents a share) a year ago.

Revenue and Margins

Revenues cruised 34% year over year to $45.6 million, exceeding the Zacks Consensus Estimate of $44 million. Sales were powered by solid consumables, assay and royalty revenues.

System sales rose 7% year over year to $8.6 million. Luminex shipped 226 multiplexing analyzers (including 61 MAGPIX systems) in the third quarter, resulting in total life-to-date shipments of 8,371 analyzers, up roughly 13% year over year.

Consumable revenues surged 39% to roughly $12 million.  Assay sales zoomed 71% to $13.4 million boosted by cystic fibrosis and respiratory viral panel businesses coupled with the contributions of EraGen Biosciences which the company bought in June 2011. Royalty revenues spiked 32% to roughly $7.5 million.

Gross margin, as reported, dipped to 62.4% from 64.5% a year-ago, hit by a charge (of $2 million) associated with the EraGen acquisition. Excluding that impact, gross margin was 66.9%. Operating expenses jumped roughly 18% year over year to $25.6 million with operating margin climbing to 6.2% from 0.5% a year ago.

Balance Sheet

Luminex exited the quarter with cash and cash equivalents of $96.7 million, down roughly 10% year over year, with total long-term debt of $3.5 million (down 12.5% year over year).

Guidance and Recommendation

Luminex has retained its revenue forecast for fiscal 2011 which is expected in a range of $180 million to $185 million, a 27%-31% year over year growth. The current Zacks Consensus Estimate is $183 million.

Luminex develops and markets proprietary biological testing technologies, which have applications across the life sciences industry. Its xMAP technology enables fast, cost-effective and accurate conduct and analysis of biological tests. The company remains committed to expanding its xMAP technology-based installed instrument base and continuing to spend on assay development.

The acquisition of EraGen Biosciences provided Luminex a highly complementary portfolio of molecular diagnostic tests and has enabled it to tap new markets. The company expects the acquisition to add between $5 million and $7 million to sales for 2011.

Luminex possesses an extensive product portfolio and a healthy pipeline of novel assays, which are expected to support growth going ahead. The company launched its xTAG Gastrointestinal Pathogen Panel (“GPP”) molecular test in Europe following the CE mark approval in May 2011. Moreover, Luminex, in July 2011, received the U.S. approval for its xTAG Respiratory Viral Panel (“RVP”) Fast assay.

However, Luminex operates in a highly competitive life sciences industry. The company competes with Affymetrix (AFFX - Analyst Report) and Sequenom (SQNM - Snapshot Report), among others. Moreover, sluggish growth in its core markets is a challenge faced by Luminex. We are currently Neutral on the stock.

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