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Luminex Corporation’s (LMNX - Analyst Report) third quarter 2012 adjusted (excluding one-time charges) earnings of 4 cents per share were lower than the Zacks Consensus Estimate of 7 cents per share as well as the year-ago earnings of 5 cents per share.

Profit generated was $1.7 million, down 13.1% from the prior-year quarter, partly due to higher operating expenses associated with the GenturaDx acquisition as well as income tax-related expenses.

Revenues

Revenues grew 10% in the reported quarter to $50 million, missing the Zacks Consensus Estimate of $52 million, primarily driven by solid sales in the Assay business.

Assay sales jumped 22% to $16.4 million, led by higher demand for its advanced CE Marked gastrointestinal pathogen panel (GPP) and NeoPlex4 assays.

Revenues from the System segment dropped 1% year over year to $8.6 million. The company shipped 271 multiplexing analyzers (including 127 MAGPIX systems) in the quarter, resulting in total life-to-date dispatches of 9,433 analyzers, up 12.7% year over year.

On a positive note, Consumable sales increased 8% to $12.9 million. Royalty and All Other revenues grew 3% and 10% to $7.7 million and $4.5 million, respectively.

Margins

Gross margin in third quarter 2012 was 70% versus 62.4% in the prior-year quarter. Operating expenses were up 23.8% to $31.7 million, due to costs associated with the acquisition of GenturaDx. Operating margin inched up to 6.7% from 6.2% in the prior-year quarter.

Selling, general and administrative expenses (as a percentage of sales) were higher at 39.8% versus 36.2% in the prior-year quarter. Research and Development expenses were 21.4% compared with 17.6% in the year-ago quarter.

Balance Sheet

Luminex ended third quarter 2012 with cash and cash equivalents (including short-term investments) of $41.6 million, down 57% year over year. Long-term debt was $2.1 million, down 24.8%.

Guidance  

The company lowered its full year revenue forecast for 2012 to the range of $200 million —$204 million from the earlier range of $205 million – $215 million. Uncertain budgetary environment, especially in Europe has led the company to trim its 2012 outlook.

Recent Developments

Luminex completed its acquisition of U.S.-based diagnostic testing company, GenturaDx on July 11, 2012. The GenturaDx deal is in line with Luminex’s strategy of pursuing acquisitions to drive growth. Its technology when combined with Luminex’s MultiCode chemistry will enable the company to develop user-friendly advanced products for its customers.

Luminex also announced that the Defense Threat Reduction Agency (“DTRA”) has awarded the company with $11.6 million to develop a portable diagnostic device enabled with quick detection of bio-threat agents. The contract has a term period of more than three and a half years.

Our View

Luminex possesses an extensive product portfolio and a healthy pipeline of novel assays, which are expected to support growth going ahead. The company is awaiting Food and Drug Administration (FDA) approval for its GPP and NeoPlex4 assays to drive future growth. The company may benefit from its latest acquisitions if it maintains integration synergies.

However, Luminex operates in a highly competitive life sciences industry. The company competes with Affymetrix (AFFX - Analyst Report), Life Technologies and Sequenom (SQNM - Snapshot Report), among others. Moreover, sluggish growth in its core markets as well as the ongoing European austerity measures are challenges faced by Luminex. We are currently Neutral on the stock, which carries a short-term Zacks #4 Rank (Sell).
 

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