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Alere (ALR - Snapshot Report), a medical products company focused on integrating rapid diagnostics with health management, reported third quarter 2012 adjusted earnings per share of 48 cents, beating the Zacks Consensus Estimate by a penny.

Reported net loss was about $3.5 million (or loss of 11 cents per share) in the third quarter compared to a net income of $239.7 million (or earnings of $2.48 per share) in the year-ago quarter.

Revenues

Net revenues came in at $691.4 million in the reported quarter, up 18% year over year, surpassing the Zacks Consensus Estimate of $687 million.

Segment Analysis

Net revenues from Professional Diagnostics were $531.4 million (includes license and royalty revenues of $3.2 million), up 24% year over year. Adjusted organic growth for the segment was 1% on a year-over-year basis.

Under the Professional Diagnostics segment, revenues from Cardiology ($122.4 million) declined 4% year over year. Revenues from Infectious disease ($136.6 million) decreased 4% year over year, whereas revenues from Toxicology ($156.1 million) and other sources ($78.1 million) increased 67% and 26% on a year-over-year basis, respectively. Diabetes business line accounted for $35.7 million of segment revenues.

Revenues from the Health Management segment were $135.1 million, up 4% year over year. Revenues were driven by coagulation monitoring programs.

Under the Health Management segment, revenues from Disease and Case Management ($57.4 million) dipped 3% and revenues from Wellness ($24.3 million) declined 1% year over year. Revenues from Women’s & Children’s Health ($29.1 million) and Patient Self-Testing Services ($24.3 million) were up 2% and 38% on a year-over-year basis, respectively.

Margin

Adjusted gross margin was 52.9% in the third quarter compared with 54.7% in the year-ago quarter. The same for the Professional Diagnostics segment was 55.8% compared with 58.9% a year ago. Adjusted gross margin for the Health Management segment was 46.2%, flat on a year-over-year basis.

Adjusted operating margin was 16.6% in the quarter compared with 20.8% in the prior-year quarter. Adjusted operating margin for the Professional Diagnostics segment was 22.1% compared with 28.1% a year ago. Adjusted operating margin for the Health Management segment was 2.2% compared with 3.6% in the year-ago quarter.

Balance Sheet

Alere exited the third quarter with cash and cash equivalents of about $302.3 million, up 9.2% year over year. Total long-term debt (net of current portion) amounted to $3,541.3 million. Adjusted free cash flow came in at $59.7 million in the third quarter.  

Diagnostic tests are shifting closer to the consumers and into the home testing market, as more diagnostic tests are developed to monitor patients rather than simply diagnose them. Alere's strategy of combining disease management with point-of-care testing (POCT), in a manner that encourages patients to take responsibility over their overall health care, is viewed as a prudent approach while at the same time ensuring affordability.

In addition to growing revenues through a combined strategy of continued acquisitions and measured organic growth, the company is committed to improvement of its operating margin. Further, its product pipeline is strong, which has been developed through a combination of internal R&D as well as serial acquisitions. One of the company’s competitors is Abaxis (ABAX - Analyst Report).

Alere carries a Zacks #3 Rank, which translates into a short-term Hold rating. We currently have a long-term ‘Underperform’ recommendation on the stock.

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