Impressive 4Q for Qiagen

Qiagen NV (QGEN - Snapshot Report) reported earnings per share (EPS) of 16 cents in the fourth quarter of 2012, significantly up from the break-even EPS in the year-ago period. After adjusting for certain one-time items (other than stock-based compensation), adjusted EPS were 32 cents in the quarter, beating the Zacks Consensus Estimate by 2 cents and up 3 cents from the prior-year quarter. For fiscal 2012, the adjusted EPS came in at $1.00, in line with the Zacks Consensus Estimate and up 8.7% from fiscal 2011.

Net sales in the quarter stood at $346.5 million, up 4% year over year (same at constant exchange rates or CER). Additionally, it surpassed the Zacks Consensus Estimate by $17.5 million. AmniSure (acquired in May 2012) made a 2% contribution to growth at CER. Also, excluding the impact of the year-ago product tender, organic growth was 4% at CER. The year-over-year improvement in sales was primarily on the back of strong performances by the company’s molecular diagnostics and applied testing customer classes.

For the full year, net revenues came in at $1.254 billion, considerably up from the Zacks Consensus Estimate of $1.237 billion and up 7% (up 10% at CER) from the year-ago period. The Cellestis (since Aug 2011), Ipsogen (since July 2011) and AmniSure (since May 2012) acquisitions contributed 6% to growth (at CER).

Under the product categories, Consumables and related revenues (accounting for 85% of net sales in the quarter) increased 4% year over year at CER. Notably, the year-ago results included sales from a major product tender representing 85% of net sales. Instrumentation revenues (accounting for the rest) increased 7% at CER, primarily due to a huge demand for the company’s wide range of products.

Region wise, Americas (46% of revenues) witnessed more than 8% sales growth due to higher contributions from molecular diagnostics and applied testing, which more than offset lower revenues from the HPV testing related products. However, revenues from Europe-Middle East-Africa (34% of sales) and Asia-Pacific /Japan (19% of sales) increased 9% and 15%, respectively, at CER. Europe benefited from the higher sales in Northern Europe and growth in all customer classes. On the other hand, there was a surge in demand in China, Japan and other top emerging markets such as India and Korea.

Segments

Qiagen primarily generates revenues from molecular diagnostics, applied testing, pharma and academia, which represented 52%, 7%, 18% and 23% of total sales, respectively, during the quarter. Molecular diagnostics sales registered a 6% increase at CER. Despite recording lower HPV sales in the U.S. as well as the year-ago delivery of a major product tender, the increase was encouraging.

Sales derived from applied testing increased 16% at CER, primarily driven by strong demand for consumables used in human identification / forensics, veterinary medicine and food safety.

Pharma sales rose 1% at CER, while Academia sales were flat. Qiagen expects the ongoing funding uncertainties to continue even in 2013.

Qiagen adopted several strategic initiatives in the global Sample & Assay Technologies market in order to deliver a stronger performance in 2013 and beyond. The company is currently focusing on innovation and geographic expansion to drive organic growth.

Outlook

Qiagen provided its fiscal 2013 outlook. The company expects total net sales to rise by 5%–6% at CER based on contributions from organic growth and the AmniSure acquisition (treated as acquisition till May 2013). Adjusted EPS is expected to remain in the range of $1.16−$1.18. The current Zacks Consensus Estimates of $1.291 billion and $1.10 remained below the expected range.

This guidance takes into account dilution of 2−3 cents per share from the net impact of the newly implemented MedTech tax and higher interest expenses, partially offset by the share repurchase program.

Additionally, the company expects its top emerging markets including Brazil, Russia, India, China, South Korea, Mexico and Turkey to deliver double-digit sales growth in 2013.

Companion diagnostics is currently gaining significant traction and peers like Myriad Genetics (MYGN - Analyst Report) are establishing themselves as strong players in this market. However, Qiagen is adopting an aggressive acquisition strategy to widen its scope and strengthen its position in the competitive landscape compared with other major players. Qiagen currently retains a Zacks Rank #3 (Hold).

Other Stocks to Consider

While we prefer to remain on the sidelines on Qiagen, other medical device stocks worth a look are Cyberonics Inc. (CYBX - Analyst Report) and Haemonetics Corporation (HAE - Analyst Report). Both these stocks carry a Zacks Rank #1 (Strong Buy).