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Qiagen NV (QGEN - Analyst Report) reported earnings per share (EPS) of 8 cents in the first quarter of 2013, down 4 cents on a year-over-year basis. After adjusting for certain one-time items (other than stock-based compensation), adjusted EPS was 20 cents in the quarter, missing the Zacks Consensus Estimate and the prior-year quarter result by 2 cents each.

Net sales in the quarter stood at $303.6 million, up 2% year over year (up 3% at constant exchange rates or CER) with strong sales in Molecular Diagnostics and Applied Testing customer classes. 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. Moreover, AmniSure (acquired in May 2012) contribution to growth at CER. However, the quarterly sales failed to meet the Zacks Consensus Estimate of $306 million.

Under the product categories, Consumables and related revenues (accounting for 89% of net sales in the quarter) increased 4% year over year at CER. Instrumentation revenues (accounting for the rest) posted a disappointing result with a 3% decline at CER, primarily due sales decline in Academia with uncertain government funding conditions in the U.S. and other countries and low Applied Testing, which more than offset revenue increase in Pharma.

Region wise, Americas (47% of revenues) witnessed 2% sales growth due to higher contributions from molecular diagnostics. Revenues from Europe-Middle East-Africa (34% of sales) and Asia-Pacific /Japan (18% of sales) increased 4% and 3%, respectively, at CER. sales in Japan declined in the reported quarter whilethere was a surge in demand in China and other top emerging markets such as India.The company noted that there was a 19% increase in sales in the top 7 emerging markets representing 11% of total sales.

Segments

Qiagen primarily generates revenues from molecular diagnostics, applied testing, pharma and academia, which represented 50%, 8%, 18% and 24% of total sales, respectively, during the quarter. Molecular diagnostics sales registered a 11% increase at CER. There was lower HPV sales in the U.S. due to pricing pressure with the implementation of multi-year customer agreements. However, other regions showed sales growth.

Sales derived from applied testing increased 5% at CER, primarily driven by strong demand for consumables used in human identification / forensics, veterinary medicine and food safety. Both Pharma and Academia sales were disappointing with 4% decline in sales at CER. 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

Based on a disappointing quarter, Qiagen lowered its fiscal 2013 outlook. The company expects total net sales to rise by 5% at CER (earlier guidance being 5%–6%). The sales growth will be mainly on the back of the recent acquisition of Ingenuity which is expected contributing $15 million to the company’s annual adjusted net sales. However this is expected to be offset by reduced government funding including the implementation of sequestration in the U.S., which will have an expected adverse impact of a minimum of 1 percentage point on adjusted net sales growth.

Qiagen also reduced its 2013 EPS guidance to $1.13 from earlier provided range of $1.16−$1.18. This guidance takes into account dilution of 3 cents per share related to the Ingenuity acquisition. The current Zacks Consensus Estimates of $1.31 billion and $1.13 a share remained in line with the expected range.

Qiagen also provided its second quarter 2013 guidance. For the quarter, the company expects adjusted net sales to grow 1-2% at CER and with adjusted EPS of $0.25.

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 HEALTHSOUTH Corp. (HLS - Snapshot Report) and Nuvasive Inc. (NUVA - Snapshot Report). Both these stocks carry a Zacks Rank #1 (Strong Buy).

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