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Qiagen (QGEN) Tops Q3 Earnings & Sales, Provides '17 View

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Qiagen NV (QGEN - Free Report) reported third-quarter 2016 adjusted earnings per share (EPS) of 29 cents, beating both the Zacks Consensus Estimate and the year-ago adjusted number by 7.7%.

At constant exchange rate or CER too, the company reported adjusted EPS of 29 cents. Adjusted EPS at CER exceeded the company’s guidance of 28 cents.

Considering one-time items, Qiagen’s reported EPS for the quarter remained flat year over year at 14 cents.

Revenues in Detail

Net sales at actual rates in the third quarter grew 8% on a year-over-year basis to $338.7 million (up 9% at CER). Meanwhile, the top line beat the Zacks Consensus Estimate of $337 million. Adverse currency translation adversely impacted the top line by 1%. 

QIAGEN NV Price, Consensus and EPS Surprise

QIAGEN NV Price, Consensus and EPS Surprise | QIAGEN NV Quote

Meanwhile, top-line growth at CER was driven by strong growth in sales of consumables and related revenues (88% of net sales; up 9% at CER) as well as instruments (12% of net sales; up 3% at CER). Excluding the projected impact of lower U.S. HPV test sales, net sales grew 10% at CER in the third quarter.

Region-wise, sales from the Americas (49% of revenues) grew 11% at CER, while revenues from Europe-Middle East-Africa (30%) and Asia-Pacific/Japan (21%) increased 1% and 21%, respectively, at CER. Sales in the top seven emerging markets (15%) exhibited growth of 20% year over year at CER in the quarter.

Segments in Detail

Qiagen primarily generates revenues from Molecular Diagnostics, Applied Testing, Pharma and Academia, which represented 50%, 9%, 20% and 21% of net sales, respectively, during the reported quarter.

Molecular diagnostics sales were up 9% at CER. Excluding a 28% decline in the U.S. HPV test solutions sales, Molecular diagnostics sales increased 12% at CER. Sales derived from Applied Testing improved 12% at CER, due to double-digit CER growth in both consumables and instruments and volume growth in applications for human ID and forensics.

Pharma sales rose 8% at CER in the third quarter; on account of high single-digit CER consumable growth from marketing initiatives and new product launches. Academia sales improved 7% at CER, on the back of higher consumable sales, marginally offset by slightly weaker trends for instruments.

Operational Update

Gross profit increased 7.9% to $220.8 million in the third quarter. Gross margin expanded 14 basis points (bps) to 65.2%.

Adjusted operating income in the quarter was up 1.9% year over year at $56.8 million. However, adjusted operating margin declined 95 bps to 16.8%, as a result of a rise in overall operating expenses by more than 10%.

Financial Update

Qiagen exited the third quarter with cash and cash equivalents of $464.3 million, compared with $328.2 million in second-quarter 2016. Year-to-date net cash provided by operating activities was $241.6 million, up from $230.7 million a year ago. This resulted in a 14.5% improvement in free cash flow to $186.7 million.

Qiagen is moving ahead with its commitment to return $300 million of capital to shareholders by the end of 2017. The first tranche of about $250 million will be completed through a synthetic share repurchase proposal (combining a direct capital repayment with a reverse stock split) that the company announced earlier in August. According to Qiagen, this is on track for completion in Jan 2017.

Outlook

Qiagen has reiterated its full-year 2016 guidance. The company still expects net sales growth of approximately 6–7% at CER, which includes an additional $10 million of sales that it anticipates to achieve in second-half 2016 on account of its Exiqon acquisition. Earlier Qiagen expected to deliver sales growth of 6% at CER, during 2016. Meanwhile, the Zacks Consensus Estimate for revenues stands at $1.35 billion.

On the bottom-line front, the company maintained its 2016 adjusted EPS projection of approximately $1.10–$1.11 at CER. The current Zacks Consensus Estimate for the same is pegged at $1.09.

For fourth-quarter 2016, the company expects sales growth of about 8% at CER and adjusted EPS of 38 cents at CER. The Zacks Consensus Estimate for revenues is pegged at $377.5 million, while that for EPS is 38 cents.

Initial 2017 View

Qiagen has provided its initial guidance for full-year 2017. Net sales growth is expected to be in the band of 6−7% CER, with expectations of accelerating organic growth. Adjusted EPS at CER for 2017 is projected in the range of $1.25−$1.27. The Zacks Consensus Estimate for revenues is pegged at $1.43 billion, while that for EPS is $1.23.

Our Take

Qiagen ended third-quarter 2016 on a promising note, with both the top and bottom lines squarely beating the Zacks Consensus Estimate. All regions and customer classes contributed to growth in the third quarter. Meanwhile, the company’s overall cash balance seems strong, with escalating free cash flow reserve. Moreover, its commitment to return more to its shareholders through increased share repurchases reflects its solid cash position.

The company’s expanded commercialization to the Asia-Pacific region, beyond its initial focus on Europe, further buoys optimism.

However, declining HPV sales in the U.S. continue to be a drag on the overall sales performance. Furthermore, on the profitability front, Qiagen delivered a sluggish performance on the back of rising costs and operating expenses.

Zacks Rank & Other Key Picks

Qiagen currently carries a Zacks Rank #3 (Hold). Better-ranked medical stocks are GW Pharmaceuticals plc , Baxter International Inc. (BAX - Free Report) and Bovie Medical Corporation . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

GW Pharmaceuticals surged 63.2% year to date compared to the S&P 500’s 2.6% over the same period. The company’s four-quarter average earnings surprise is 41.6%.

Baxter international rallied 24.4% in the past one year, as against the S&P 500’s 0.2% decline. It has a trailing four-quarter average positive earnings surprise of 27%.

Bovie Medical recorded a 162.6% gain in the past one year, above the S&P 500’s 2.4%. The company has a trailing four-quarter average earnings surprise of 6.3%.

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