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Illumina (ILMN) Tops Q3 Earnings & Revenues, Raises Guidance

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Illumina, Inc. (ILMN - Free Report) reported adjusted earnings per share (EPS) of $1.11 in the third quarter of 2017, which beat the Zacks Consensus Estimate of 98 cents. Adjusted earnings also surpassed the year-ago number by 14.4%.

Including one-time items, the company reported EPS of $1.11, compared with 87 cents a year ago.

Revenues

In the reported quarter, Illumina's revenues grew 17.6% year over year to $714 million. Moreover, the top line beat the Zacks Consensus Estimate by 2.9%.

 

Illumina, Inc. Price, Consensus and EPS Surprise

 

Illumina, Inc. Price, Consensus and EPS Surprise | Illumina, Inc. Quote

 

Per management, top-line growth in the third quarter can be attributed to strong uptake of sequencing consumables and instruments as well as microarray portfolios. Moreover, the NovaSeq platform continued to drive growth with close to 200 NovaSeq systems currently at customers’ hands since the launch in January 2017. Management is also hopeful that recent launches like S4 flow cell, Xp workflow and Nextera DNA Flex library preparation kit will drive NovaSeq demand.

Product revenues (83.5% of total revenue) increased 15.9% year over year to $596 million. Service and Other (15.5%) revenues were up 26.9% year over year to $118 million.

Operational Update

Illumina's adjusted gross margin came in at 67.5%, reflecting a contraction of 267 basis points (bps) year over year owing to NovaSeq introduction, higher array services revenues and product mix within sequencing consumables. Excluding amortization of acquired intangible assets and including stock-based compensation expenses, adjusted gross margin was 68.8%, highlighting a contraction of 320 bps from a year ago.

Research and development expenses were up 20.1% year over year to $134 million and selling, general & administrative expenses rose 6.3% to $167 million. Consequently, the adjusted operating margin of 25.4% reflected a decline of 117 bps from the year-ago period.

Financial Update

Illumina exited the third quarter with cash and cash equivalents and short-term investments of $2.04 billion, up from $1.89 billion in the third quarter. Year-to-date net cash provided by operating activities was $581 million, compared with $517 million in the year-ago period.

2017 Guidance

Banking on the solid third-quarter performance, Illumina has raised its full-year 2017 revenue growth expectations to 13% from the earlier provided range of 12%. Meanwhile, the Zacks Consensus Estimate for full-year 2017 revenues is pegged at $2.69 billion.

The company raised its adjusted EPS to the band of $3.73-$3.78 from the earlier $3.60–$3.70. The Zacks Consensus Estimate for Illumina’s 2017 bottom line stands at $3.64, far below the low end of the guided range. 

Our Take

Illumina exited the third quarter on a solid note. We are also encouraged by the year-over-year increase in both the fronts. The company has also raised its full-year 2017 revenue guidance and the adjusted EPS range. We are looking forward to the performance of NovaSeq S4 flow cell, reagent kit and NovaSeq Xp workflow for its NovaSeq 6000 System.

On the flip side, weak margins owing to the lower instrument margin associated with NovaSeq launch and higher array services mix will continue to act as deterrents. Also, a tough competitive landscape is a concern.

Zacks Rank & Key Picks

Currently, Illumina has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical sector are PetMed Express, Inc. (PETS - Free Report) , Abbott (ABT - Free Report) and Intuitive Surgical, Inc. (ISRG - Free Report) . Notably, PetMed sports a Zacks Rank #1 (Strong Buy), while Abbott and Intuitive Surgical carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed reported EPS of 43 cents for the second quarter of fiscal 2018, up 79.2% from the year-ago quarter’s 24 cents. Also, gross margin expanded 548 bps year over year to 35.2% in the reported quarter.

Abbott reported third-quarter 2017 adjusted earnings from continuing operations of 66 cents per share, up 11.9% year over year. Also, third-quarter worldwide sales came in at $6.83 billion, up 28.8% year over year. 

Intuitive Surgical posted adjusted earnings of $2.77 per share in the third quarter of 2017, up 34.5% on a year-over-year basis. Also, revenues increased 18% year over year to $806.1 million.

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