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Syneos Health (SYNH) Tops Q3 Earnings Estimates, Ups EPS View

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Syneos Health Inc. (SYNH - Free Report) reported third-quarter 2019 adjusted earnings per share (EPS) of 87 cents, which beat the Zacks Consensus Estimate by 4.8%. The metric also improved 16% from the year-ago figure.

Reported EPS was 56 cents, marking a significant improvement from the year-ago loss of 10 cents per share.

Revenues in Detail

Service revenues in the quarter totaled $1.18 billion. The topline grew 5.6% year over year, almost in-line with the Zacks Consensus Estimate. Per management, revenue growth across key segments and strong customer adoption drove the top line.

Syneos Health, Inc. Price, Consensus and EPS Surprise

 

Segmental Details

The Clinical Solutions segment delivered service revenues of $867.4 million in the third quarter, up 5.9% year over year (adjusted revenues were up 6.7% at constant exchange rate (“CER”)). The upside resulted from net new business growth and favorable revenue mix. However, slower growth in reimbursable expenses and an adverse impact of foreign currency fluctuation offset revenue growth.

Commercial Solutions revenues were $309.6 million in the reported quarter, up 4.7% year over year (adjusted revenues moved up 5.1% at CER). Net new business growth and the higher rise in reimbursable expenses in the third quarter of 2019 drove Commercial Solutions revenues in the quarter under review. However, the segment was adversely impacted by an unfavorable revenue mix and fluctuations in foreign currency exchange rates.

Margin Details

Direct cost (excluding depreciation and amortization) rose 4.8% to $913.7 million in the quarter. Gross margin expanded 61 basis points (bps) to 22.4%.

Selling, general and administrative expenses rose 13.3% year over year to $109.9 million.

However, adjusted operating margin (excluding depreciation, amortization, transaction and integration-related, and restructuring and other expenses) contracted 3 bps from the year-ago quarter to 13%.

Financial Details

Syneos Health exited the third quarter of 2019 with cash and cash equivalents, and restricted cash of $129.2 million compared with $107.3 million at the end of the second quarter. Year to date, the company has recorded net cash provided by operating activities of $157.9 million compared with $191 million a year ago.

Guidance Updated

For 2019, it lowered the adjusted service revenue guidance to $4.63-4.69 billion from $4.64-4.75 billion mentioned earlier. The Zacks Consensus Estimate for the same is pegged at $4.69 billion, which is in the upper end of the company’s guided range.

For 2019, Syneos Health raised its adjusted EPS guidance to $3.17-3.27 from $3.08-3.26 mentioned earlier. The Zacks Consensus Estimate for the same is pegged at $3.17, which falls near the lower end of the company’s guided range.

Our Take

Syneos Health exited the third quarter of 2019 on a solid note. We are upbeat about the strong year-over-year revenue growth across both operating segments. The company has been strengthening its unique end-to-end market position by consistently innovating and expanding its Syneos One product. Strong RFP flow, a diverse portfolio of clinical and commercial initiatives and sustained customer interest in Syneos Health’s integrated offerings buoy optimism. The raised 2019 EPS guidance also encourages.

However, the contraction in the adjusted operating margin and lowered 2019 revenue guidance are indicative of continued bearish performance by the company.  

Zacks Rank & Stocks to Consider

Currently, Syneos carries a Zacks Rank #2 (Buy).

Some other top-ranked medical device companies, which posted solid results this earnings season, are ResMed Inc (RMD - Free Report) , NuVasive, Inc (NUVA - Free Report) and Thermo Fisher Scientific Inc (TMO - Free Report) .

ResMed, with a Zacks Rank #2, reported first-quarter fiscal 2020 adjusted EPS of 93 cents, surpassing the Zacks Consensus Estimate by 6.9%. Its revenues of $681.1 million outpaced the consensus mark by 3.7%.

NuVasive’s third-quarter 2019 adjusted EPS of 59 cents surpassed the Zacks Consensus Estimate by 9.3%. Its revenues totaled $290.8 million, which surpassed the consensus estimate by 2.4%. The stock currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher, with a Zacks Rank #2, delivered third-quarter 2019 adjusted EPS of $2.94, beating the Zacks Consensus Estimate by 2.1%. Its revenues of $6.27 billion beat the Zacks Consensus Estimate by 1.3%.

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