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A Beat From Qiagen NV, but Only Half a Raise

It was another solid quarter for Qiagen (NASDAQ: QGEN) as the maker of diagnostic and scientific products continues to post decent revenue growth while getting more efficient, which drives income to grow even faster.

QIAsymphony. Image source: Qiagen.

Qiagen results: The raw numbers

Metric

Q2 2017

Q2 2016

Year-Over-Year Change

Revenue

$349 million

$334 million

4%

Income from operations

$74.5 million

$69.5 million

7%

Earnings per share

$0.06

$0.09

(33%)

Data source: Qiagen.

What happened with Qiagen this quarter?

  • While 4% revenue growth isn't great, it includes a negative impact from changing exchange rates of 2 percentage points.
  • Qiagen's applied testing products led the growth chart with 12% revenue growth at constant currencies thanks to increased sales of its forensics and Human ID testing products.
  • Molecular diagnostics, by far the largest group of products, only saw sales increase 6% at constant exchange rates, but the QuantiFERON latent TB test, remained a standout; management thinks it'll hit its target of more than 25% growth in sales of the TB test at constant exchange rates this year.
  • Looking across all the product groups, consumables and related revenues were up 8% at constant exchange rates. The TB test certainly helped there, but so did the growing base of QIAsymphony machines that burn through tests run on them every quarter.
  • The one soft spot that investors should be watching is instrument sales, which fell 4% year over year, since those sales drive consumable sales in future quarters. Fortunately, management said QIAsymphony machines are still selling well, putting the company on track to have more than 2,000 cumulative placements by the end of this year.
  • While the GAAP earnings number looks bad, it contains one-time items including restructuring charges. Backing those out, adjusted earnings were $0.30 per share, beating management's guidance of $0.28 to $0.29 per share.

What management had to say 

According to CEO Peer Schatz:

We recently announced a groundbreaking agreement with Bristol-Myers Squibb (NYSE: BMY) to develop next generation sequencing companion diagnostic solutions to better guide the use of novel immuno-oncology therapies and we are in discussions with other pharma companies for similar agreements.

While the company didn't give financial details on the deal with Bristol-Myers Squibb, which is designed to identify patients who are most likely to respond to one of the pharma's cancer drugs, Schatz did give some general thoughts on how Qiagen likes to do structure deals:

We don't believe in big payments for development reimbursement. We believe in generating an assay that will create high volume and we think we have a pretty good shot at it.

In other words, Qiagen is willing to accept more of the costs up front to develop the companion product in exchange for making money on the diagnostic once it and the drug are approved by the Food and Drug Administration.

Looking forward

After the solid second quarter, management increased its guidance for adjusted net sales to 7% at constant exchange rates, up from a range of 6% to 7%.

But on the bottom line, management kept adjusted earnings guidance at constant exchange rates the same at $1.25 to $1.27 per share. While some investors seem to be disappointed -- shares are down a bit since earnings were released on Thursday -- the lack of a revision upward could just be management being conservative. And keep in mind adjusted earnings were $1.11 per share last year, which puts growth at 12.6% year over year even if Qiagen only hits the bottom end of the target range.

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Brian Orelli has no position in any stocks mentioned. The Motley Fool recommends Qiagen. The Motley Fool has a disclosure policy.