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Qiagen (QGEN) Q1 Earnings Meet, Revenues Top; View Intact

Qiagen NV QGEN reported first-quarter 2016 adjusted earnings of 19 cents per share, which were in line with the Zacks Consensus Estimate. On a year-over-year basis, however, adjusted earnings declined 13.6%.

At constant exchange rate or CER, the company reported adjusted earnings per share (EPS) of 19 cents, down by a nickel from the year-ago quarter level. Adjusted EPS at CER coincided with the lower end of the company’s guidance of 19−20 cents.

Considering one-time items, Qiagen’s reported EPS fell 25% year over year to 6 cents.

Revenues in Detail

Adjusted net sales in the first quarter were flat on a year-over-year basis at $298.4 million, (up 2% at CER). Meanwhile, the top line beat the Zacks Consensus Estimate of $295 million. The year-over-year revenue figure remained unchanged on account of an unfavorable currency impact of 2%.

Meanwhile, top-line growth at CER was driven by strong growth in sales of consumables and related revenues (88% of net sales; up 2% at CER) as well as instruments (accounting for the rest; up 6%). Excluding the expected impact of lower U.S. HPV test sales, adjusted net sales grew 4% at CER in the first quarter.

Region-wise, sales from the Americas (46% of revenues) inched up 1% at CER, while revenues from Europe-Middle East-Africa (34%) and Asia-Pacific/Japan (20%) increased 7% and 4%, respectively, at CER. Sales in the top seven emerging markets (13%) demonstrated growth of 19% 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 48%, 8%, 21% and 23% of adjusted net sales, respectively, during the reported quarter.

Molecular diagnostics sales were up 2% at CER, driven by robust double-digit CER growth in instrument sales and solid single-digit CER gains in consumables and related revenues. Sales derived from Applied Testing dropped 5% at CER, owing to a 20% CER decline in instrument sales, contradicting the strong prior-year quarter performance.  

Pharma sales rose 7% at CER, driven by solid double-digit CER expansion in instrument sales and mid-single-digit CER growth in consumables and related revenues. Academia sales also improved 2% at CER, driven by modest single-digit CER growth in instruments as well as consumables and related revenues.

Operational Update

Adjusted gross profit declined 4.9% to $207.5 million in the first quarter. Adjusted gross margin contracted 360 basis points (bps) to 69.5%, owing to lower gross margins for companion diagnostic partnerships and costs to relocate manufacturing for some products to the company’s operational headquarters site in Hilden, Germany.

Adjusted operating income in the quarter declined 20.8% year over year to $53.4 million. Consequently, adjusted operating margin dropped 470 bps to 17.9%, as the decline in general and administrative expenses was outweighed by the rise in both sales, marketing as well as research and development expenses.

Financial Update

Qiagen exited the first quarter with cash and cash equivalents of $355.8 million, compared with $290 million in the fourth quarter of 2015. Net cash provided by operating activities as of Mar 31, 2016 was $48.7 million, down from $62.8 million a year ago. This resulted in a 23.7% decline in free cash flow to $30.3 million.

During the first-quarter earnings call, management announced the launch of its fourth $100 million worth of share repurchase plan. The company has already completed its third $100 million share repurchase program, under which it bought back approximately 3.0 million shares  

Outlook

Qiagen reiterated its full-year 2016 guidance (earlier announced in Jan 2016). The company continues to expect adjusted net sales growth of approximately 6% at CER. Meanwhile, the Zacks Consensus Estimate for revenues stands at $1.33 billion.

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

For the second quarter of 2016, the company expects adjusted sales growth of about 4% and adjusted EPS of 22 cents at CER. The Zacks Consensus Estimate for revenues is pegged at $329 million while that for EPS is 27 cents.

Our Take

Qiagen started 2016 on a promising note with a satisfactory first quarter. However, we are disappointed with the company’s year-over-year decline in EPS. Meanwhile, although the company’s overall cash balance seems strong, weak free cash flow reserve raises concern. This also implies that the company has less cash in hand to pay off debts or make dividend payments and investments in new products.

On the brighter side, the company’s popular QuantiFERON-TB test gained over 25% at CER, thanks to the recent commercial initiatives adopted in the U.S. and Europe. We expect the company to maintain the trend in the quarters ahead as well.

Moreover, the company launched over 170 new QIAseq Targeted RNA Panelsduring the first quarter for gene expression profiling and efficient RNA sequencing with any NGS sequencer. With increased use of data analytics and insights into bioinformatics, this definitely propelled growth for Qiagen. However, declining HPV sales in the U.S. continue to be a drag on the overall sales performance.

Qiagen currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked medical stocks are NuVasive, Inc. NUVA, Orthofix International N.V. OFIX and Boston Scientific Corporation BSX. While Nuasive and Orthofix sport a Zacks Rank #1 (Strong Buy), Boston Scientific carries a Zacks Rank #2 (Buy).

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