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Cerner (CERN) Misses on Q3 Earnings, Bookings Decline Y/Y

Cerner Corp CERN reported adjusted third-quarter 2017 earnings of 61 cents per share, missing the Zacks Consensus Estimate by a penny. The lackluster third-quarter performance can be primarily attributed to the year-over-year decline in bookings, which had scaled an all-time high in the last quarter. However, earnings rose 3.4% on a year-over-year basis.

The company reported net revenues of $1.28 billion, falling short of the Zacks Consensus Estimate of $1.29 billion. However, revenues rose 7.7% on a year-over-year basis. Cerner holds a Zacks Rank #2 (Buy).

Bookings Disappoint

In the third quarter, Cerner registered bookings worth $1.111 billion, down 22.5% on a year-over-year basis. In fact, bookings were below the company’s previously issued guidance owing to the postponement of several big contracts from this quarter to tentatively the fourth quarter of 2017.

Notably, bookings in the last quarter totaled $1.64 billion, up 16% on a year-over-year basis.

Nonetheless, Cerner is well positioned for a strong full-year performance based on solid bookings guidance for the fourth quarter. Next-quarter bookings are expected in the band of $1.75 billion to $2 billion, with the midpoint reflecting 30% growth on a year-over-year basis. The midpoint of the fourth-quarter booking guidance would increase full year 2017 bookings guidance by 8% on a year-over-year basis.

Segment Details

Systems sales increased 8% to $324 million. Sales were buoyed by licensed software and subscriptions, partially offset by a decline in technology resale.

Total support, maintenance and services, including professional and managed services, rose 7.8% from the year-ago quarter to $927.8 million. This reflects solid execution by the company’s service organizations. Revenue Cycle has also been a strong contributor, courtesy of strong sales and contribution from RevWorks services (revenue management services). Population Health service businesses also drove revenues in the third quarter on solid growth in the flagship HealtheIntent solutions. The company has been targeting the broader shift from fee-for-service to value-based care for long. Cerner also posted an impressive performance in the ambulatory and small hospital market.

Reimbursement Travel revenues increased 8.7% in the quarter, slightly below the company’s full-year expected growth rate.

Geographically, domestic revenues increased 7% from the year-ago quarter to $1.13 billion, while non-U.S. revenues increased 10% to $142 million.

Margin & Balance Sheet Details

Gross margin in the third quarter was 82.7% of revenues, down 50 basis points (bps) from a year ago. The decline was due to the lower mix of sublicensed software and lackluster performance by the technology resale business. Adjusted operating margin in the third quarter was 23.1% of net sales, down 130 bps from a year ago.

Cerner ended the third quarter of 2017 with $964 million in total cash and investments. Total debt for Cerner, including capital lease obligations, was $535 million.

FY17 Guidance Lowered

For the fourth quarter, Cerner forecasts revenues between $1.3 billion and $1.35 billion, with the midpoint reflecting growth of 5% on a year-over-year basis. Adjusted earnings are expected in the band of 60 cents to 62 cents per share, midpoint of which is flat on a year-over-year basis.

For the full year, management expects revenues at around $5.15 billion, which is at the low end of the previously issued range of $5.15 billion to $5.25 billion, thanks to lower bookings in the third quarter. Cerner currently forecasts 2017 adjusted earnings at $2.42, lower than the previously issued range of $2.46 and $2.54.

Companies Reporting Solid Earnings Results

Intuitive Surgical Inc. ISRG posted adjusted earnings of $2.77 per share in the third quarter of 2017, beating the Zacks Consensus Estimate of $1.97 on stellar revenue growth. The stock has a Zacks Rank #2.

PetMed Express, Inc.’s PETS adjusted earnings per share of 43 cents for the second quarter of fiscal 2018 were up 79.2% from the year-ago quarter. Also, earnings surpassed the Zacks Consensus Estimate by 43.3%. The stock has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Abbott ABT reported third-quarter 2017 adjusted earnings from continuing operations of 66 cents per share, up 11.9% year over year. Third-quarter worldwide sales came in at $6.83 billion, up 28.8% year over year. Abbott carries Zacks Rank #2.

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