Diagnostic test-kit maker Meridian Bioscience, Inc. (VIVO) reported third-quarter fiscal 2014 (ended Jun, 30) earnings per share of 21 cents, a decline from the year-ago earnings of 24 cents by 12.5% as well as the Zacks Consensus Estimate by a penny. Net earnings decreased 13.0% to $8.8 million from $10.2 million in the prior-year quarter.
Revenues in the quarter inched up a mere 0.2% to $47.2 million but missed the Zacks Consensus Estimate of $49 million. The year-over-year growth was led by robust sales of the flagship illumigene product line.
Expenses and Margins
Gross profit in the third quarter declined 4.5% to $29.2 million. Consequently, the gross margin slipped 310 basis points (bps) to 61.9%, mainly due to the impact of the Medical Device Excise Tax.
Selling and marketing expenses rose 14.9% to $6.2 million while research and development expenses increased 16.0% to $3.1 million. General and administrative expenses remained flat at $6.7 million.
VIVO’s operating earnings in the reported quarter stood at $13.1 million, down 16.4% year over year. Operating margin contracted 550 bps to 27.8% from the year-ago level of 33.3%.
Segment Details
Revenues from VIVO’s larger Diagnostics segment slipped 0.4% year over year to $35.2 million. Also, operating earnings at this segment declined 14.4% to $10.5 million and operating margin contracted 490 bps to 29.9%.
Revenues from the Life Science segment increased 2.0% to $12.0 million. However, operating earnings declined 24.5% to $2.7 million in the quarter, while operating margin deteriorated a whopping 780 bps to 22.2%.
During the quarter, VIVO added 30 new illumigene customers and a total of 94 new assays were installed in both new and existing systems. The company’s illumigene product line, H. Pylori category and the Bioloine molecular components business made significant contributions to growth.
However, VIVO’s legacy C. difficile products continued to decline gradually and new competition in the foodborne category also dampened growth. The core Life Science business also faced a difficult year-ago comparison.
Financial Position
VIVO exited the quarter with cash and cash equivalents of $39.3 million, 2.7% lower than $40.4 million as of Jun 30, 2013. As of Jun 30, 2014, current assets stood at $113.4 million compared to current liabilities of $16.9 million, translating into working capital of $96.5 million and a current ratio of 6.7. The company has 100% borrowing capacity under its $30.0 million commercial bank credit facility with no bank-debt obligations outstanding.
Further, management declared a regular quarterly cash dividend of 20 cents per share for the third quarter of fiscal 2014 (indicating an annual rate of 80 cents per share), reflecting a 5% increase over the regular quarterly rate in fiscal 2013.
Guidance
VIVO reiterated its outlook for fiscal 2014. Earnings per share are estimated between 85 and 90 cents while revenues are expected in the range of $190 to $195 million. The bottom-line guidance is based on management’s assumption that average shares outstanding will increase to approximately 42.3 million at fiscal 2014-end from approximately 41.9 million at fiscal 2013-end.
The Zacks Consensus Estimates for earnings per share and revenues for fiscal 2014 are pegged at 86 cents and $193 million, respectively. Both estimates lie within the range guided by the company.
Our Take
We are disappointed with VIVO’s weak third-quarter results with both earnings and revenues missing our estimates. Although the company is benefiting from new product introductions, multiple new technologies and increasing popularity of the novel illumigene platform, tempered margins are affecting profitability.
However, VIVO has a sound financial position and continues to focus on its illumigene molecular technology platform. Further, consistent investments in the company’s core Life Science business should drive future growth.
Meridian Bioscience presently has a Zacks Rank #4 (Sell). Better-ranked stocks in the medical products industry include OraSure Technologies, Inc. (OSUR), Alere Inc. (ALR) and Boston Scientific Corp. (BSX). While OraSure Technologies sports a Zacks Rank #1 (Strong Buy), both Alere and Boston Scientific carry a Zacks Rank #2 (Buy).
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