Qiagen NV QGEN reported adjusted earnings of 26 cents per share in the second quarter 2015, which surpassed both the Zacks Consensus Estimate and the year-ago quarter number, by a penny (by 4%). Adjusted EPS also coincided with the lower end of the company’s earlier provided guidance of 26−27 cents.
Considering the one-time items, Qiagen’s reported EPS dropped 21.4% year over year to 11 cents.
Revenues in Detail
Adjusted net sales in the second quarter declined 4% year over year to $319.5 million, (up 5% at constant exchange rate or CER). However, the top line figure steered past the Zacks Consensus Estimate of $318 million. The year-over-year decline was primarily caused by 9% of unfavorable currency impact.
The top-line growth at CER, was driven by strong sales of consumables and related revenues (87% of net sales; up 4% at CER) and instruments (accounting for the rest; up 18%) in all customer classes and regions.
Region-wise, sales from the Americas (49% of revenues) grew 4% at CER, while revenues from Europe-Middle East-Africa (30%) and Asia-Pacific/Japan (20%) increased 3% and 14%, respectively at CER. Sales in the top seven emerging markets (15%) demonstrated growth of 11% 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 50%, 9%, 20% and 21% of adjusted net sales, respectively, during the reported quarter. Molecular diagnostics sales grew 3% at CER, driven by 10% growth in the segment’s core portfolio.
Sales derived from Applied Testing climbed 11% at CER owing to double-digit sales gains from both consumables and instruments across all geographies. Both Pharma and Academia sales rose 7% at CER, respectively.
Operational Update
Gross profit declined 7.1% to $200.5 million in the second quarter. Adjusted gross margin contracted 100 bps to 70.6%.
Adjusted operating income in the quarter declined 3% year over year to $78.9 million. However, adjusted operating margin remained almost flat at 25%, as efficiency gains in general & administration, research & development and sales & marketing offset a slight decline in the adjusted gross margin due to changes in product mix, including higher instrument sales.
Financial Update
The company exited the quarter with cash and cash equivalents of $234.3 million, against $392.7 million at the end of 2014. Net cash provided by operating activities in the first half of 2015 was $134.7 million, up from $119.2 million in the comparable period a year ago. This resulted in a 10% increase in free cash flow to $84.1 million.
As of Jul 20, 2015, as part of its third $100 million share repurchase program initiated in August last year, so far, the company has bought back approximately 2.9 million shares for a total of $69 million.
Outlook
Qiagen reiterated its 2015 financial guidance. For the full year, the company still expects to deliver higher adjusted net sales and adjusted earnings at CER with above-market sales growth from its current core portfolio.
The company affirmed its 2015 adjusted EPS expectation in the range of $1.16−$1.18 at CER compared with $1.00 in 2014. The Zacks Consensus Estimate of $1.11 remains well below the guided range. 2015 adjusted net sales are projected to rise approximately 4% at CER (unchanged from the earlier guidance). The Zacks Consensus Estimate for 2015 revenues stands at $1.30 billion.
For the third quarter of 2015, the company expects adjusted sales growth of about 3% and adjusted EPS of 29−30 cents at CER. The Zacks Consensus Estimate for revenues is pegged at $329 million while that for EPS is 29 cents.
Our Take
Qiagen delivered impressive second-quarter 2015 results, which beat the Zacks Consensus Estimate on both the top and bottom-line fronts. However, on a year-over-year basis, results were a mixed bag characterized by a declining revenue and increasing EPS scenario. Nevertheless, the company exceeded its targets for adjusted net sales and earnings growth at CER in the second quarter, despite facing adverse currency movements that significantly affected its financials.
The company’s cash balance position also seems strong owing to an increase in operating cash flow. Management expects Qiagen to consistently improve its cash flow to support the ongoing business expansion while maintaining its commitment toward disciplined capital allocation.
Although a decline in U.S. HPV sales continued to adversely affect Qiagen’s results, the company is optimistic about a strong performance across the rest of its portfolio, going ahead. Led by its growth drivers, Qiagen expects to significantly ramp up overall business expansion in the coming quarters.
Qiagen currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Investors interested in the biomedical industry may consider better-ranked stocks like AMAG Pharmaceuticals, Inc. AMAG, Actelion Ltd. ALIOF and Heska Corporation HSKA. All the three stocks carry a Zacks Rank #1 (Strong Buy).
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