Bruker (BRKR) Q3 Earnings & Revenues Beat Estimates, View Up

Bruker Corporation BRKR reported adjusted earnings per share (EPS) of 29 cents in the third quarter of 2017, down 9.4% from the year-ago figure. However, adjusted EPS beat the Zacks Consensus Estimate by a couple of cents.

Excluding one-time items, Bruker reported net income of $37 million or 23 cents per share in the third quarter, compared with $46.5 million or 29 cents, respectively, in the year-ago quarter.

Revenues in Detail

Bruker reported revenues of $435.6 million in the third quarter, up 10.6% year over year. The top line surpassed the Zacks Consensus Estimate of $414 million. Excluding a 4.8% positive effect from acquisitions and a 2.4% favorable impact from changes in foreign currency rates, Bruker reported year-over-year organic revenue growth of 3.4% in the quarter under reveiw.

Geographically and currency adjusted, European revenues increased in mid-teens year over year in the third quarter. North America revenues increased low- to mid-single digits. In Asia Pacific, organic revenues declined marginally. While China revenues again rose double digits in the third quarter, it was offset by a steep decline in Japan and soft performance in other Asia-Pacific regions.

Management expects continued organic revenue growth in 2018 on the back of the multi-year margin expansion initiative.

Per management, the company registered organic revenue growth based on NANO and CALID Group.

Bruker’s BioSpin Group reported low single-digit revenue growth on year-to-date basis. Revenues were however flat year over year. Per management, the upside was led by strong contribution from aftermarket and service sales, which were up low double digits in both the quarter and the year-to-date periods.

The Bruker NANO reported high single-digit revenue growth on a year-over-date basis on the back of strong organic growth and contributions from the January 2017 Hysitron acquisition of nanoindenting products. Also, year-to-date growth at AXS was driven by higher industrial growth and recovery in the European markets. On an organic basis, NANO group revenues rose low double digits.

CALID revenues increased mid single digits year to date on an organic basis in the third quarter. CALID gained from the InVivo consumables acquisition made in January 2017. Year to date, Daltonics mass-spec revenues within the CALID Group increased and Optics products garnered solid revenue growth on strong execution and improved applied and industrial market demand.

BEST revenues rose 11% organically on a year-to-date basis backed by higher MRI OEM consumer demand and the Bruker-OST acquisition made in November 2016.

Margin Trend

Gross margin in the reported quarter contracted 156 basis points (bps) to 45.5%. According to the company, adjusted gross margin declined 130 bps to 47.6% owing to a predicted gross margin headwind from acquisitions, negative currency effects as well as product, geographic and business mix.

Selling, general & administrative expenses increased 6.3% to $102.9 million and research and development expenses rose 7.9% to $40.9 million from the year-ago period. The other charges contracted 6.5% year over year to $4.3 million. Overall, operating margin contracted 20 bps to 11.5%.

Financial Position

Bruker exited third-quarter 2017 with cash and cash equivalents and short-term investments of $429.2 million, down from $440.3 million at the end of the second quarter. Year-to-date net cash provided by operating activities was $50.7 million, compared with $40 million in the year-ago period.

2017 Guidance

Bruker provided an update to its guidance for 2017.

Total revenue growth rate expectation for the year has been raised to a band of 8-8.5% from the earlier 4.5-6.0%. Moreover, organic revenue growth guidance has been lifted to 2.5-3% from 1.5-2% on continued acquisition growth expectations of 4.5% (previously 3.5-4%) and a foreign currency tailwind of around 1%. The current Zacks Consensus Estimate for 2017 revenues is pegged at $1.71 billion.

The company expects 2017 adjusted operating margin increase of approximately 70-100 bps year over year, up from the previous guidance of 40-70 bps. This includes an approximate 40-bps headwind in fiscal 2017 from the recent acquisitions.

Bruker raised adjusted EPS projections to a range of $1.17-$1.20 from $1.08-$1.12. The current Zacks Consensus Estimate for 2017 EPS is pegged at $1.12.

Our Take

Bruker exited the third quarter on a solid note. The company also raised 2017 guidance, which is indicative of brighter prospects. The company’s strategic acquisition activity has been encouraging. We are also upbeat about the company’s current focus on product development through increased R&D.

On the flip side, competitive landscape and macroeconomic headwinds continue to pose challenges for the company. Also, the contraction in both gross and operating margin is disappointing.

Zacks Rank & Key Picks

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

A few better-ranked stocks in the broader medical sector are PetMed Express, Inc. PETS, Luminex Corporation LMNX and Intuitive Surgical, Inc. ISRG. Notably, PetMed and Luminex sport a Zacks Rank #1 (Strong Buy), while Intuitive Surgical carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed reported earnings per share of 43 cents in the second quarter of fiscal 2018, up 79.2% from the year-ago quarter’s 24 cents. Also, gross margin expanded 548 bps year over year to 35.2% in the reported quarter.

Luminex reported adjusted earnings per share of 19 cents in the third quarter of 2017, up 216.7% year over year. The company’s revenues in the quarter increased almost 4.1% year over year to $74.1 million.

Intuitive Surgical posted adjusted earnings of $2.77 per share in the third quarter of 2017, up 34.5% year over year. Also, revenues increased 18% year over year to $806.1 million.

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