Qiagen NV (QGEN), a provider of sample and assay technologies, posted a disappointing fourth-quarter 2014 with lower-than-expected earnings and revenues. Adjusted earnings per share (EPS) of 25 cents fell short of the Zacks Consensus Estimate by 16.6%. Adjusted EPS also failed to meet the year-ago equivalent number and earlier provided guidance by 24.2%. The dismal earnings performance can be attributed to a tepid top line and margins.
Considering the one-time items, reported EPS came in at 11 cents, a sharp decline of 56% from the year-ago quarter’s equivalent.
For full year 2014, adjusted EPS came in at $1.00, down 4 cents from the Zacks Consensus Estimate and a couple of cents lower than the year-ago quarter’s equivalent. The bottom line also missed the company’s expectation of EPS of $1.08.
Revenues in Detail
Adjusted net sales in the fourth quarter amounted to $360.4 million, down 2% year over year and lagging the Zacks Consensus Estimate of $367 million.
Full-year adjusted net sales of $1.34 billion were up 3.3% year over year but failed to meet the Zacks Consensus Estimate of $1.35 billion.However, the top line for both the reported quarter and the year duly met the company's guidance of 4% adjusted net sales growth at CER.
The year-over-year top-line growth (at CER) for the fourth quarter came primarily on the back of strong sales of consumables and related revenues and instruments as well as improved results observed in all the customer classes. At CER, growth was attributed to about one percentage point from the bioinformatics acquisitions and about three percentage points from the rest of the business. Excluding sales of U.S. HPV test products, adjusted net sales were up 10% year over year at CER.
With respect to product categories, Consumables and related revenues (accounting for 87% of net sales) increased 4% year over year at CER. Instrumentation revenues (remaining 13%) demonstrated 13% growth at CER.
Region wise, the Americas (44% of revenues) witnessed a drop of 4% in sales growth (up 11% at CER excluding U.S. HPV product saleson demand across all customer classes), while revenues from Europe-Middle East-Africa (34%) and Asia-Pacific/Japan (20%) increased 12% and 11%, respectively. Sales in the top seven emerging markets (17%) demonstrated growth of 6% year over year in the reported quarter.
Segments in Detail
Qiagen primarily generates revenues from Molecular Diagnostics, Applied Testing, Pharma and Academia, which represented 51%, 9%, 18% and 22% of adjusted net sales, respectively, during the quarter. Molecular diagnostics sales registered a 3% increase at CER, driven by the solid ongoing expansion of Qiagen's growth drivers, which in turn, overcame the expected decline in U.S. HPV test product sales.
Sales derived from Applied Testing climbed 9% at CER owing to sales gains from both consumables and instruments. Pharma sales rose 1% at CER while Academia sales were up 6% year over year.
Operational Update
Adjusted gross profit declined 7.3% to $244.2 million in the fourth quarter. Adjusted gross margin contracted a huge 496 basis points (bps) to 67.7%. Adjusted operating income in the quarter was $71.6 million, down 24.9% from the year-ago number. Consequently, operating margin declined 650 bps to 19.8% in the reported quarter.
Financial Update
The company exited the fiscal with cash and cash equivalents and short term investments of $576.7 million, against $380.2 million at the end of fiscal 2013. Net cash provided by operating activities in 2014 was $288 million, up from $259 million in 2013. This resulted in free cash flow of $201.4 million in 2014, up 15.4% from the year-ago equivalent number.
As part of its third $100 million share repurchase program initiated in August last year, as of Dec 17, 2014, the company purchased approximately 2.1 million shares at a volume-weighted average price of approximately EUR18.21 per share at CER for a total of approximately EUR 38.6 million.
Outlook
Qiagen has provided its first quarter as well as full-year 2015 guidance. For the full year, the company expects to deliver higher adjusted net sales and adjusted earnings at CER with above market sales growth from the current core portfolio.
The company expects 2015 adjusted EPS to be in the range of $1.16−$1.18 at CER compared with $1.00 earned per share in 2014. The Zacks Consensus Estimate of $1.16 coincides with the lower-end of the guided number. 2015 adjusted net sales are expected to rise approximately 4% at CER. The Zacks Consensus Estimate for 2015 revenues stands at $1.39 billion. This current outlook takes into account sales growth of approximately 7%−8% at CER in the core portfolio (including contributions from the Enzymatics acquisition in Dec 2014), which will offset the adverse impact of approximately 4% from reduced sales of HPV products in the U.S.
For the first quarter of 2015, the company expects adjusted sales growth of about 2% at CER and adjusted EPS of 22−23 cents. The Zacks Consensus Estimate for revenues is pegged at $327 million while that for EPS is 26 cents.
Our Take
Qiagen closed the year 2014 on a disappointing note with adjusted earnings and sales both considerably lagging the respective Zacks Consensus Estimate. The company also failed to meet its own earnings forecast for both the quarter and the fiscal year. According to Qiagen, currency movements had a significant adverse impact of approximately 4% on reported net sales growth during the quarter.
However, the company is progressing well with respect to innovation and growth by executing targeted initiatives. The rapid expansion of its growth drivers, which accounted for approximately 30% of total sales in 2014, delivered more than 20% growth at CER. Qiagen is expecting 2015 to be a transformation year for the company marking it as the last year of significant headwinds from reduced sales of U.S. HPV test products that are used for cervical cancer screening.
We believe Qiagen's strategic collaborations, test menu expansions and moderately balanced international expansion will likely drive growth over time.
Qiagen currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
However, investors interested in the biomedical industry may consider better-ranked stocks like Alexion Pharmaceuticals, Inc. (ALXN), ACADIA Pharmaceuticals Inc. (ACAD) and Affymetrix Inc. (AFFX). All the three stocks carry a Zacks Rank #2 (Buy).
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