Alere Beats, Earnings Up 40.5%

Zacks

Alere Inc. (ALR) reported a 40.5% rise in 2013-second quarter adjusted earnings per share to 59 cents from 42 cents in the same quarter of 2012. With this, earnings beat the Zacks Consensus Estimate by a significant margin of 19 cents.

Net revenues went up 9.1% to $764.0 million in the second quarter of 2013, exceeding the Zacks Consensus Estimate of $722 million. Adjusted net revenues rose 9.0% to $764.6 million in the quarter from $701.6 million for the second quarter of 2012.

Adjusted operating income rose 20.2% to $143.9 million from $119.7 million a year ago. Adjusted operating margin improved 170 bps to 18.8% from 17.1% a year ago.

Segment Results

Net revenues from Professional Diagnostics grew 11.7% to $599.6 million while adjusted net product and services revenues increased 11.6% to $600.2 million. The company’s recent professional diagnostics acquisitions contributed $47.4 million to increase in overall revenues from the second quarter of 2012. Adjusted operating income increased 19.3% to $148.8 million while adjusted operating margin rose 160 bps to 24.6%.

Net revenues from the Health Information Solutions segment fell 2.8% to $134.8 million in the quarter from $138.6 million in the second quarter of 2012. Despite the decrease in revenues, adjusted operating income more than doubled to $6.3 million (4.7% of revenues) in the quarter from $3.0 million (2.2%) in the 2012-quarter, due to lower segment operating expenses from the prior-year period.

Net revenues from Consumer Diagnostics scaled up 16.6% to $25.4 million. Adjusted operating income increased 26.9% to $3.9 million while adjusted operating margin rose 130 bps to 15.2%.

Financial Position

ALR exited the second quarter with cash and cash equivalents of about $320.5 million, down 2.4% from $328.3 million as of Dec 31, 2012. Total long-term debt increased to $3.9 billion from $3.7 billion as of Dec 31, 2012, as a result, long-term debt-capitalization ratio rose 270 bps to 65.6% from 62.9% as of Dec 31, 2012.

Our Take

Diagnostic tests are shifting closer to the consumers and into the home testing market, as more diagnostic tests are developed to monitor patients rather than simply diagnose them. Alere's strategy of combining disease management with point-of-care testing (‘POCT’), in a manner that encourages patients to take responsibility for their overall health care, is viewed as a prudent approach while ensuring affordability at the same time.

In addition to growing revenues through a combined strategy of continued acquisitions and measured organic growth, the company is committed to improvement of its operating margin. Further, its product pipeline is strong, which has been developed through a combination of internal R&D as well as serial acquisitions.

ALR carries a Zacks Rank #1 (Strong Buy). Other medical stocks such as Hanger (HGR) with a Zacks Rank #1 (Strong Buy), as well as Boston Scientific (BSX) and Chembio Diagnostics, Inc. (CEMI), both with a Zacks Rank #2 (Buy), are worth to look for presently.

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