Luminex 1Q Earnings Rise 50%, Beat Ests

Zacks

Luminex Corporation (LMNX) posted a robust 50.0% rise in adjusted earnings to 21 cents per share for the first quarter of 2014 from 14 cents per share in the same quarter of 2013. With this, earnings per share significantly exceeded the Zacks Consensus Estimate by 10 cents per share. The increase in earnings can be attributable to higher revenues and lower operating expenses during the quarter.

Revenues went up 6.3% to $56.6 million, surpassing the Zacks Consensus Estimate of $55.0 million. The increase in revenues can be attributable to assay product portfolio, which grew 18% as well as strong consumable sales, which rose 7% in the quarter.

Adjusted operating income for the quarter escalated 56.8% to $10.85 million from $6.9 million in the year ago quarter while adjusted operating margin rose 620 basis points (bps) to 19.2% from 13.0% in the first quarter of 2013.

Segment Results

Assay revenues grew 18.2% to $21.7 million, mainly due to growth in genetic assay portfolio in the high single digits driven by strong CS sales to the company's largest customer.

Consumable sales went up 7.3% to $12.8 million in the quarter driven by higher purchase volumes from Luminex's largest customers. The TSP purchases comprised 81% in total consumable revenues in the quarter amounting to $10.3 million.

Revenues from the System sales slid 2.4% to $6.4 million, due to lower sales of automated punching systems from Luminex's Australian subsidiary that resulted from the restructuring announced in late 2013. In addition, aggregate changes in system mix and ASPs, also led to the decline over the prior year.

Royalty revenues edged down 0.6% to $10.0 million for the quarter as end-user sales for the prior period were offset by a fall in minimal royalty and one-time payments. All other revenue fell 10.0% to $5.7 million in the quarter.

Financial Position

Luminex had cash and cash equivalents of $77.4 million as of Mar 31, 2014, up 13.9% from $67.9 million at the end of 2013. Long-term debt declined to $1.6 million as of Mar 31, 2014 from $1.7 million as of Dec 31, 2013.

In the quarter, operating cash flow rose 14.2% to $11.4 million from $10.0 million in the year-ago quarter. Capital expenditures rose 11.25% to $3.1 million in the quarter.

Guidance Reiterated

For 2014, Luminex reiterated its revenue guidance in the range of $225 to $240 million, reflecting an increase of 5 to 12% over 2013. The Zacks Consensus Estimate of $231 million lies within the guided range.

Our Take

Despite the earnings beat, we remain concerned about the company’s assays business owing to the reimbursement headwinds. However, management views this reimbursement issue as a transient phase and is confident that reimbursement rates for 2014 will eventually improve. The company continues to see strong demand for its technology and plans to execute new product development programs in 2014.

Luminex presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the medical instrument industry include Delcath Systems, Inc. (DCTH), Accuray Inc. (ARAY) and Natus Medical Inc. (BABY). Delcath Systems carries a Zacks Rank #1 (Storng Buy), while both Accuray and Natus Medical retain a Zacks Rank #2 (Buy).

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