Avantor (AVTR) Q3 Earnings In-Line With Estimates, Revenues Top
Avantor, Inc. AVTR reported third-quarter 2023 adjusted earnings per share (EPS) of 25 cents, down 26.5% year over year. The bottom line was in line with the Zacks Consensus Estimate.
GAAP loss per share for the quarter was 16 cents, down 36% year over year.
Revenue Details
Revenues grossed $1.72 billion in the reported quarter, down 7.3% year over year. However, the metric topped the Zacks Consensus Estimate by 1.2%.
Avantor's foreign currency translation reflects a 2.3% favorable impact in the reported quarter, resulting in organic sales decline of 9.6% and core organic sales (excluding COVID-19 headwinds) decline of 7.9% during the reported period.
Segmental Analysis
Avantor reports financial results in three geographic segments based on customer location — the Americas, Europe and AMEA (Asia, Middle-East and Africa).
The Americas segment’s net sales were $1.02 billion, reflecting a reported decline of 9.3% year over year. Core organic sales fell 7.9% in the reported quarter, reflecting continued pressure in the Biopharma and Advanced Technologies and Applied Materials end markets. This compares to our projection of third-quarter segmental revenues of $1 billion.
Europe’s net sales were $579.8 million, reflecting a reported decrease of 2.6%, whereas core organic sales decreased 8.6% year over year. Per management, the decline in core organic sales was due to weakness in the Biopharma and Healthcare end markets, with softer demand for lab consumables and single-use solutions driven by ongoing destocking. This compares to our projection of third-quarter segmental revenues of $579.8 million, in line with the company-reported figures.
AMEA arm’s net sales were $121.2 million, indicating a reported fall of 12.3% year over year. The core organic sales decreased 5.4% year over year due to declines in lab consumables and single-use solutions and formulated solutions for Avantor’s semiconductor customers. This compares to our projection of third-quarter segmental revenues of $117.5 million.
Avantor, Inc. Price, Consensus and EPS Surprise
Avantor, Inc. price-consensus-eps-surprise-chart | Avantor, Inc. Quote
Margin Analysis
In the quarter under review, Avantor’s gross profit declined 11.1% to $578.6 million. The gross margin contracted 141 basis points (bps) to 33.6%.
We had projected 31.9% of gross margin for the third quarter.
Selling, general and administrative expenses declined 1.7% to $368.4 million year over year.
Operating profit totaled $210.2 million, down 23.8% from the prior-year quarter’s level. The operating margin in the quarter also contracted 264 bps to 12.2%.
Financial Position
Avantor exited third-quarter 2023 with cash and cash equivalents of $236.9 million compared with $236.4 million at the end of the second quarter. Total debt at the end of third-quarter 2023 was $5.63 billion compared with $5.88 billion at the second-quarter end.
Cumulative net cash flow from operating activities at the end of third-quarter 2023 was $618.4 million compared with $638 million a year ago.
Guidance
Avantor has revised its outlook for 2023.
The company now expects organic revenue declines of 8.5-7.5% and core organic revenue declines of 6-5%. This compares with prior organic and core organic revenue outlooks of declines of 9-7% and 6.5-4.5%, respectively.
Avantor expects its adjusted EPS to now lie within $1.02-$1.06 for the full year, indicating a decline from the earlier projection of $1.04-$1.12. The Zacks Consensus Estimate is pegged at $1.06, which matches the upper limit of the company’s outlook.
Our Take
Avantor exited the third quarter of 2023 with dismal top-line and bottom-line performances, which were disappointing. The decline in segmental revenues was also discouraging.
Per management, inventory destocking and cautious customer spending continued to impact demand in Avantor’s Biopharma, Healthcare and Advanced Technology and Applied Materials end markets. The continued conservative approach to customer spending in the research environment also negatively impacted activity levels at research labs and constrained capital purchases. This put pressure on both consumables and equipment and instrumentation sales during the reported quarter. These raise our apprehension about the stock. The contraction of both margins also does not bode well.
On a positive note, Avantor’s in-line adjusted EPS and better-than-expected revenues were impressive. The continued strong growth in sales to its higher education customers and the biomaterials platform was encouraging.
On the third-quarter earnings call, management confirmed that Avantor’s focus on cell and gene therapy has been yielding double-digit growth in several critical product lines targeting these workflows. Management also confirmed that Avantor continued to add innovative proprietary products to the portfolio with its Avantor magnetic mixing system for single-use mixing needs and J.T. Baker MCA tips for the Tecan Fluent Handling platform. These look promising for the stock.
Zacks Rank and Stocks to Consider
Avantor currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the broader medical space that have announced quarterly results are Abbott Laboratories ABT, Boston Scientific Corporation BSX and West Pharmaceutical Services, Inc. WST.
Abbott, carrying a Zacks Rank of 2 (Buy), reported third-quarter 2023 adjusted EPS of $1.14, beating the Zacks Consensus Estimate by 3.6%. Revenues of $10.14 billion outpaced the consensus mark by 3.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Abbott has a long-term estimated growth rate of 5.1%. ABT’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 6.8%.
Boston Scientific reported third-quarter 2023 adjusted EPS of 50 cents, beating the Zacks Consensus Estimate by 4.2%. Revenues of $3.53 billion surpassed the Zacks Consensus Estimate by 1.8%. It currently carries a Zacks Rank #2.
Boston Scientific has a long-term estimated growth rate of 12.8%. BSX’s earnings surpassed estimates in three of the trailing four quarters and missed once, the average surprise being 4.3%.
West Pharmaceutical reported third-quarter 2023 adjusted EPS of $2.16, beating the Zacks Consensus Estimate by 16.1%. Revenues of $747.4 million surpassed the Zacks Consensus Estimate by 0.1%. It currently carries a Zacks Rank #2.
West Pharmaceutical has a long-term estimated growth rate of 5.9%. WST’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 17.6%.
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