Catalent (CTLT) Q2 Earnings Lag Estimates, Gross Margin Down
Catalent, Inc. CTLT reported second-quarter fiscal 2024 adjusted loss per share of 24 cents against the year-over-year period’s earnings per share (EPS) of 67 cents. The metric was wider than the Zacks Consensus Estimate of a loss of 3 cents per share.
The adjustments include charges related to amortization, and acquisition, integration and other special items’ costs, among others.
The company’s GAAP loss per share was $1.12 during the quarter, against the year-over-year period’s EPS of 44 cents.
Revenues in Detail
Revenues grossed $1.03 billion in the reported quarter, down 10.2% year over year. However, the metric surpassed the Zacks Consensus Estimate by 1.8%.
At constant exchange rate or CER, revenues were also down 11%.
The top line was hampered by soft performances in its Biologics segment in the reported quarter.
Organic net revenues (excluding the impact of acquisitions, divestitures and currency translation) decreased 11% year over year.
Segments in Detail
Per Catalent’s new organizational structure, it reports via two segments — Biologics and Pharma and Consumer Health (PCH).
Revenues in the Biologics segment fell 23.1% year over year on a reported basis (down 24% at CER) to $446 million in the quarter under review.
Revenues in the PCH segment increased 2.9% from the year-ago period (up 1% at CER) to $587 million.
Per management, both segments registered strong non-COVID sequential revenue growth in the reported quarter.
Catalent, Inc. Price, Consensus and EPS Surprise
Catalent, Inc. price-consensus-eps-surprise-chart | Catalent, Inc. Quote
Operational Update
In the quarter under review, Catalent’s gross profit fell 58.4% to $161 million. The gross margin contracted a huge 1,808 basis points to 15.6%.
Selling, general and administrative expenses rose 5.8% to $239 million year over year.
Adjusted operating loss totaled $78 million against the prior-year quarter’s adjusted operating profit of $161 million.
Financial Update
Catalent exited second-quarter fiscal 2024 with cash and cash equivalents of $229 million compared with $209 million at the end of the fiscal first quarter. Total debt at the second quarter of fiscal 2024-end was $5.01 billion compared with $4.95 billion at the end of the fiscal first quarter.
Cumulative net cash provided by operating activities at the end of second-quarter fiscal 2024 was $42 million compared with $122 million a year ago.
Our Take
Catalent exited the second quarter of fiscal 2024 with wider-than-expected loss and dismal overall top-line and bottom-line performances. The decline in Biologics segment’s revenues during the period was also disappointing. Rising product costs leading to the contraction of gross margin in the quarter do not bode well. Catalent also faced escalating operating costs during the quarter, thereby incurring an adjusted operating loss. This was also discouraging.
On a positive note, Catalent’s better-than-expected revenues in the reported quarter were encouraging. The year-over-year improvement in the PCH segment was impressive. Management’s confirmation regarding Catalent’s strong non-COVID sequential revenue growth in both the Biologics and PCH segments and continued investment in its operational improvement initiatives raise our optimism.
This month, Catalent entered into a merger agreement with Novo Holdings. Per Catalent’s management, the company is likely to benefit from Novo Holdings’ significant resources to accelerate investment in its business and enhance key offerings as it continues to offer premium development and manufacturing solutions for pharma and biotech customers. This looks promising for the stock.
Zacks Rank and Key Picks
Inspire Medical currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space that have announced quarterly results are Elevance Health, Inc. ELV, HCA Healthcare, Inc. HCA and Stryker Corporation SYK.
Elevance Health, carrying a Zacks Rank of 2 (Buy), reported fourth-quarter 2023 adjusted EPS of $5.62, beating the Zacks Consensus Estimate by 1.3%. Revenues of $42.45 billion outpaced the consensus mark by 1.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Elevance Health has a long-term estimated growth rate of 12%. ELV’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 3.1%.
HCA Healthcare reported fourth-quarter 2023 adjusted EPS of $5.90, beating the Zacks Consensus Estimate by 16.8%. Revenues of $17.30 billion surpassed the Zacks Consensus Estimate by 4.5%. It currently sports a Zacks Rank #1.
HCA Healthcare has a long-term estimated growth rate of 9.7%. HCA’s earnings surpassed estimates in three of the trailing four quarters and missed once, the average surprise being 9.8%.
Stryker reported fourth-quarter 2023 adjusted EPS of $3.46, beating the Zacks Consensus Estimate by 5.8%. Revenues of $5.82 billion surpassed the Zacks Consensus Estimate by 3.8%. It currently carries a Zacks Rank #2.
Stryker has a long-term estimated growth rate of 10.3%. SYK’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 5.1%.
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