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Catalent (CTLT) to Report Q2 Earnings: What's in the Cards?

Catalent, Inc. CTLT is scheduled to report second-quarter fiscal 2023 results on Feb 7, before market open.

In the last-reported quarter, the company’s earnings of 34 cents per share lagged the Zacks Consensus Estimate by 38.2%. Over the trailing four quarters, its earnings outperformed the Zacks Consensus Estimate on three occasions and missed the same in one, delivering a negative earnings surprise of 4.2%, on average.

Let’s see how things have shaped up prior to this announcement:

Factors to Note

Biologics Business

Per Catalent’s fiscal 2023 first-quarter earnings update in November 2022, the growth in its non- COVID-19 business was partly driven by its Biologics segment’s cell and gene therapy offerings. This trend is likely to have continued in the fiscal second quarter on the back of a continued fall in COVID-19-related revenues across the broader medical sector. This is likely to have benefited Catalent’s revenues in the to-be-reported quarter.

During the same call, Catalent confirmed that it has been benefiting from organic investment to enhance its BWI gene therapy assets (the Catalent Gene Therapy campus in Harmans, near the Baltimore Washington International or BWI airport). The company, which had brought online six additional suites to bring the site total to 10 suites, is currently running at high utilization rates. This is likely to have contributed to Catalent’s fiscal second-quarter revenues.

However, lower revenues from its COVID-related programs over the past few months are likely to have weighed on Catalent’s fiscal second-quarter revenues.

In December 2022, Catalent announced the completion and opening of a new commercial-scale cell therapy manufacturing facility at its European center of excellence, in Gosselies, Belgium. This is likely to be another contributor to the company’s revenues in the fiscal second quarter.

Catalent, Inc. Price and EPS Surprise

Catalent, Inc. Price and EPS Surprise
Catalent, Inc. Price and EPS Surprise

Catalent, Inc. price-eps-surprise | Catalent, Inc. Quote

The same month, Catalent announced its plans to establish a new biologics analytical center of excellence in Durham, within North Carolina’s Research Triangle, to offer comprehensive standalone analytical development and testing for biologic drug modalities, including cell and gene therapies. In November, Catalent announced a new license agreement with Exelixis, Inc. under which Catalent’s Redwood Bioscience subsidiary will grant Exelixis an exclusive license to three target programs with lead antibody and/or antibody-drug conjugate candidates. In October, Catalent announced a $12 million expansion program to increase biologics current good manufacturing practices analytical capabilities at its flagship facility in Kansas City, MO. These developments raise our optimism about the stock.

Catalent is likely to have benefited from factors like its new drug substance lines in Madison, its drug product lines in Bloomington in Europe and its cell therapy and plasmid offerings in Europe and the United States. The company is also likely to have benefited from its European drug product space, courtesy of its facility in Limoges, France, which it completed in March. Catalent is also expected to have derived benefits from its UpTempo Virtuoso platform process, which are likely to have significantly driven its revenues in the to-be-reported quarter.

We estimate the fiscal second-quarter Biologics revenues to be $586 million, suggesting a decline of 8.6% from the year-ago quarter’s reported figure.

Pharma and Consumer Health

In December 2022, Catalent announced the completion of the expansion of its clinical supply facility in the Waigaoqiao Free Trade Zone in Shanghai, China. In September, Catalent announced a $2.2 million expansion to its clinical supply facility in Singapore. The investment is expected to increase the site’s footprint and allow the installation of 35 new freezers for ultra-low temperature (ULT) storage. The expansion will likely add specialized secondary packaging capabilities for ULT products, thereby improving its operational efficiencies. These factors are likely to have meaningfully contributed to the company’s fiscal second-quarter revenues.

Other factors like Catalent drug development agreement with Awakn Life Sciences Corp. (September 2022) and the closing of the acquisition of Metrics Contract Services, a full-service specialty Contract Development and Manufacturing Organization from Mayne Pharma Group Limited (October 2022), raise our optimism about the stock.

During the fiscal first-quarter earnings call, Catalent’s management confirmed that it has been navigating an uncertain macroeconomic environment, including further deterioration of the overall economic landscape, particularly in Europe, with an increased likelihood of a recession and further tightening of capital markets. Per the same call, management has been anticipating further repo effects from inflation, which has been impacting consumer confidence and discretionary spending. Catalent has also been witnessing signs of lower end-market demand for nutritional supplements over the past few months. Additionally, the company has been experiencing delays in the delivery of the new manufacturing lines due to shortages of key components at its European suppliers. These factors are likely to have weighed on Catalent’s results in the second quarter of fiscal 2023.

We estimate the fiscal second-quarter Pharma and Consumer Health revenues to be $530.6 million, suggesting a decline of 8% from the year-ago quarter’s reported figure.

The Estimate Picture

For second-quarter fiscal 2023, the Zacks Consensus Estimate for total revenues of $1.12 billion implies a decline of 7.8% from the prior-year quarter’s reported figure.

This compares to our revenue estimate of $1.12 billion for the quarter, in line with the ZCE.

The consensus estimate for earnings per share (EPS) is pegged at 72 cents, implying a decline of 20% from the prior-year quarter’s reported number.

We estimate the fiscal second-quarter adjusted EPS to be 67 cents.

What Our Model Suggests

Our proven model predicts an earnings beat for Catalent this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat.

Earnings ESP: Catalent has an Earnings ESP of +6.29%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank #3.

Other Stocks Worth a Look

Here are a few medical stocks worth considering, as these have the right combination of elements to beat on earnings this reporting cycle.

Haemonetics Corporation HAE has an Earnings ESP of +2.53% and a Zacks Rank of 2. HAE has an estimated growth rate of 11.2% for fiscal 2023.

Haemonetics’ earnings surpassed estimates in all the trailing four quarters, with the average surprise being 12.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.

IDEXX Laboratories, Inc. IDXX has an Earnings ESP of +1.04% and is a Zacks #2 Rank stock. IDXX has an estimated long-term growth rate of 17.3%.

IDEXX’s earnings surpassed estimates in all the trailing four quarters, with the average surprise being 5.2%.

Penumbra, Inc. PEN has an Earnings ESP of +11.11% and sports a Zacks Rank of 1 at present. PEN’s earnings yield of 0.4% compares favorably with the industry’s negative yield.

Penumbra’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, with the average surprise being 37.6%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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Haemonetics Corporation (HAE) : Free Stock Analysis Report

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