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Illumina (ILMN) Q1 Earnings Beat Estimates, Gross Margin Up

Zacks Equity Research
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Illumina, Inc.'s ILMN first-quarter 2019 adjusted earnings per share (EPS) of $1.60 surpassed the Zacks Consensus Estimate by 19.4%. The bottom line also exceeded the year-ago number by 10.3%.

Including one-time items, the company reported EPS of $1.57 compared with $1.41 a year ago.

Revenues

In the quarter under review, Illumina's revenues rose 8.2% year over year to $846 million. The top line also surpassed the Zacks Consensus Estimate by 1.6% banking on strong consumables growth across Illumina’s sequencing portfolio with strength in all throughput categories and a solid microarray business.

Segment details

During the first quarter, sequencing consumable revenues improved 14% year over year, which included 20% growth in clinical sequencing consumables. Within the high throughput family, as expected, HiSeq consumables persistently declined due to customers' transition to NovaSeq.NextSeq and MiSeq placements witnessed year over year growth, with the strength of the former being driven by strong demand for TSO500.

While Product revenues (78.8% of total revenues) increased 6.2% year over year to $667 million, Service and Other (21.2%) revenues improved 16.2% year over year to $179 million.

Margins

Adjusted gross margin (excluding amortization of acquired intangible assets) was 70.2% in the reported quarter, reflecting an expansion of 40 basis points (bps) year over year.

Research and development expenses rose 23.4% year over year to $169 million and selling, general & administrative expenses escalated 15.3% to $211 million. The operating margin of 25.2% contracted 372 bps from the year-ago level on account of an 18.8% rise in operating costs.

Financial Update

Illumina exited the first quarter of 2019 with cash and cash equivalents plus short-term investments of $3.61 billion compared with $3.51 billion at the end of 2018. Net cash provided by operating activities at the end of the first quarter was $198 million compared with $255 million from the year-ago period.

2019 Guidance

Illumina has reaffirmed its 2019 view. The company still expects revenue growth in the range of 13-14%. Adjusting for certain net specified items with respect to the full year, EPS is once again reiterated in the $6.63-$6.73 band. The consensus mark for earnings is pegged at $6.53, which lies below the projected range. This outlook excludes any impact from the pending acquisition of Pacific Biosciences that is expected to close in mid-2019.

Our Take

Illumina exited the first quarter of 2019 on a solid note, with both earnings and revenues beating their respective Zacks Consensus Estimates. Top-line growth was registered across the company’s high, mid and low throughput categories. Furthermore, Illumina continues to showcase robust performance across a broad range of sequencing applications. The launch of the S Prime flow cell and TruSight Oncology 500, as a Research Use Only product, in the first quarter also buoy optimism.

On the flip side, operating margin contracted due to escalating operating expenses.

Zacks Rank and Other Key Picks

Illumina currently carries a Zacks Rank #2 (Buy). Other top-ranked stocks that posted solid results this earning season are Stryker Corporation SYK, Abbott Laboratories ABT and CONMED Corporation CNMD, each carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stryker’s first-quarter 2019 adjusted earnings per share of $1.88 surpassed the Zacks Consensus Estimate by 2.2%. Revenues of $3.52 billion came in line with the Zacks Consensus Estimate.

Abbott’s first-quarter 2019 adjusted earnings came in at 63 cents per share, which exceeded the Zacks Consensus Estimate by 3.3%. First-quarter worldwide sales of $7.54 billion, outpaced the Zacks Consensus Estimate of $7.47 billion.

CONMED posted first-quarter 2019 adjusted earnings per share of 57 cents, which beat the Zacks Consensus Estimate of 54 cents. Revenues of $218.4 million, outshined the Zacks Consensus Estimate of $213 million.

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