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Illumina (ILMN) Q1 Earnings Top Estimates, Margins Decline

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Illumina, Inc.’s ILMN first-quarter 2021 (ending Apr 4, 2021) adjusted earnings per share (EPS) of $1.89 surpassed the Zacks Consensus Estimate by 38.9%. Moreover, the bottom line improved 15.2% from the year-ago quarter (ending Mar 29, 2021).

The adjustments exclude acquisition-related expenses, primarily the Continuation Payments paid to GRAIL, and certain income tax benefits.

Including one-time items, the company’s GAAP EPS was $1.00, down by 14.5% year over year.

Revenues

In the quarter under review, Illumina’s revenues were $1.09 billion, up 27.2% year over year. The top line also exceeded the Zacks Consensus Estimate of $1.08 billion.

The first-quarter revenues were also up 15% from the sequential quarter’s level.

Segment Details

Sequencing Consumable revenues totaled $695 million in the reported quarter, up 25.7% year over year. Sequencing Instrument revenues were $176 million, reflecting a surge of 122.8% from the year-ago figure. However, Sequencing revenues (a subsegment of the Service & Other segment) were $108 million, down 15.6% from the year-ago quarter.

In the first quarter, Illumina witnessed its highest first-quarter placements of NovaSeq, primarily driven by the August 2020 launch of NovaSeq 6000 v1.5 reagents. The latest product led to higher new customer growth as well as additional HiSeq conversions. Also, continued robust adoptions of NextSeq 1000 and 2000, and NextSeq 550 boosted the first-quarter top line.

Illumina, Inc. Price, Consensus and EPS Surprise

Illumina, Inc. Price, Consensus and EPS Surprise
Illumina, Inc. Price, Consensus and EPS Surprise

Illumina, Inc. price-consensus-eps-surprise-chart | Illumina, Inc. Quote

Notably, the quarter’s figure exceeds the company’s preliminary estimate of $1,085 million announced earlier this month.

Margins

Adjusted gross margin (excluding amortization of acquired intangible assets) was 70.4% in the reported quarter, highlighting a contraction of 243 basis points (bps) year over year.

Research and development expenses increased 26.3% year over year to $197 million, whereas selling, general & administrative expenses rose 36.5% to $374 million. These pushed up operating costs by 32.8% to $571 million.

Adjusted operating income in the quarter was $199 million, up 1.5% from the year-ago income. Adjusted operating margin came in at 18.2%, reflecting a contraction of 461 bps year over year.

Financial Update

Illumina exited the first quarter of 2021 with cash and cash equivalents plus short-term investments of $4.63 billion compared with $3.47 billion at the end of 2020.

The company did not repurchase any common stock in the quarter.
Net cash provided by operating activities at the end of the first quarter of 2021 was $282 million compared with $281 million a year ago.

Capital expenses incurred by the company at the end of the first quarter of 2021 were $42 million compared with $40 million a year ago. Accordingly, free cash flow reported by the company at the end of the first quarter of 2021 was $240 million, down from the year-ago free cash flow of $241 million.

2021 Guidance

Illumina raised its revenue outlook for 2021 to the range of $4.05 billion-$4.15 billion, indicating a surge of 25-28% from 2020 (up from its earlier provided range of $3.79 billion-$3.89 billion indicating 17-20% improvement from the year-ago period). The Zacks Consensus Estimate for the same is currently pegged at $3.97 billion.

Adjusted EPS for 2021 is projected in the range of $5.80-$6.05, up from the earlier provided guidance of $5.10-$5.35. The Zacks Consensus Estimate for the same is currently pegged at $5.67.

Our Take

Illumina exited the first quarter with better-than-expected results. The gradually improving business conditions buoy optimism on the stock. Sequential improvement in segmental revenues across most geographies looks impressive as well. Strong microarrays revenues are also encouraging.

Additionally, the robust adoption of NovaSeq 6000 v1.5 reagents to enhance deeper genomic discoveries is appreciative. Receipt of the medical device registration in Russia for NextSeq 550Dx and its associated reagent kits are also praiseworthy. The announcement of TSO 500 partnership with Kartos Therapeutics to advance comprehensive genomic profiling for blood cancers augurs well for the stock.

However, the company’s lower sequencing revenues due to pandemic-led business disruptions remain a cause for concern. Contraction in both margins does not bode well for the stock either.

Zacks Rank & Key Picks

Illumina currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space are Omnicell, Inc. OMCL, Globus Medical, Inc. GMED and West Pharmaceutical Services, Inc. WST.

The Zacks Consensus Estimate for Omnicell’s first-quarter 2021 revenues is pegged at $245.4 million, suggesting a year-over-year improvement of 6.8%. The same for EPS stands at 67 cents, indicating growth of 1.5% from the year-ago reported figure. The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Globus Medical’s first-quarter 2021 revenues is pegged at $197.7 million, implying 3.7% increase from the year-earlier reported figure. The same for EPS stands at 36 cents, indicating growth of 24.1% from the year-ago reported figure. The company currently carries a Zacks Rank #2.

The Zacks Consensus Estimate for West Pharmaceutical’s first-quarter 2021 EPS is currently pegged at $1.42, indicating growth of 40.6% from the year-ago reported figure. The same for revenues stands at $614.8 million, indicating growth of 25.1% from the year-ago reported figure. The company currently carries a Zacks Rank #2.

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