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Illumina (ILMN) Q4 Earnings Lag Estimates, Revenues Top Mark

Zacks Equity Research
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Illumina, Inc.'s ILMN adjusted earnings per share (EPS) of $1.32 in the fourth quarter of 2018 missed the Zacks Consensus Estimate by 2.9%. Also, the bottom line declined from the year-ago number by 8.3%.

Including one-time items, the company reported EPS of $1.41 compared with 46 cents a year ago.

Full-year adjusted EPS came in at $5.72, a 43% surge from the year-ago period. The Zacks Consensus Estimate of $5.76 remains above the company’s adjusted figure.

Revenues

In the quarter under review, Illumina's revenues rose 11% year over year to $867 million. Additionally, the top line surpassed the Zacks Consensus Estimate of $863 million on strong consumables growth across Illumina’s sequencing portfolio with strength in all throughput categories and a solid microarray business.

In 2018, revenues summed $3.33 billion, a 21% rise from the year-earlier period. The top line remained in line with the Zacks Consensus Estimate. Per Illumina, 2018 marked the 20th consecutive year of growth as genomics consistently fuels growth through an increasing number of research, translational and clinical applications across a broad range of customers.

During the fourth quarter, sequencing consumable revenues improved 8% year over year. Normalizing for timing of stocking orders, sequencing consumable growth was 16% and overseas consumable pull through was roughly flat. Within the high throughput family, HiSeq consumables persistently declined as anticipated due to customers' transition to NovaSeq.

Product revenues (85.1% of total revenues) increased 11.9% year over year to $738 million, and Service and Other (14.9%) revenues were up 8.4% year over year to $129 million.

Operational Update

Adjusted gross margin in the fourth quarter (excluding amortization of acquired intangible assets) came in at 69.1%, reflecting a contraction of 173 basis points (bps) year over year on account of an unfavorable product mix.

Research and development expenses rose 28.5% year over year to $176 million, and selling, general & administrative expenses escalated 24% to $217 million. The adjusted operating margin of 23.8% contracted 697 bps from the year-ago level.

Financial Update

Illumina exited 2018 with cash and cash equivalents plus short-term investments of $3.51 billion, up 63.3% from $2.15 billion at the end of 2017. In 2018, net cash provided by operating activities was $1.14 billion compared with $875 million as of Dec 31, 2017.

2019 Guidance

Illumina has provided its 2019 view. The company projects revenue growth in the range of 13-14%. Adjusting for certain net specified items with respect to the full year, EPS is now expected in the $6.50-$6.60 band.The consensus mark for earnings is pegged at $5.76, lying below the projected range. This outlook excludes any impact from the pending acquisition of Pacific Biosciences, which is expected to close in mid-2019.

Our Take

Illumina exited the fourth quarter of 2018 on a mixed note with earnings lagging the Zacks Consensus Estimate and revenues surpassing the same. Top-line growth was visible across the company’s high, mid and low throughput categories. And Illumina continues to uniquely support the broadest range of customer application and throughput requirements. NextSeq placements were strong and NextSeq shipment revenues were the second highest in any quarter since launch.

However, escalating costs are putting pressure on margins. The company is operating in a tough competitive landscape.

Zacks Rank & Key Picks

Illumina currently carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the broader medical space include Omnicell, Inc. OMCL, Amedisys, Inc. AMED and Varian Medical Systems VAR.

Omnicell’s long-term earnings growth rate is estimated at 11.8%. The stock holds a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Amedisys’ long-term earnings growth rate is projected at 18.8%. The stock is a #2 Ranked player.

Varian’s fiscal first-quarter adjusted earnings of $1.06 per share were in line with the Zacks Consensus Estimate. Revenues of $741 million outpaced the consensus mark of $717.9 million. The stock is a Zacks #2 Ranked player.

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