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Illumina (ILMN) Q4 Earnings Top Estimates, Gross Margin Up

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Illumina, Inc.’s ILMN fourth-quarter 2021 adjusted earnings per share (EPS) of 75 cents surpassed the Zacks Consensus Estimate by 50%. However, the bottom line declined 38.5% from the year-ago quarter’s earnings of $1.22.

The adjustments exclude certain amortization costs, expenses and benefits related to COVID-19 and restructuring costs, among others.

For the full year, adjusted earnings were $5.90 per share, 31.1% up from the year-ago period. It also beat the Zacks Consensus Estimate by 4.2%.

Including one-time items, the company’s GAAP EPS was 71 cents, down 59.4% year over year.

Revenues

In the quarter under review, Illumina’s revenues were $1.98 billion, up 26.2% year over year. The top line also exceeded the Zacks Consensus Estimate by 0.8%.

Full-year revenues were $4.52 billion, reflecting a 39.5% increase from the year-ago period. Revenues were in line with the Zacks Consensus Estimate.

Segment Details

Post the acquisition of GRAIL on Aug 18, 2021, Illumina has two reportable segments -- Core Illumina and GRAIL.

Core Illumina revenues surged 25% year over year to $1.193 billion on record shipments for both clinical and research with strength in oncology testing, genetic disease testing, and population genomics.

Core Illumina Sequencing Consumable revenues totaled $792 million in the reported quarter, up 32% year over year on record NovaSeq consumable shipments resulting from significant growth in the installed base.

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

Sequencing Instrument revenues for core Illumina were $191 million, reflecting a surge of 35% from the year-ago figure. The upside was driven by record NovaSeq shipments led by continued new to high-throughput customer adoption and accelerating demand in oncology testing.

Core Illumina sequencing service and other revenues were $106 million, flat year over year as revenue growth from instrument service contracts and lab services was offset by lower IVD partnership revenues.

GRAIL contributed $10 million to revenues during the reported quarter.

Margins

Adjusted gross margin (excluding amortization of acquired intangible assets) was 71.5% in the reported quarter, highlighting an expansion of 469 basis points (bps) year over year.

Research and development expenses increased 75% year over year to $350 million, whereas selling, general & administrative expenses rose 42.9% to $426 million. These pushed up operating costs by 55.8% to $776 million.

Adjusted operating income in the quarter was $81 million, reflecting a decline of 41.7% from the prior-year quarter’s $139 million. Operating margin contracted 782 bps year over year.

Financial Update

Illumina exited 2021 with cash and cash equivalents plus short-term investments of $1.34 billion compared with $3.47 billion at the end of 2020.

The company did not repurchase any common stock in the quarter.

Cumulative net cash provided by operating activities at the end of 2021 was $545 million compared with $1.08 billion a year ago.

2022 Guidance

Illumina projects consolidated revenues of $5.15-$5.24 billion for 2022, indicating growth in the range of 14-16% year over year. The Zacks Consensus Estimate for the same is currently pegged at $5.18 billion.

Adjusted EPS for 2022 is projected in the range of $4.00-$4.20. The Zacks Consensus Estimate for the same is currently pegged at $4.11.

The guidance considered both Core Illumina and GRAIL segments’ expected performances.

Our Take

Illumina exited the fourth quarter of 2021 with better-than-expected results. The robust year-over-year improvement in Core Illumina businesses looks encouraging. Contributions from the recently-concluded GRAIL acquisition also buoy optimism. NovaSeq consumable and instrument shipments reached new highs during the quarter, led by oncology testing, population sequencing and drug discovery initiatives. The bullish 2022 guidance instills investor confidence in the company. However, a rise in operating expenses pushed up costs during the fourth quarter. Contraction of operating margin is concerning. Deterioration in the short-term cash level raises concerns too.

Zacks Rank and Key Picks

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

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

AMN Healthcare Services, Inc. AMN has an Earnings ESP of +10.29% and a Zacks Rank of #1 (Strong Buy). AMN Healthcare is slated to release fourth quarter and full-year 2021 results on Feb 17. You can see the complete list of today’s Zacks #1 Rank stocks here.

AMN Healthcare’s long-term earnings growth rate is estimated at 16.2%. AMN’s earnings yield of 6.5% compares favorably with the industry’s 0.9%.

Allscripts Healthcare Solutions, Inc. MDRX has an Earnings ESP of +10.11% and a Zacks Rank of #2 (Buy). Allscripts will release fourth quarter and full-year 2021 results on Feb 24.

Allscripts’ long-term earnings growth rate is estimated at 11.1%. MDRX’s earnings yield of 5% compares favorably with the industry’s (4.9%).

Henry Schein, Inc. HSIC has an Earnings ESP of +2.62% and a Zacks Rank of 2. Henry Schein will release fourth quarter and full-year 2021 results on Feb 15.

Henry Schein’s long-term earnings growth rate is estimated at 11.8%. HSIC's earnings yield of 6.4% compares favorably with the industry’s 4.4%.


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