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Illumina (ILMN) Q4 Earnings Top Estimates, Margins Decline

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Zacks Equity Research
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Illumina, Inc.’s ILMN fourth-quarter 2020 adjusted earnings per share (“EPS”) of $1.22 surpassed the Zacks Consensus Estimate by 0.8%. However, the bottom line plunged 28.2% from the year-ago quarter.

The adjustments include discrete tax expenses and income tax benefits.
Including one-time items, the company’s GAAP EPS was $1.75, up by 8.7% year over year.

Full-year adjusted EPS was $4.50, reflecting a 31.5% decrease from the year-ago period. However, the metric surpassed the Zacks Consensus Estimate marginally by 0.2%.

Full-year GAAP EPS was $4.45, reflecting a plunge of 33.9% from the year-ago period.

Revenues

In the quarter under review, Illumina’s revenues were $953 million, flat year over year. However, the top line exceeded the Zacks Consensus Estimate by 0.4%.

Although the fourth quarter’s revenues remained unchanged year over year, the same was up 20% from the sequentially last-reported quarter.

Full-year revenues were $3.24 billion, reflecting an 8.6% fall from the year-ago period. However, the metric was in line with the Zacks Consensus Estimate.

Segment Details

Sequencing Consumable revenues totaled $599 million in the reported quarter, up 4.7% year over year. Sequencing Instrument revenues were $141 million, unchanged from the year-ago figure. Sequencing revenues, a subsegment of the Service & Other segment, were $106 million, down 14.5% from the year-ago quarter.

In the fourth quarter, Illumina witnessed the second highest NovaSeq orders which was 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, launches of NextSeq 1000 and 2000 boosted the fourth-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

Margins

Adjusted gross margin (excluding amortization of acquired intangible assets) was 66.8% in the reported quarter, highlighting a contraction of 325 basis points (bps) year over year.

Research and development expenses increased 24.2% year over year to $200 million, whereas selling, general & administrative expenses rose 27.9% to $298 million. These pushed up operating costs by 26.4% to $498 million.

Adjusted operating income in the quarter was $139 million, down 49.3% from the year-ago income. Adjusted operating margin came in at 14.6%, reflecting a huge contraction of 1417 bps year over year.

Financial Update

Illumina exited 2020 with cash and cash equivalents plus short-term investments of $3.47 billion compared with $3.41 billion at the end of 2019. Total debt (including current portion) at the end of 2020 was $1.18 billion compared with $1.14 billion at the end of 2019.

The company repurchased $280 million of common stock in the quarter and $15 million is still available for share repurchase under the company’s current plan.

Cumulative net cash provided by operating activities at the end of 2020 was $1.08 billion compared with $1.05 billion a year ago.

Cumulative capital expenses incurred by the company at the end of 2020 were $189 million compared with $209 million a year ago. Accordingly, cumulative free cash flow reported by the company at the end of 2020 was $891 million, up from the year-ago free cash flow of $842 million.

2021 Guidance

Illumina projects its revenue growth for 2021 to be in the range of $3.79 billion-$3.89 billion, indicating a surge of 17-20% compared with the year-ago period. The Zacks Consensus Estimate for the same is currently pegged at $3.84 billion.

GAAP EPS for 2021 is likely to be in the range of $4.76-$5.01.

Adjusted EPS for 2021 is projected in the range of $5.10-$5.35. The Zacks Consensus Estimate for the same is currently pegged at $5.61.

Our Take

Illumina exited the fourth quarter with better-than-expected results. However, its lower sequencing revenues due to pandemic-led business disruptions dragged down the overall top line. Decline in total microarray revenues due to COVID-19-related headwinds is also particularly concerning. Contraction in both margins does not bode well for the stock either.

On a positive note, the gradually improving business conditions buoy optimism on the stock. Sequential improvement in segmental revenues across most geographies looks impressive as well. Additionally, the robust adoption of NovaSeq 6000 v1.5 reagents to enhance deeper genomic discoveries looks impressive. The announcement of TSO 500 partnerships with Bristol Myers Squibb, Kura Oncology, Myriad Genetics and Merck to advance comprehensive genomic profiling, as well as with Harvard Pilgrim Health Care to expand access to whole-genome sequencing for genetic disease testing augur well for the stock.

Zacks Rank & Stocks to Consider

Illumina currently carries a Zacks Rank #5 (Strong Sell).

Some other better-ranked stocks in the broader medical space are Abbott Laboratories ABT, Hologic, Inc. HOLX and IDEXX Laboratories, Inc. IDXX.

Abbott reported fourth-quarter 2020 adjusted EPS of $1.45, which surpassed the Zacks Consensus Estimate by 6.6%. Fourth-quarter worldwide sales of $10.7 billion outpaced the consensus mark by 7.9%. 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.

Hologic reported first-quarter fiscal 2021 adjusted EPS of $2.86, beating the Zacks Consensus Estimate by 33.6%. The company currently flaunts a Zacks Rank #1.

IDEXX reported fourth-quarter 2020 adjusted EPS of $2.01 which surpassed the Zacks Consensus Estimate by 40.6%. Revenues of $720.9 million beat the consensus mark by 5.8%. The company currently carries a Zacks Rank #2.

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