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Luminex Earnings Beat but Fall Y/Y, Shares Down

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Luminex Corporation (LMNX) posted an 11.8% fall in adjusted net earnings to $6.3 million or 15 cents per share for the fourth quarter of 2013 from $7.2 million or 17 cents in the same quarter of 2012. However, earnings per share exceeded the Zacks Consensus Estimate by 7 cents per share. The decline in earnings can be attributable to lower revenues and higher costs during the quarter.

Reported earnings rose about 20% to $5.1 million or 12 cents per share from $4.3 million or 10 cents in the fourth quarter of 2012.

Revenues slid nearly 1% to $55.2 million and missed the Zacks Consensus Estimate of $56.0 million. The decline in revenues can be attributable to poor assay revenues during the quarter. The decrease in earnings and revenues led to a 2.9% fall in share price after the market closed yesterday.

For full year 2013, adjusted net earnings fell about 11.0% to $16.9 million or 40 cents from $19.0 million or 45 cents in the prior year. However, revenues in the year grew 5.4% to $213.4 million, which is in line with the company’s own guidance. Despite higher revenues, earnings in the year declined due to a considerable (15.9%) rise in operating expenses during the year.

Adjusted operating income for the quarter fell 25.0% to $7.5 million from $10.0 million in the year ago quarter while adjusted operating margin dipped 450 basis points (bps) to 13.5% from 18.0% in the fourth quarter of 2012.

For the full year, adjusted operating income decreased 29.6% to $22.6 million from $32.1 million a year ago while adjusted operating margin dipped 530 bps to 10.6% from 15.9% in 2012.

Segment Results

Assay revenues dropped 24.4% to $18.0 million, mainly due to the reimbursement headwinds. Infectious disease sales comprised approximately 68% of total assay sales, with genetic testing representing 32% of the latter. In 2013, Assay revenues slid 1.2% to $74.1 million.

Consumable sales remained nearly flat year over year at $12.1 million in the quarter and $48.5 million in the year, as stable purchase volume from Luminex’s largest customer was partially offset by headwinds from LSR focused partners through lower research budgets in the U.S. and implementation of sequestration earlier in 2013.

Revenues from the System sales soared 40.1% to $10.0 million, driven by impressive multiplexing systems sales and incremental sales of FLEXMAP 3D product with higher price point. Revenues for the year rose 2.3% to $31.8 million due to a 10% increase in symptoms shipments, as well as a shift from LX systems and MAGPIX systems, which have a lower price point.

Royalty revenues went up 23.3% and 18.6% to $9.3 million and $37.0 million for the quarter and the year, respectively. All other revenue rose 24.9% to $5.9 million in the quarter and 27.4% to $22.0 million in the year.

Financial Position

Luminex ended 2013 with cash and cash equivalents of $67.9 million, up from $42.8 million at the end of 2012. Long-term debt declined to $1.7 million as of Dec 31, 2013 from $2.8 million at the end of 2012. As a result, long-term-debt-to-capitalization ratio slid 50 bps to 0.6% from 1.1% as of Dec 31, 2012.

In 2013, operating cash flow rose 10.8% to $26.9 million from $24.3 million a year ago. Capital expenditures nearly doubled to $18.1 million from $9.8 million in 2012.

2014 Outlook

For 2014, Luminex expects revenues in the range of $225 to $240 million, reflecting an increase of 5 to 12% over 2013. The Zacks Consensus Estimate of $230 million lies within the guided range.

Luminex is optimistic about the life science research market and foresees continued favorable trends with respect to demand from its clinical customers. In the assay business line, the company expects growth in GPP, CF and PGx product lines apart from continuing positive momentum in its LDT strategy. Luminex believes that the presence of a direct molecular diagnostic sales force will provide significant momentum in 2014.

Our Take

Despite earnings beat, we remain concerned about the company’s assays business owing to the reimbursement headwinds. However, management views this reimbursement issue as a transient phase and is confident that reimbursement rates for 2014 will eventually improve. The company continues to see strong demand for its technology and plans to execute new product development programs in 2014.

Luminex presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the medical instrument industry include Natus Medical Inc. (BABY), ABIOMED, Inc. (ABMD), and AngioDynamics Inc. (ANGO). Natus Medical carries a Zacks Rank #1 (Strong Buy), while both ABIOMED and AngioDynamics carry a Zacks Rank #2 (Buy).

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