Qiagen Beats, Guidance Raised
Qiagen (QGEN) reported second quarter 2012 earnings of 14 cents per share, in line with the year-ago quarter earnings. However, adjusting for certain one-time items, EPS came in at 25 cents in the quarter, beating the Zacks Consensus Estimate as well as the year-ago quarter earnings by a couple of cents.
Net sales during the quarter grew a robust 9% (14% at constant exchange rates, or CER) year over year to $307.2 million and surpassed the Zacks Consensus Estimate of $304 million. The upside in net sales was driven by double-digit sales growth across all the operational regions of the company. Moreover, all the customer classes, particularly Molecular Diagnostics and Applied Testing, delivered encouraging results.
Segments
Qiagen primarily derives its revenues from molecular diagnostics, applied testing, pharma and academia, which represented 48%, 8%, 20% and 24% of total sales, respectively, during the quarter.
Region wise, Americas (46% of revenues) witnessed a 7% increase in sales at CER, driven by Applied Testing gains and QuantiFERON latent TB test demand, which compensated for the expected decline in the US HPV (human papillomavirus) assay sales. Revenues from Europe- Middle East-Africa (35% of sales) and Asia-Pacific /Japan (18% of sales) increased 18% and 20% at CER, respectively. Europe/ Middle East / Africa benefited from the expansion in Pharma and Molecular Diagnostics, driven by the QIAsymphony automation system as well as rapid growth in Personalized Healthcare. The growth in Asia-Pacific /Japan came on the back of greater contribution from Japan and China in the quarter, particularly in Molecular Diagnostics.
Under product categories, Consumables and related revenues (accounting for 86% of net sales in the quarter) rose 12% year over year at CER, while instrumentation revenues (accounting for the rest) increased by 28% at CER. The consumable sales during the quarter benefited from double-digit growth in Molecular Diagnostics. On the other hand, robust growth in instruments sales was on the back of initiatives to secure new product placements such as the QIAsymphony automation portfolio and its Rotor-Gene Q real-time PCR platform.
Molecular diagnostics registered a 22% increase in sales at CER, based on a broad portfolio of assays, which more than offset the decline in HPV sales. In Prevention, the QuantiFERON latent TB test contributed significantly to the total sales, benefiting from the acquisition of Cellestis in August 2011. In Profiling, sales increased in key markets for disease analysis product. In Point of Need, the AmniSure acquisition contributed to growth.
Sales derived from applied testing were up 28% at CER, primarily driven by strong instrument sales (doubled year over year) during the quarter. Consumables sales also increased in the high single-digits range. The company witnessed demand for human identification and forensic products across all its geographic regions.
Pharma sales rose 8% at CER primarily based on encouraging performance in Asia-Pacific/ Japan, benefiting from the expansion of R&D activities. Academia witnessed mere a 1% upside in net sales, affected by lower instrument sales.
Qiagen exited the second quarter with cash and cash equivalent and short-term investment of $266.3 million compared with $275.7 million at the end of fiscal 2011. Year-to-date, net cash provided by operating activities were $100.0 million from $106.1 million in the same period of 2011.
Moreover, the company initiated a share buyback program to repurchase up to $100 million of its shares. The company is also reviewing its current debt structure, which at the end of the quarter remained at $447.1 million.
Outlook
Qiagen increased its 2012 outlook, though currency will continue to be a headwind. For the full year, net sales are expected to increase in the range of 8-9% (earlier range being 6-8%) at CER on the back of mix of organic growth and contributions from acquisitions (Cellestis and Ipsogen in 2011 and AmniSure in May 2012). For 2012, adjusted EPS has been raised by a penny on both sides to $1.04−$1.06. The revised guidance is higher than the current Zacks Consensus EPS and revenue estimates of $1.00 and $1.24 billion, respectively.
The company provided its third quarter 2012 EPS guidance of 25 cents (in line with the current Zacks Consensus Estimate) on revenue growth of 9-10% at CER. The EPS outlook for the third quarter takes into account approximately one cent per share of dilution for investments in the next-generation sequencing initiative, which included the acquisition of Intelligent Bio-Systems. The Zacks Consensus revenue Estimate of $306 million for the third quarter of 2012 also falls within the projected growth rate.
Recommendation
In spite of continued adverse currency movement, we are encouraged with Qiagen’s solid second quarter performance. Even amid a challenging academic research market with austerity measures and tight government budgets impacting domestic HPV assay sales, we are impressed with the huge and growing companion diagnostics market, which is currently gaining significant traction. Qiagen is also adopting an aggressive acquisition strategy to widen its scope and strengthen its position in the competitive landscape compared to other major players like Life Technologies (LIFE) and Sigma-Aldrich (SIAL).
Qiagen currently retains a short-term Zacks #3 (Hold) Rank.
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