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Syneos' (SYNH) Q1 Earnings Miss Estimates, Revenues In Line

Zacks Equity Research

Syneos Health Inc. SYNH posted first-quarter 2019 adjusted earnings per share (EPS) of 59 cents, which missed the Zacks Consensus Estimate by 1.7%. However, the metric rose 7.3% from the year-ago tally.

Reported net loss per share came in at 29 cents, wider than the loss of 24 cents in the year-ago quarter.

Revenues in Detail

Service revenues in the quarter totaled $1.12 billion. The top line increased 5.8% year over year but was on par with the Zacks Consensus Estimate. Per management, revenue growth across key segments drove the top line.

Segmental Details

The Clinical Solutions segment delivered service revenues of $805 million in the first quarter, up 2.3% year over year (up 4.1% at CER). The upside was led by net new business growth, partially offset by unfavorable revenue mix and adverse currency fluctuations.

Commercial Solutions service revenues came in at $314 million in the reported quarter, up 16.2% year over year (up 16.9% at CER). Net new business growth, favorable revenue mix, and the company’s buyout of Kinapse in the third quarter of 2018 drove Commercial Solutions service revenues.

Margin Details

Direct cost (excluding depreciation and amortization) increased 5.5% to $886.8 million in the quarter. Selling, general and administrative expenses rose 13.9% year over year to $113.1 million. Adjusted operating margin (excluding depreciation, amortization, transaction and integration-related and restructuring and other expenses) contracted 44 basis points from the year-ago quarter to 10.6%.

Financial Details

Syneos Health exited the first quarter of 2019 with cash, cash equivalents, and restricted cash of $107.9 million compared with $155.9 million at the end of 2018. Net cash used in operating activities at the end of the quarter was $13.3 million compared with cash outflow of $46.9 million a year ago.

Guidance Reaffirmed

For 2019, the company reaffirmed the adjusted service revenue guidance at $4.62-$4.73 billion. The Zacks Consensus Estimate is pegged at $4.68 billion, within the guided range.

For 2019, the company has reiterated its adjusted EPS guidance at the range of $3.03-$3.23. The Zacks Consensus Estimate for the same is pegged at $3.12, well within the guided range.

Our Take

Syneos Health exited the first quarter of 2019 with lower-than-expected earnings. However, we are upbeat about the strong year-over-year revenue growth across both operating segments.Thecompany has been strengthening its unique end-to-end market position by consistently innovating and expanding its Syneos One product. Strong RFP flow, a diverse portfolio of clinical and commercial initiatives and sustained customer interest in the company’s integrated offerings buoy optimism.

However, the contraction in operating margin is concerning.

Zacks Rank & Key Picks

Syneos Health currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks with solid results this earnings season are Stryker Corporation SYK, DENTSPLY SIRONA XRAY and CONMED Corporation CNMD, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stryker delivered first-quarter 2019 adjusted EPS of $1.88, beating the Zacks Consensus Estimate by 2.2%. Meanwhile, revenues of $3.52 billion were in line with the consensus estimate.

DENTSPLY reported adjusted EPS of 49 cents in the first quarter of 2019, beating the Zacks Consensus Estimate of 38 cents. Revenues of $946.2 million surpassed the Zacks Consensus Estimate of $917.1 million.

CONMED posted first-quarter 2019 adjusted EPS of 57 cents, which exceeded the Zacks Consensus Estimate of 54 cents. Also, revenues of $218.4 million outshined the consensus mark of $213 million.

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