It has been about a month since the last earnings report for Illumina (ILMN). Shares have added about 13.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Illumina due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Illumina Beats Q1 Earnings Estimates, Withdraws View
Illumina’s first-quarter 2020 adjusted earnings per share of $1.64 surpassed the Zacks Consensus Estimate by 30.2%. Moreover, the bottom line improved 2.5% from the year-ago quarter.
Notably, adjusted net income excludes expenses related to the Reverse Termination Fee and Continuation Advances paid to Pacific Biosciences in the quarter.
Including one-time items, the company’s GAAP earnings per share was $1.17, down 25.5% year over year.
In the quarter under review, Illumina’s revenues rose 1.5% year over year to $859 million. The top line also surpassed the Zacks Consensus Estimate by 1.2%. The year-over-year improvement can be attributed to the company’s strength in sequencing consumables, and sequencing services and other. However, this was dented by lower-than-expected sequencing system revenue.
Sequencing Consumable revenues totaled $553 million in the reported quarter, up 14.9% year over year. Sequencing Instrument revenues were $79 million, down 24.8% from the year-ago figure. Sequencing revenues, a subsegment of the Service & Other segment, were $128 million, up 13.3% from the year-ago quarter.
In the first quarter of 2020, the NovaSeq pull-through per system witnessed year-over-year growth within the company’s expectations. Pull-through for both MiSeq and, NextSeq 500 and 550s were flat compared with the sequentially previous quarter. NextSeq shipments, except NextSeq 2000, were lower than expected due to COVID-related disruptions toward the end of the quarter. Further, MiniSeq was below its expected pull through range.
Gross margin (excluding amortization of acquired intangible assets) was 72.9% in the reported quarter, highlighting an expansion of 278 basis points (bps) year over year.
Research and development expenses declined 7.7% year over year to $156 million, and selling, general & administrative expenses rose 29.9% to $274 million. These expenses pushed up the operating cost by 13.2% to $430 million.
Adjusted operating margin came in at 22.8%, reflecting a contraction of 236 bps year over year.
Illumina exited the first quarter of 2020 with cash and cash equivalents plus short-term investments of $3.33 billion compared with $3.41 million at the end of 2019. The company authorized a share repurchase program to buy back $750 million of outstanding common stock and repurchased approximately $187 million of common stock in the first quarter.
At the end of the fiscal first quarter, net cash provided by operating activities was $281 million compared with $198 million a year ago.
Illumina noted that it is not in a position to estimate the extent of severity and duration of the outbreak as well as quantify the actual impact.
Accordingly, it has withdrawn its financial guidance for full-year 2020 revenue and earnings per share guidance.
How Have Estimates Been Moving Since Then?
Estimates review followed a downward path over the past two months. The consensus estimate has shifted -33.73% due to these changes.
At this time, Illumina has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Illumina has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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