) posted a 29.0% decline in 2014-second-quarter adjusted earnings
per share to 44 cents from 62 cents in the same quarter of 2013.
With this, adjusted earnings also missed the Zacks Consensus
Estimate of 58 cents by a wide margin of 24.1%.
Adjusted earnings were impacted by several factors during the
quarter, including costs associated with two product recalls, gross
margin pressure due to weak results in higher margin geographies
and increased spending within the company's Connected Health unit.
However, Alere reported a narrower net loss of $55.0 million or 67
cents per share in the second quarter, versus a net loss of $65.9
million or 81 cents per share in the same quarter last year.
Net revenues came in at $737.9 million, down 3.4% from $764.0
million in the year-ago quarter and missed the Zacks Consensus
Estimate of $744 million by 0.8%. Meanwhile, adjusted net revenues
declined 3.4% to $738.3 million from $764.6 million in the
The downside in revenues was mainly led by weak U.S. influenza
sales and wider-than-expected decline in U.S. healthcare
utilization, which primarily impacted Alere's U.S. infectious
Adjusted gross profit fell 11.5% to $357.0 million while adjusted
gross margin contracted 440 basis points (bps) to 48.4% in the
quarter. The deterioration in gross margin reflects weak results in
higher margin geographies, lower U.S. influenza sales and costs
associated with two product recalls during the quarter.
Adjusted operating income deteriorated 25.7% to $103.4 million
while adjusted operating margin reduced 420 bps to 14.0% in the
quarter under review.
Net revenues from
dipped 3.4% to $583.4 million and adjusted net revenues decreased
3.4% to $583.7 million. The company's recent professional
diagnostics acquisitions contributed $8.4 million to net revenues,
partially offset by a $6.8 million reduction in revenues from the
disposition of Spinreact in 2013. Adjusted operating income
deteriorated 26.9% to $108.8 million while adjusted operating
margin contracted 600 bps to 18.6% in the quarter.
Net revenues from
Health Information Solutions
fell 6.6% to $125.8 million due to a weak contracting season in the
second half of 2013. However, Alere posted narrower operating
losses (on a reported basis) during the quarter as compared to the
prior-year quarter which can be accredited to lower operating
expenses. Adjusted operating income, however, dipped 1.3% to $6.2
million while adjusted operating margin expanded 20 bps to 4.9%.
Net revenues from
scaled up 13.0% to $28.8 million, reflecting continued success from
the company's joint venture with Procter & Gamble. Adjusted
operating income spiked 24.3% to $4.8 million while adjusted
operating margin increased 150 bps to 16.7%.
Alere exited the quarter with cash and cash equivalents of $398.8
million, up 10.2% from $361.9 million as of Dec 31, 2013. Total
long-term debt and capital lease obligations decreased marginally
by 0.9% to $3,807.3 million from $3,843.2 million as of Dec 31,
2013. As a result, the long-term debt-to-capitalization ratio
declined by 10 bps to 64.8% from 64.9% as of Dec 31, 2013.
For the first six months ended Jun 30, 2014, operating cash flow
increased 26.7% to $125.2 million from $98.6 million in the same
period of 2013. Capital expenditures (net) declined 9.2% to $54.4
million from $60.0 million in the first half of 2013. This resulted
in an 82.4% rise in free cash flow to $70.7 million.
Alere reported dismal second-quarter results with both earnings and
revenues missing our expectations and deteriorating year over year.
Margins and segmental results were also disappointing in the
Alere continues to face unforeseen business challenges as well as
macroeconomic headwinds that affect the industry in general.
Despite growth across international markets, revenues during the
quarter lacked luster.
Nevertheless, Alere continues to focus on international markets
with strong potential, particularly in Africa and India. Given its
focus on global market development in addition to its diverse
product portfolio, Alere is positioned to perform well going
Currently, Alere carries a Zacks Rank #2 (Buy). Other well-placed
medical product stocks worth considering include Symmetry Medical,
), Abaxis, Inc. (
) and AtriCure, Inc. (
). Symmetry Medical sports a Zacks Rank #1 (Strong Buy) while both
Abaxis and AtriCure carry a Zacks Rank #2 (Buy).
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