Cepheid
(
CPHD
) reported net income of $1.13 million or 2 cents per share in the
second quarter of fiscal 2012, lower than net income of $1.82
million or 3 cents per share in the year-ago quarter. After
adjusting for amortization expense, the earnings per share (EPS)
came in at 3 cents, a penny ahead of the Zacks Consensus Estimate
but behind the adjusted EPS of 4 cents in the second quarter of the
previous fiscal.
Revenues during the quarter increased 20.9% year over year to
$81 million, missing the Zacks Consensus Estimate of $83 million.
Currency headwinds had an adverse impact of over 200 basis points
on growth. The upside was driven by 22% growth at the Clinical
segment attributable to strong sales of reagents.
Among the segments, the Clinical segment consisting of Clinical
Systems (up 5% year over year to $13.9 million) and Clinical
Reagents (up 27% to $55.8 million) contributed about 86% of the
total sales during the quarter. Cepheid's Non-Clinical business
increased 40% year over year to $8.8 million. Product sales from
North America and the international market recorded a respective
year-over-year increase of 14% (to $54.4 million) and 52% (to $24.1
million).
Cepheid made placements of 133 GeneXpert systems in the quarter
(122 in the first quarter of 2012) in its commercial business. The
company's High Burden Developing Country ("HBDC") Program continues
to gain traction with 138 system placements (151 in the first
quarter of 2012, 181 in the fourth quarter of 2011 and 141 in the
third quarter of 2011). Including the HBDC systems, a
cumulative 3,350 systems have been placed worldwide as of June 30,
2012.
Revenue associated with the HBDC business was roughly at par
with the preceding quarter belying expectations. While some systems
revenue could not be recognized due to a change in customer
agreement, many customers delayed orders anticipating possible
reduction in the price of the test following an announcement by
UNITAID. These factors negatively impacted total revenue by
approximately $3 million in the second quarter
Gross margin on product sales increased to 57% in the reported
quarter from 55% in the year-ago period primarily due to
initiatives undertaken in the logistics and manufacturing
operations at the end of the first quarter. Operating expenses
amounted to $42.2 million, up 21.7% year over year, driven by
higher research and development (15.8% annually to $16.1 million),
sales and marketing (27.2% to $15.1 million), and general and
administrative (23.6% to $11.0 million) expenses. The company
reported $2.06 million as income from operations compared with
$1.98 million in the year-ago period.
Amidst continued economic uncertainty in Europe and renewed
concerns in the US regarding the potential impact of healthcare
reform, some significant developments on the company's front
include the clearance of GeneXpert Infinity-80 system in the US and
CE Mark approval of the Xpert CT/NG test. While the test is
commercially available in Europe since mid-June, the test has
already been submitted for approval to the US Food and Drug
Administration ("FDA") with a targeted commercial release before
year end.
Outlook
While the revenue outlook for 2012 was unchanged at $333-$347
million, the EPS guidance was lowered for the second time in the
year to 0−4 cents from the previous level of 12−17 cents. At the
end of fiscal 2011 Cepheid had projected EPS of 17−24 cents for
2012. The current Zacks Consensus Estimate of $342 million in
revenues is within the company's guidance range but the EPS
consensus of 18 cents is way above the company's estimates. On an
adjusted basis, the EPS guidance for 2012 comes to 1−5 cents.
The earnings guidance has been adjusted largely to reflect
changes in the company's outlook for gross margin for the HBDC
business and a less favorable currency movement. Cepheid's HBDC
reagent growth has slowed somewhat awaiting the availability of a
lower-priced test. In addition, a lower-than-targeted gross margin
contribution from Infinity family of systems also led the company
to lower its guidance.
Recommendation
With a broad portfolio of tests, Cepheid is one of the leading
players in the healthcare associated infection ("HAI") market. The
company is working on test menu expansion to further expand system
placements to compete with players like
Qiagen
(
QGEN
).
We are also encouraged to note the initiatives undertaken by the
company yielding the desired gross margin expansion. However, we
are disappointed with the company slashing its earnings guidance
for the fiscal the second time in a row. Besides, rise in operating
expenses continue to affect the bottom line
.
We have a Neutral recommendation for Cepheid. The stock carries
a Zacks #3 Rank (Hold) in the short term.
CEPHEID INC (CPHD): Free Stock Analysis Report
QIAGEN NV (QGEN): Free Stock Analysis Report
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