) reported adjusted earnings of 57 cents per share in the second
quarter of 2014, beating the Zacks Consensus Estimate by 6 cents or
11.8%. Adjusted earnings in the reported quarter also exceeded the
year-ago tally by 32.6%. Including one-time items, the company
reported earnings of 31 cents per share, up 19.2% from 26 cents per
share in the prior-year quarter.
Illumina, Inc - Earnings Surprise |
In the reported quarter, Illumina's revenues grew 29.3% year
over year to $447.6 million, outpacing the Zacks Consensus Estimate
of $429 million.
Top-line growth was mainly driven by healthy worldwide demand
for consumables, new instruments and NIPT (Non-Invasive PreNatal)
testing from the company's sequencing business. While strong demand
for NextSeq 500 and HiSeq X Ten contributed to revenue growth,
demand for HiSeq and MiSeq also exceeded management's expectations.
Moreover, higher number of shipments and record orders also paved
the way for higher revenue growth in the reported quarter. Illumina
achieved a historic milestone for its HiSeq family of products in
the quarter by exceeding 2 billion in shipments since the product's
Revenues by Business Categories
In the Product business (87.3% of total revenue),
revenues rose 24.7% year over year to $390.8 million. Within this
business, revenues from consumables went up 15% to $247 million
while that from instruments escalated 48% year over year to $140
The improvement in consumables and instrument revenues is
primarily attributable to the increased demand for sequencing
instruments, sequencing consumables as well as a larger installed
base of instruments including the introduction of HiSeq X Ten and
NextSeq. Moreover, HiSeq and MiSeq consumables reached record
levels during the reported quarter.
In the Service and Other business (12.7% of total
revenue), revenues climbed 74.1% year over year to $56.8 million.
The marked improvement in service revenues was mainly driven by
constant growth in extended sequencing maintenance contracts
associated with a larger sequencing installed base, growth in NIPT
services which benefited from test fees, revenue growth from verify
services, and improved demand for genotyping services.
Illumina's adjusted gross margin (considering stock-based
compensation as regular expense) came in at 70.4%, up 130 basis
points (bps) year over year on the back of improved instruments and
Adjusted operating margin was 26.8% in the quarter, up 150 bps
from the year-ago period. Although research and development
(R&D) expenses rose 22.2% year over year to $82.5 million and
selling, general & administrative (SG&A) expenses increased
34.1% year over year to $112.7 million, the improvement in
operating margin was due to higher gross margin in the reported
Illumina exited the quarter with cash and cash equivalents and
short-term investment of $1.1 billion compared with $1.2 billion as
on Dec 29, 2013.
Illumina generated $178 million in cash flow from operations in
the second quarter, reflecting significant growth from $88.6
million in the prior-year period. Capital expenditure amounted to
$23.3 million leading to free cash flow of $154.7 million in the
Illumina revised its business outlook for full year 2014. The
revision takes into account the strong second-quarter results. The
company now expects adjusted earnings per share (EPS) in the range
of $2.26-$2.28 (up from the earlier provided range of $2.10-$2.15).
Revenues are expected to increase at an annualized growth rate of
25%-26% (earlier 21%-23%).
The current Zacks Consensus Estimate for 2014 EPS of $2.16 lies
below the lower end of the company-provided guidance range. The
Zacks Consensus Estimate for revenues is presently pegged at $1.8
Illumina reported yet another impressive quarter, marking the
eleventh consecutive quarter of sequential revenue growth and the
best year-over-year growth tally since the second quarter of
We are also encouraged by the better-than-expected
second-quarter results. A major positive highlight of the quarter
was the company's bullish annual outlook for both EPS and
Going forward, Illumina's prospects seem bright on the back of
strong global demand for its products, particularly the recently
launched NextSeq 500 and HiSeq X Ten. Moreover, the unusually high
demand for HiSeq X Ten surpassed management's expectation. Illumina
expects this high demand trend for HiSeq to continue in the
upcoming quarters as well.
The company also seems enthusiastic about the successful launch
of its VeriSeq PGS product on the MiSeq platform and expects to
make it available on the NextSeq platform later in 2014. We believe
Illumina is well positioned to exploit a more-than-$20 billion
market opportunity and eventually meet its revised guidance.
Currently, Illumina carries a Zacks Rank #3 (Hold). Some
better-ranked stocks in the Biomedical industry that warrant a look
Biogen Idec Inc.
). All these stocks sport a Zacks Rank #1 (Strong Buy).
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