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Alere (ALR) Outshines Q1 Earnings; Revenues Lag Estimates - Analyst Blog

Alere Inc.ALR reported adjusted earnings (EPS) of 53 cents per share in the first quarter of 2015, which comfortably outpaced the Zacks Consensus Estimate of 44 cents.

Adjusted EPS increased 19.2% from 45 cents in the year-ago quarter, primarily on the back of lower operating expenses. However, a decline in top-line growth partially offset the positive effect of an expanding operating margin.

Alere Inc. - Earnings Surprise | FindTheCompany

Quarter Details

Adjusted net revenues declined 2.4% on a year-over-year basis to $610.7 million, which lagged the Zacks Consensus Estimate of $620 million. The downside was primarily due to an unfavorable foreign exchange, which negatively impacted revenues by $29 million.

Organic growth in the first quarter of 2015 was 2.6% on a constant currency basis, excluding dispositions. Latin America represented 17% of organic growth, followed by Asia Pacific (5%) and Europe (3%).

Adjusted Professional Diagnostics revenues increased 4% from the year-ago quarter to $584.1 million. Revenues from Consumer diagnostics segment declined a modest 1% to $21.9 million. License and royalty revenues fell 10% to $4.7 million.

Revenues from Cardiometabolic patient self testing and mail-order diabetes increased by $7 million, whereas the same from core Toxicology, excluding pain management, grew $6 million on a year-over-year basis.

Cardiometabolic business fetched revenues of $205.1 million. Higher Triage, Afinion and epoc sales were offset by lower INRation product sales. Strong performance from Asia Pacific region, particularly China, contributed to growth in Cardiometabolic revenues.

Infectious disease business revenues increased 7% on a year-over-year basis to $178.8 million, buoyed by higher revenues from tests associated with HIV, flu ($27 million), respiratory, C.difficile and syphilis. Infectious disease business revenues from Latin America grew on the back of an increase in HIV and syphilis testing.

Revenues from Europe increased 10% on a year-over-year basis, on the back of higher pneumonia, flu and CRP tests on Afinion platform.

Global Toxicology business declined 2% on a year-over-year basis. Revenues from pain management business were down significantly, owing to pricing pressures.

Adjusted gross margin contracted 160 basis points (bps) to 50.9% in the reported quarter. The contraction was primarily due to unfavorable foreign exchange rate and an unfavorable product mix within the company's Cardiometabolic business. A decline in high margin pain management business was also responsible for the gross margin downside.

Adjusted research and development (R&D) expenses, as percentage of net revenues, contracted 160 bops to 4.4%. Adjusted selling, general and administrative (SG&A) expenses contracted 180 bps on a year-over-year basis to 28.1%. These contractions reflected the positive impact of management's cost curtailment initiatives.

Adjusted operating margin expanded 190 bps to 18.4%, primarily on the back of lower R&D and SG&A expenses.

Guidance

For 2015, Alere expects net revenue in the range of $2.5 billion to $2.6 billion. Adjusted EPS is expected in the band of $2.40-$2.50.

Our Take

In our opinion, the lower R&D and SG&A expenditure suggests that the company's cost control plans are working well. The continuing divestment of non-core assets will not only boost profitability but will also help Alere focus more on developing its core operations.

Alere continues to focus on international markets with strong potential, which is an upside. We are also impressed with a rapidly expanding product portfolio. The company received IVD CE marking for its Alere q HIV-1/2 Detect assay in Europe. It also received a Clinical Laboratory Improvement Amendments (CLIA) waiver for the Alere i Influenza A & B test. We feel new products will help Alere gain better market traction, going forward.

However, Alere faces significant vulnerability in its pain management business. This is a major downside, especially given that it is a high margin business. An unfavorable foreign exchange rate also prevails as a major headwind for the company.

Stocks to Consider

Currently, Alere has a Zacks Rank #3 (Hold). Better-ranked stocks in the medical sector include INC Research Holdings INCR , Biocept BIOC and ICON Public Limited Company ICLR . While INC Research sports a Zacks Rank #1 (Strong Buy), ICON and Biocept hold a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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