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Alere Lags Q3 Earnings, Revenue Estimates; Cuts 2015 View

Alere Inc.ALR reported adjusted earnings (including share based compensation) of 51 cents per share in the third quarter of 2015, which fell short of the Zacks Consensus Estimate of 55 cents. Meanwhile, adjusted earnings were reported at 44 cents per share in the year-ago quarter.

Alere Inc. (ALR) - Earnings Surprise | FindTheCompany

Quarter Details

Net revenues fell 7.3% on a year-over-year basis to $602 million and missed the Zacks Consensus Estimate of $647 million. The downside was primarily due to unfavorable foreign exchange rates, lower revenues from pain management products and INRatio, and decline in revenues from some of the international segments.

Organic growth in the third quarter of 2015 declined 1.7%. Excluding pain management, the same grew 0.3%

The pain management market is unstable as a result of which revenues declined $12.6 million from the year-ago quarter. INRatio revenues also declined $7.7 million year over year.

Geographically, revenues from Africa declined 12% organically on a year-over-year basis. Revenues from Latin America and Asia-Pacific saw an improvement of 19% and 5% respectively, year over year. Revenues from North America and Europe declined a respective 2% and 4% year over year in the reported quarter.

Revenues from the Cardiometabolic Disease segment increased 4.3% organically to $208 million, which included 15% growth in Asia and 2% in North America. Revenues generated by the Afinion and Epoc products have been impressive during this quarter.

Infectious disease revenues declined 3.9% on a year-over-year basis to $164 million. The decline can be attributed to a 13% fall in sales in Africa and 7% in Europe. CD4 and Malaria sales also deteriorated by $8 million in Africa.

Global HIV sales climbed 2.9% organically on a year-over-year basis on the back of a strong performance in the Asia-Pacific region and higher demand for Determine Combo and Alere q products.

Revenues from Alere's Toxicology business dropped 3% to $163 million, primarily because of weak performance by the pain management sub-segment. Excluding pain management, core Toxicology revenues grew 6%.

Adjusted gross margin (including share based compensation) contracted 130 basis points (bps) to 48.5% in the third quarter. Adverse foreign exchange rates and low pain management sales can be regarded as the primary reasons behind this contraction

Also, adjusted operating margin contracted 120 bps to 16.3%, primarily due to the weak top-line performance.

Guidance

Alere lowered its full-year guidance for 2015 wherein it now projects net revenue in the range of $2.48 billion to $2.5 billion, down from the $2.5 billion to $2.6 billion range. Adjusted EPS is estimated in the band of $2.20-$2.20, as compared to the previous $2.40 to $2.50 range.

Our Take

Lower revenues from a number of segments have hurt the company's results in the third quarter. Alere faces significant vulnerability in its pain management business. This is a major disadvantage especially because pain management is a high margin business. An unfavorable foreign exchange rate also poses considerable threat.

Meanwhile, we are impressed with the company's expanding product portfolio. Alere recently received FDA 510(k) clearance for EDDP and PDP which is a positive for its Reagents business.

In July this year, Alere announced the acquisition of US Diagnostics (USD) for $60 million in cash. USD provides drug testing devices and currently distributes Alere's Toxicology products. The acquisition is likely to help Alere expand its customer base.

Zacks Rank & Stocks to Consider

Currently, Alere has a Zacks Rank #3 (Hold).

Better-ranked stocks in the medical sector are Diadexus, Inc. DDXS , Hill-Rom Holdings, Inc. HRC and SurModics, Inc. SRDX . All the three stocks sport a Zacks Rank #1 (Strong 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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