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Cerner's (CERN) Q3 Earnings Match Estimates, Bookings Up Y/Y

Cerner CorporationCERN reported adjusted third-quarter 2018 earnings of 63 cents per share, in line with the Zacks Consensus Estimate. Earnings also increased from the prior-year quarter's figure by 2 cents.

Revenues of $1.34 billion rose 5% on a year-over-year basis, which missed the Zacks Consensus Estimate of $1.36 billion.

In the past year, Cerner's shares have declined 4.5% compared with the industry 's decline of 5.1%.

The stock currently has a Zacks Rank #3 (Hold).

Revenues by Geography

Per management, U.S. revenues grossed $1.19 billion, up 5% on year-over-year basis.

International sales surged 7% from the year-ago quarter to $152 million. Growth was mainly driven by strong results in the U.K., Sweden, the Middle East and Canada.

Cerner Corporation Price, Consensus and EPS Surprise

Cerner Corporation Price, Consensus and EPS Surprise | Cerner Corporation Quote

Bookings Detail

In the reported quarter, Cerner's bookings totaled $1.59 billion, up 42.9% year over year. Per management, bookings also grew 19% year to date.

Furthermore, bookings growth came from long-term contracts, including the addition of a Cerner ITWorks client.

Segment Details

Instead of reporting in three revenue categories - system sales, support maintenance and services - Cerner reported in seven segments in the third quarter.

Licensed software revenues fell 3.2% to $139.9 million. Per management, software bookings in the quarter came lower than expected. In fact, management expects lower-than-expected revenues to impact the fourth quarter of 2018 as well.

Technology resale revenues came in at $60.4 million, up 6% on a year-over-year basis. However, it came below management's expectations.

Sales from Subscriptions grossed $79.1 million, down 35.4% year over year.

Professional services revenues totaled $456.7 million, up 13.9% from the prior-year quarter. Per management, growth was mainly driven by Cerner's Works business.

Revenues in the Managed services unit totaled $302 million, up 14.6% from the prior-year quarter. Per management, growth was driven by strong year-to-date bookings.

Support and maintenance revenues came in at $277.8 million, up 5.5% year over year.

Reimbursed travel revenues came in at $24.2 million, in line with the year-ago quarter's figure.

Margins

In the quarter under review, gross profit totaled $1.11 billion, up 3.4% on a year-over-year basis. Gross margin was 82.8%, down 130 basis points (bps) in the quarter.

Operating income in the quarter came in at $207.2 million, down 16.4% year over year. Operating margin was 15.5%, which contracted 390 bps.

Per management, adjusted operating margin was 19.2%, down from the year-ago quarter's figure of 23.1%.

Financial Position

Cerner exited the third quarter with free cash flow $155.3 million. Operating cash flow in the quarter totaled $ 338.5 million.

Long-term debt and capital lease obligations remained unchanged at $441 million from the last reported quarter.

Guidance

For the fourth quarter of 2018, Cerner expects revenues between $1.37 billion and $1.42 billion. The midpoint of this range reflects year-over-year growth of 6%. The Zacks Consensus Estimate is pegged at $1.39 billion, which is within the guided range.

Adjusted earnings per share is expected to be 62-64 cents. The midpoint of this range is 9% higher than the year-ago quarter's figure. The Zacks Consensus Estimate is pinned at 67 cents, which is above the guided range.

Business Bookings for the fourth quarter is projected between $1.85 billion and $2.05 billion. However, the midpoint of this range reflects a 16% year-over-year decrease.

On a full-year basis, revenues are expected at $5.4 billion, which reflects 5% growth over 2017 and is above the midpoint of Cerner's previously provided full-year guidance range. The Zacks Consensus Estimate stands at $5.41 billion, slightly above the guided range.

Adjusted earnings per share is expected at $2.46, which is above the low end of Cerner's previously provided full-year guidance range. The Zacks Consensus Estimate is pinned at $2.51, above the guided range.

For 2018, business bookings are expected at $6.71 billion, reflecting a year-over-year upside of 6%.

Wrapping Up

Cerner exited the third quarter on a tepid note. While earnings met the consensus mark, revenues lagged the same. However, Cerner continues to have strong contributions from key areas like, Population Health, Revenue Cycle and ITWorks. Strong international performance in the quarter is promising. Solid year-over-year and year-to-date bookings growth is also a positive. Gains in Professional and Managed Services units buoy optimism. Management is also optimistic about the alliance with Lumeris, earlier this year. Continued activity with the Department of Veterans Affairs is encouraging. A strong fourth-quarter and full-year outlook for earnings and revenues also paints a bright picture.

On the flip side, Cerner's Licensed Software and Subscriptions revenues saw a year-over-year decline in the quarter. In fact, management expects low software bookings to negatively impact total bookings in the fourth quarter as well. Contraction in gross and operating margins also adds to the woes. High long-term debt and competition in the global MedTech space are worrisome.

Upcoming Releases From the MedTech Industry

A few better-ranked stocks in the MedTech space are Inogen, Inc. INGN , Baxter International Inc. BAX and Henry Schein, Inc HSIC .

Inogen is expected to release third-quarter fiscal 2018 results on Nov 6. The Zacks Consensus Estimate is pegged at 52 cents for the quarter's adjusted earnings per share and the same for revenues is pegged at $91.1 million. The stock has a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Baxter is expected to release third-quarter 2018 results on Oct 31. The Zacks Consensus Estimate for the period's adjusted earnings per share is 74 cents and the same for revenues is pegged at $2.79 million. The stock carries a Zacks Rank #2.

Henry Schein is slated to release third-quarter 2018 results on Nov 6. The Zacks Consensus Estimate for adjusted earnings per share is $1.01 for the to-be-reported quarter and the same for the top line is pegged at $3.35 billion. The stock carries a Zacks Rank #2.

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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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