Genomic Health (GHDX) Earnings Surpass Estimates in Q4

Genomic Health, Inc.GHDX reported fourth-quarter 2016 earnings per share of 4 cents, reflecting an improvement from the year-ago quarter's loss figure of 8 cents. The quarter's number exceeded the Zacks Consensus Estimate of break-even earnings as well.

Net income in the reported quarter was $1.4 million as against net loss of $2.7 million in the year-ago quarter.

Full-year 2016 loss per share was 42 cents, narrower than the loss of $1.03 per share in the year-ago period and the Zacks Consensus Estimate of a loss of 46 cents.

Genomic Health, Inc. Price, Consensus and EPS Surprise

Genomic Health, Inc. Price, Consensus and EPS Surprise | Genomic Health, Inc. Quote

Revenues in Detail

Total revenue in the quarter improved 10.1% year over year to $82.7 million but missed the Zacks Consensus Estimate of $84 million. Strong growth across both the U.S. and international markets drove the top line.

For full-year 2016, Genomic Health's total revenue rose 14% from the year-ago period to $327.9 million. This figure however missed the Zacks Consensus Estimate of $329.2 million.

Geographically, fourth-quarter revenues in the U.S. improved 9% to $70 million, while international revenues rose 13% (up 16% at constant exchange rate or CER) to $12 million. The U.S. revenue growth was fueled by invasive breast cancer revenue growth of 6% as well as 4% contribution from Prostate test revenues.

On the other hand, during the reported quarter international revenue growth of 15% at constant exchange rate came on the back of strong performance in the market of Western Europe. Also, international tests in this quarter increased 22% from the prior-year levels and represented approximately 24% of the total test volume in the fourth quarter 2016.

During the quarter, the company delivered more than 30,020 Oncotype DX test results, up 8% year over year.

Margin Trends

In the quarter under review, Genomic Health's gross margin expanded 306 basis points (bps) year over year to 84.1%. Apart from significant top-line growth, the improvement in gross margin was fueled by the 7.6% fall in cost of product revenues of $13.2 million.

On the other hand, Genomic Health witnessed a 6.4% rise in operating expenses to $68.1 million owing to a 14.4% increase in general and administrative expenses to $18 million, 21.5% increase in research and development expenses to $15.3 million. However, selling and marketing expenses fell 34.7% to $38.8 million.

In the reported quarter, Genomic Health recorded an operating profit of $1.5 million, exhibiting a massive improvement of 148.3% from the year-ago equivalent, owing to higher revenue growth.

Financial Update

Genomic Health exited fiscal 2016 with cash and cash equivalents and short-term marketable securities (including a corporate equity investment) of $96.9 million, a slight improvement from $94.9 million recorded in the prior year.

2017 Guidance

Management projects 2017 revenues in the range of $355-$370 million, representing growth between 9% and 13% compared to 14% revenue growth in 2016. The Zacks Consensus Estimate for full-year 2017 revenues is $363.67 million, within the guided range.

The company expects positive net income at the midpoint of the revenue guidance and gross margin rate in the band of 83% to 84%.

For the first quarter 2017, the company anticipates revenue of approximately $86 million and an operating loss of up to $3 million compared to the approximate $9 million operating loss in the first quarter 2016.

Our Take

Genomic Health exited fiscal 2016 on a mixed note with earnings beating the Zacks Consensus Estimate and revenues missing the mark. We are concerned about the company's rising operating expenses as well.

Nevertheless, we are encouraged about the slight decline in cost of sales combined with gross margin expansion, on account of higher revenue growth.

Management encouragingly noted that Genomic Health has delivered four consecutive quarters of double-digit revenue growth. This we believe may be driven by the company's performance in the U.S. invasive breast cancer and prostate test segments. Specifically, in invasive breast cancer, the Oncotype DX test proved to be the company's only test to predict all major short- and long-term outcomes.

Zacks Rank & Key Picks

Genomic Health currently has a Zacks Rank #4 (Sell). Better-ranked medical stocks are Glaukos Corporation GKOS , Cardiovascular Systems CSII and Neogen Corp. NEOG . Glaukos sports a Zacks Rank #1 (Strong Buy) while Cardiovascular Systems and Neogen carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Glaukos gained over 100% in the last one year in comparison to the S&P 500's gain of 23.3%. The company has a stellar four-quarter average earnings surprise of over 100%.

Cardiovascular Systems surged over 100% in the last one year in comparison to the S&P 500. It has a four-quarter average earnings surprise of 67.8%.

Neogen gained 35.2% in the past one year, better than the S&P 500 mark. The stock has an impressive long-term earnings growth rate of 16.7% for the next five years compared to the industry average of 15.2%.

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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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