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Qiagen Q4 Earnings Miss, Molecular Diagnostics Disappoints

QiagenNVQGEN reported fourth-quarter 2015 adjusted earnings of 31 cents per share, which missed the Zacks Consensus Estimate by a penny. On a year-over-year basis, however, earnings improved by 24%.

At constant exchange rate or CER, the company reported adjusted earnings per share (EPS) of 33 cents, 32% higher than the year-ago quarter.

Notably, while declaring its preliminary results, Qiagen had estimated adjusted EPS in the range of 33-34 cents at CER, reflecting year-over-year growth of 32-36%. In its guidance, Qiagen had forecasted adjusted EPS of 35 cents at CER for the fourth quarter.

For full year 2015, adjusted EPS came in at $1.05, up 5% from 2014. Adjusted EPS at CER was $1.13, up 13% from $1.00 reported a year ago. However, this remains below the earlier provided guidance of $1.16−$1.18 at CER.

Revenues in Detail

Adjusted net sales in the fourth quarter fell 3% year over year to $348.5 million (up 3% at constant exchange rate or CER). However, the top line lagged the Zacks Consensus Estimate of $353 million. The year-over-year decline was primarily caused by an unfavorable currency impact of 6%.

Moreover, growth at CER failed to match Qiagen's expectation of 5% in the reported quarter as increase in consumables and related revenues were offset by volatility in the timing of revenues from the growing portfolio of companion diagnostic partnerships and lower revenues from instruments. Sales of consumables and related revenues (86% of net sales) were up 5% at CER while instruments (accounting for the rest) declined 4%.

Meanwhile, top-line growth at CER was primarily driven by the Enzymatics portfolio (acquired in Dec 2014), while the rest of the business provided about one percentage point.

Region-wise, sales from the Americas (45% of revenues) were up 2% at CER, while revenues from Europe-Middle East-Africa (33%) and Asia-Pacific/Japan (21%) increased 7% and 6%, respectively, at CER. Sales in the top seven emerging markets (17%) demonstrated growth of 4% year over year at CER in the quarter.

Segments in Detail

Qiagen primarily generates revenues from Molecular Diagnostics, Applied Testing, Pharma and Academia, which represented 49%, 9%, 19% and 23% of adjusted net sales, respectively, during the reported quarter.

Molecular diagnostics sales remained unchanged at CER, as high-single-digit CER growth in consumables was reduced by the lower-than-estimated performance of companion diagnostic partnerships and lower revenues from instruments. Sales derived from Applied Testing climbed 7% at CER owing to high-single-digit growth in consumables and related revenues, partially offset by low-single-digit CER growth in instrument sales.

Pharma sales rose 6% at CER owing to mid-single-digit gains in instrument sales and consumables and related revenues. Academia sales also grew 7% at CER, driven by single-digit sales growth in consumables and related revenues.

Operational Update

Gross profit was up 3.5% at $33 million in the fourth quarter. Gross margin expanded 420 basis points (bps) to 64.1%.

Adjusted operating income in the quarter surged 116.4% year over year to $64.2 million. Consequently, adjusted operating margin expanded 1018 bps to 18.4% due to a 6.8% decline in sales and marketing expenses, a 38.3% decline in general & administration expenses and a 9.5% reduction in research & development expenditure.

Financial Update

Qiagen exited 2015 with cash and cash equivalents of $420.8 million, against $576.7 million in 2014. Net cash provided by operating activities in 2015 was $317.5 million, up 10% from $288 million a year ago. This resulted in a 9% increase in free cash flow to $219.7 million.

As of Dec 31, 2015, as part of its third $100 million share repurchase program initiated in August last year, the company has bought back approximately 3 million shares for a total of $70 million.

Outlook

Qiagen reiterated its full-year 2016 guidance as announced during the presentation of the company's preliminary fourth quarter 2015 results on Jan 2016. The company expects to deliver adjusted net sales growth of 6% at CER and adjusted EPS growth of the same magnitude to reach a range of $1.10-1.11 at CER. The current Zacks Consensus Estimate for 2016 is pegged at $1.34 billion for revenues and $1.13 for EPS.

For the first quarter of 2016, the company expects adjusted sales growth of about 2% and adjusted EPS between 19 cents and 20 cents at CER. The Zacks Consensus Estimate of revenues is pegged at $310 million while that of EPS is 24 cents.

Our Take

We are disappointed with Qiagen's fourth-quarter 2015 results, which while lagging the company's guidance, also failed to meet the Zacks Consensus Estimate on both the top and bottom-line front. Among its customer classes, Qiagen delivered sluggish growth in the largest class - Molecular Diagnostics. Despite strong growth in QIAsymphony automation platform, revenues were impacted by multi-year reagent rental agreements. However, the other three customer classes demonstrated decent growth, which offered some respite.

Currency headwinds continued to weigh on the company's quarterly performance, with the consistent strengthening of the dollar. The company's strong cash balance position however buoys optimism.

Qiagen currently carries a Zacks Rank #4 (Sell).

Stocks to Consider

Better-ranked med-biomed/generic stocks include Baxalta Incorporated BXLT , Anika Therapeutics Inc. ANIK and Gilead Sciences Inc. GILD . 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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