QIAGEN (QGEN) Earnings Meet, Sales Miss Estimates in Q4

QIAGEN N.V.QGEN reported fourth-quarter 2016 adjusted earnings per share (excluding restructuring expenses) of 39 cents, up 7.7% year over year. The reported earnings figure is in line with the Zacks Consensus Estimate.

At constant exchange rate or CER too, the company reported adjusted EPS of 41 cents, which exceeded the company's guidance of 38 cents at CER.

Considering one-time items, QIAGEN's reported EPS for the quarter is 4 cents, down 80.9% year over year.

Full-year adjusted EPS (excluding restructuring expenses) came in at $1.11, up 4.7% year over year. At CER, the company reported $1.14 of earnings, which also exceeded the company's expectation of $1.10-$1.11 at CER.

Qiagen N.V. Price, Consensus and EPS Surprise

Qiagen N.V. Price, Consensus and EPS Surprise | Qiagen N.V. Quote

Revenues in Detail

Net sales at actual rates in the fourth quarter grew 5% on a year-over-year basis to $366.5 million (up 8% at CER). However, the top line missed the Zacks Consensus Estimate of $374 million by 2%. Adverse currency translation impacted the top line by 3%.

Meanwhile, the acquisitions of MO BIO and Exiqon during the fourth quarter contributed 3% to the top line at CER while there has been 5% organic growth. Sales grew at a faster 8% CER rate, excluding 4% CER decline in U.S. HPV test sales from the year-ago quarter.

Region-wise, sales from the Americas (45% of revenues) grew 5% at CER, while revenues from Europe-Middle East-Africa (33%) and Asia-Pacific/Japan (22%) increased 10% and 14%, respectively, at CER. Sales in the top seven emerging markets (17%) exhibited growth of 18% 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 50%, 9%, 20% and 21% of net sales, respectively, during the reported quarter.

Molecular diagnostics sales (50% of revenues) were up 11% at CER. Excluding a 4% decline in the U.S. HPV test solutions sales, Molecular diagnostics sales increased 12% at CER. The improvement in results was driven by a 7% rise in full-year sales while CEI molecular diagnostics advanced 10% at CER. Sales derived from Applied Testing (10%) rose 10% at CER, maintaining double-digit CER growth in both consumables and instruments and volume growth in applications for human ID and forensics.

Pharma sales (18%) rose 18% at CER in the fourth quarter on account of mid single-digit CER consumable growth from marketing initiatives and product launches. Academia sales (22%) improved 3% at CER, on the back of higher consumable sales, marginally offset by lower instruments sales and a soft trend in Europe.

Operational Update

Gross profit increased 2% to $228.0 million in the fourth quarter. Gross margin however contracted 189 basis points (bps) to 62.2% on 10.7% rise in cost of goods sold.

Meanwhile, research and development expenses saw a hike of 48.1% to $58.5 million, sales and marketing expenses increased 24.5% to $115.0 million and general, administrative, integration and other expenses rose 65.4% to $40.5 million. Adjusted operating income in the quarter was down 79.2% year over year to $13.8 million. Adjusted operating margin declined a stupendous 1543 bps to 3.7%, as a result of a 36.8% rise in overall operating expenses to $214.1 million.

Financial Update

QIAGEN exited fiscal 2016 with cash and cash equivalents of $439.1 million, up from $290.0 million in the prior fiscal. Full-year net cash provided by operating activities was $341.6 million, up from $317.5 million a year ago. This resulted in a 22% improvement in free cash flow to $267 million in 2016.

In Jan 2017, QIAGEN completed a synthetic share repurchase that combined a direct capital repayment with a reverse stock split as part of a commitment to return $300 million to shareholders. The transaction was announced in Aug 2016 and involved an approach used by various large, multinational Dutch companies to provide returns to all shareholders in a faster and more efficient manner than traditional open-market purchases. QIAGEN intends to return the balance of the commitment through open-market share repurchases during 2017.

2017 Guidance

Management reaffirmed its earlier provided 2017 guidance for adjusted net sales growth at approximately 6-7% CER. Also, the adjusted EPS guidance has been reiterated at the band of $1.25-$1.27 CER. This is based on operating and financial leverage which includes benefits from completion of the $300 million share repurchase plan by the end of 2017 and efficiency actions taken in 2016. This however excludes the expected 3 cents per share of restructuring costs planned for 2017. The Zacks Consensus Estimate for earnings of $1.29 is above the guided range. The Zacks Consensus Estimate for 2017 revenues is pegged at $1.42 billion.

The company also provided its financial guidance for the first quarter of 2017. Net sales are expected to rise approximately 4-5% CER, which includes an anticipated 2% decline in U.S. HPV test sales. Adjusted EPS is expected to be likely 21-22 cents CER on an underlying basis, and about 18-20 cents CER including the anticipated restructuring charge of about 2-3 cents per share. The Zacks Consensus Estimate for first quarter 2017 revenue is $321 million.

Our Take

QIAGEN delivered a dull fourth quarter of 2016 with earnings meeting the Zacks Consensus Estimate and revenue missing the same. Adverse foreign currency movement and declining HPV sales in the U.S. continue to be a drag on overall sales. Furthermore, on the profitability front, QIAGEN delivered quite a sluggish performance owing to rising costs and operating expenses.

On a positive note, the company delivered balanced growth across all segments. Meanwhile, its overall cash balance seems strong with escalating free cash flow reserve. Moreover, its commitment to return more to its shareholders through increased share repurchases reflects its solid cash position.

Zacks Rank & Key Picks

QIAGEN 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 only 19.1%. 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 25.8% in the past one year, better than the S&P 500 mark. The stock has an impressive long-term earnings growth 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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