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Illumina (ILMN) Q3 Earnings Top Estimates, Margins Decline
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Illumina, Inc.’s (ILMN - Free Report) third-quarter 2020 adjusted earnings per share (EPS) of $1.02 surpassed the Zacks Consensus Estimate by 32.5%. However, the bottom line plunged 47.2% from the year-ago quarter.
The adjustments include discrete tax expenses and net gains from market-to-market adjustments on the company’s investments, primarily from its marketable equity securities.
Including one-time items, the company’s GAAP EPS was $1.21, down by 23.4% year over year.
Revenues
In the quarter under review, Illumina’s revenues dropped 12.5% year over year to $794 million. However, the top line exceeded the Zacks Consensus Estimate by 10.2%.
Although the third quarter’s revenues registered a year-over-year decline, the same was up 26% from the sequentially last reported quarter.
Sequencing Consumable revenues totaled $500 million in the reported quarter, down 4.8% year over year. Sequencing Instrument revenues were $109 million, down 23.2% from the year-ago figure. Sequencing revenues, a subsegment of the Service & Other segment, were $99 million, down 28.3% from the year-ago quarter.
In the third quarter, Illumina noted that increased shipments of NovaSeq and NextSeq significantly contributed to its top line. Notably, NextSeq 2000 and NextSeq 550 shipments exceeded the company’s expectations during the reported quarter. The period also witnessed continued adoption of NextSeq 2000 across a broad range of clinical and research applications including oncology testing and COVID-19 research.
Margins
Adjusted gross margin (excluding amortization of acquired intangible assets) was 67.1% in the reported quarter, highlighting a contraction of 531 basis points (bps) year over year.
Research and development expenses increased 13.9% year over year to $172 million, whereas selling, general & administrative expenses rose 1.6% to $192 million. These pushed up the operating costs by 7.1% to $364 million.
Adjusted operating income in the quarter was $169 million, down 46.7% from the year-ago income. Adjusted operating margin came in at 21.3%, reflecting a huge contraction of 1367 bps year over year.
Financial Update
Illumina exited the third quarter of 2020 with cash and cash equivalents plus short-term investments of $3.32 billion compared with $3.27 billion at the end of the second quarter. Long-term debt (including current portion) in the third quarter was $1.17 billion compared with $1.16 billion at the end of the second quarter.
The company repurchased $125 million of common stock in the quarter and $295 million is still available for share repurchase under the company’s current plan.
Cumulative net cash provided by operating activities at the end of the third quarter was $674 million compared with $608 million a year ago.
Cumulative capital expenses incurred by the company at the end of the third quarter were $127 million compared with $152 million a year ago. Accordingly, cumulative free cash flow reported by the company at the end of the third quarter was $547 million, up from the year-ago free cash flow of $456 million.
2020 Guidance
Illumina noted that it is not in a position to estimate the extent of severity and duration of the coronavirus outbreak as well as quantify its actual impact. As a result, it did not provide any financial guidance for 2020 revenues and EPS.
Our Take
Illumina exited the third quarter with better-than-expected results. However, its dismal segmental performance due to pandemic-led business disruptions dragged down the overall top line. Decline in total microarray revenues due to COVID-19-related headwinds is also particularly concerning. Contraction in both margins does not bode well for the stock either. The company’s inability to issue its full-year guidance raises apprehensions too.
On a positive note, the gradually improving business conditions buoy optimism on the stock. Sequential improvement in segmental revenues across geographies looks impressive as well. Additionally, the release of NovaSeq 6000 v1.5 reagents to enhance deeper genomic discoveries and the announcement of a definitive agreement to acquire GRAIL augur well for the stock.
Zacks Rank & Stocks to Consider
Illumina currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the broader medical space are West Pharmaceutical Services, Inc. (WST - Free Report) , Thermo Fisher Scientific Inc. (TMO - Free Report) and Align Technology, Inc. (ALGN - Free Report) .
West Pharmaceutical reported third-quarter 2020 adjusted EPS of $1.15, beating the Zacks Consensus Estimate by 13.9%. Net revenues of $548 million outpaced the consensus estimate by 7.2%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Thermo Fisher, a Zacks Rank #2 company, reported third-quarter 2020 adjusted EPS of $5.63, beating the Zacks Consensus Estimate by 28.8%. Revenues of $8.52 billion outpaced the consensus mark by 10%.
Align Technology reported reported third-quarter 2020 adjusted EPS of $2.25, surpassing the Zacks Consensus Estimate by a stupendous 281.4%. Net revenues of $734.1 million exceeded the Zacks Consensus Estimate by 38%. It currently carries a Zacks Rank #2.
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Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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Illumina (ILMN) Q3 Earnings Top Estimates, Margins Decline
Illumina, Inc.’s (ILMN - Free Report) third-quarter 2020 adjusted earnings per share (EPS) of $1.02 surpassed the Zacks Consensus Estimate by 32.5%. However, the bottom line plunged 47.2% from the year-ago quarter.
The adjustments include discrete tax expenses and net gains from market-to-market adjustments on the company’s investments, primarily from its marketable equity securities.
Including one-time items, the company’s GAAP EPS was $1.21, down by 23.4% year over year.
Revenues
In the quarter under review, Illumina’s revenues dropped 12.5% year over year to $794 million. However, the top line exceeded the Zacks Consensus Estimate by 10.2%.
Although the third quarter’s revenues registered a year-over-year decline, the same was up 26% from the sequentially last reported quarter.
Illumina, Inc. Price, Consensus and EPS Surprise
Illumina, Inc. price-consensus-eps-surprise-chart | Illumina, Inc. Quote
Segment Details
Sequencing Consumable revenues totaled $500 million in the reported quarter, down 4.8% year over year. Sequencing Instrument revenues were $109 million, down 23.2% from the year-ago figure. Sequencing revenues, a subsegment of the Service & Other segment, were $99 million, down 28.3% from the year-ago quarter.
In the third quarter, Illumina noted that increased shipments of NovaSeq and NextSeq significantly contributed to its top line. Notably, NextSeq 2000 and NextSeq 550 shipments exceeded the company’s expectations during the reported quarter. The period also witnessed continued adoption of NextSeq 2000 across a broad range of clinical and research applications including oncology testing and COVID-19 research.
Margins
Adjusted gross margin (excluding amortization of acquired intangible assets) was 67.1% in the reported quarter, highlighting a contraction of 531 basis points (bps) year over year.
Research and development expenses increased 13.9% year over year to $172 million, whereas selling, general & administrative expenses rose 1.6% to $192 million. These pushed up the operating costs by 7.1% to $364 million.
Adjusted operating income in the quarter was $169 million, down 46.7% from the year-ago income. Adjusted operating margin came in at 21.3%, reflecting a huge contraction of 1367 bps year over year.
Financial Update
Illumina exited the third quarter of 2020 with cash and cash equivalents plus short-term investments of $3.32 billion compared with $3.27 billion at the end of the second quarter. Long-term debt (including current portion) in the third quarter was $1.17 billion compared with $1.16 billion at the end of the second quarter.
The company repurchased $125 million of common stock in the quarter and $295 million is still available for share repurchase under the company’s current plan.
Cumulative net cash provided by operating activities at the end of the third quarter was $674 million compared with $608 million a year ago.
Cumulative capital expenses incurred by the company at the end of the third quarter were $127 million compared with $152 million a year ago. Accordingly, cumulative free cash flow reported by the company at the end of the third quarter was $547 million, up from the year-ago free cash flow of $456 million.
2020 Guidance
Illumina noted that it is not in a position to estimate the extent of severity and duration of the coronavirus outbreak as well as quantify its actual impact. As a result, it did not provide any financial guidance for 2020 revenues and EPS.
Our Take
Illumina exited the third quarter with better-than-expected results. However, its dismal segmental performance due to pandemic-led business disruptions dragged down the overall top line. Decline in total microarray revenues due to COVID-19-related headwinds is also particularly concerning. Contraction in both margins does not bode well for the stock either. The company’s inability to issue its full-year guidance raises apprehensions too.
On a positive note, the gradually improving business conditions buoy optimism on the stock. Sequential improvement in segmental revenues across geographies looks impressive as well. Additionally, the release of NovaSeq 6000 v1.5 reagents to enhance deeper genomic discoveries and the announcement of a definitive agreement to acquire GRAIL augur well for the stock.
Zacks Rank & Stocks to Consider
Illumina currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the broader medical space are West Pharmaceutical Services, Inc. (WST - Free Report) , Thermo Fisher Scientific Inc. (TMO - Free Report) and Align Technology, Inc. (ALGN - Free Report) .
West Pharmaceutical reported third-quarter 2020 adjusted EPS of $1.15, beating the Zacks Consensus Estimate by 13.9%. Net revenues of $548 million outpaced the consensus estimate by 7.2%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Thermo Fisher, a Zacks Rank #2 company, reported third-quarter 2020 adjusted EPS of $5.63, beating the Zacks Consensus Estimate by 28.8%. Revenues of $8.52 billion outpaced the consensus mark by 10%.
Align Technology reported reported third-quarter 2020 adjusted EPS of $2.25, surpassing the Zacks Consensus Estimate by a stupendous 281.4%. Net revenues of $734.1 million exceeded the Zacks Consensus Estimate by 38%. It currently carries a Zacks Rank #2.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>