Illumina Inc. (ILMN Quick QuoteILMN - Free Report) reported fourth-quarter 2023 adjusted earnings per share (EPS) of 14 cents, beating the Zacks Consensus Estimate of 1 cent by a considerable margin. The bottom line matched the year-ago quarter’s figure.

The adjustments exclude the impact of GRAIL pre-acquisition net operating losses on GILTI, the utilization of U.S. foreign tax credits and incremental non-GAAP tax expenses, among others. Including one-time items, the company’s

GAAP loss per share was $1.11 compared with the year-ago quarter’s loss of 89 cents.

For the full year, adjusted earnings were 86 cents, reflecting a 59.4% fall from the year-ago period. However, it topped the Zacks Consensus Estimate by 13.2%.

Revenues

In the quarter under review, Illumina’s revenues were $1.12 billion, up 3.6% year over year (up 4% at CER). The top line surpassed the Zacks Consensus Estimate by 3.1%.

Total revenues for 2023 were $4.50 billion, reflecting a 2% fall from 2022. The figure missed the Zacks Consensus Estimate by 2.2%.

Segment Details

Illumina has two reportable segments, Core Illumina and GRAIL.

Core Illumina sequencing service and other revenues were $1.10 billion (up 3% year over year). This was driven primarily by higher instrument service contract revenues on a growing installed base, as well as an increase in lab services revenues.

Sequencing Instrument revenues for Core Illumina of $161 million grew 10% year over year. The increase was primarily led by strength in NovaSeq X shipments, which more than offset the decline in NovaSeq 6000 shipments.

Illumina, Inc. Price, Consensus and EPS Surprise

Illumina, Inc. price-consensus-eps-surprise-chart | Illumina, Inc. Quote

Core Illumina sequencing service and other revenues were $152 million (up 16% year over year). This was driven primarily by an increase in revenue from strategic partnerships and higher instrument service contract revenue on a growing installed base.

GRAIL contributed $30 million to revenues in the reported quarter compared with $23 million in the year-ago period.

Margins

The adjusted gross margin (excluding amortization of acquired intangible assets) was 64.3% in the reported quarter, highlighting a contraction of 222 basis points (bps) year over year. The decline is due to the mix of lower margin strategic partnership revenue, lower instrument margins due to the NovaSeq X launch, which is typical with a new platform introduction, and increased field services and installation costs, partially offset by lower freight costs.

Research and development expenses decreased 1.5% year over year to $341 million. SG&A expenses were $485 million compared with $432 million in the year-ago quarter. Adjusted operating costs increased 6.2% to $826 million. The adjusted operating loss in the quarter was $105 million.

Financial Update

Illumina exited 2023 with cash and cash equivalents plus short-term investments of $1.05 billion compared with $2.04 billion at the end of the second quarter of 2023.

Cumulative net cash provided by operating activities at the end of 2023 was $224 million compared with $147 million a year ago.

2024 Guidance

For 2024, the company expects Core Illumina revenues to be stable year over year and a Core Illumina non-GAAP operating margin of approximately 20%

Key Announcements

Throughout the fourth quarter, Illumina made headlines on many occasions. Notably, the company announced the decision to divest GRAIL, executed through a third-party sale or capital markets transaction, with the goal of finalizing terms by the end of the second quarter of 2024.

The company signed an agreement with Janssen Research & Development, LLC (Janssen) to collaborate on the development of Illumina's novel molecular residual disease (MRD) assay.

The company also launched the Global Health Access Initiative to support access to pathogen sequencing tools for public health in low- and middle-income countries.

Our Take

Illumina delivered results ahead of its expectations, driven by NovaSeq X instrument and consumables sales. The company's Core Illumina Sequencing revenue rose, backed by an increase in revenues from strategic partnerships and higher instrument service contract revenues on a growing installed base.

However, the company registered a decline in NovaSeq 6000 shipments in the reported quarter. The contraction of gross margin looks discouraging too.

Zacks Rank & Key Picks

Illumina currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the broader medical space are Stryker Corporation (SYK Quick QuoteSYK - Free Report) , Boston Scientific (BSX Quick QuoteBSX - Free Report) and Cardinal Health (CAH Quick QuoteCAH - Free Report) .

Stryker, carrying a Zacks Rank #2 (Buy), reported a fourth-quarter 2023 adjusted EPS of $3.46, beating the Zacks Consensus Estimate by 5.8%. Revenues of $5.8 billion outpaced the consensus estimate by 3.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Stryker has an estimated earnings growth rate of 11.7% for 2024 compared with the S&P 500’s 9.9%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average being 5.1%.

Boston Scientific, carrying a Zacks Rank #2, reported a fourth-quarter 2024 adjusted EPS of 55 cents, which beat the Zacks Consensus Estimate by 7.8%. Revenues of $3.73 billion outpaced the Zacks Consensus Estimate by 3.8%.  

BSX has a long-term estimated earnings growth rate of 12.7%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average being 7.4%.

Cardinal Health, carrying a Zacks Rank #2, reported second-quarter fiscal 2024 adjusted earnings of $1.82, which beat the Zacks Consensus Estimate by 16.7%. Revenues of $57.45 billion improved 11.6% on a year-over-year basis and also topped the Zacks Consensus Estimate by 1.1%.

CAH has a long-term estimated earnings growth rate of 15.3% compared with the industry’s 11.8% growth. The company’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 15.6%.