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Avantor, Inc. (AVTR - Free Report) reported second-quarter 2024 adjusted earnings per share (EPS) of 25 cents, down 10.7% year over year. The bottom line however surpassed the Zacks Consensus Estimate by 2%.
GAAP EPS for the quarter was 14 cents against a loss of 1 cent in the year-ago period.
Revenue Details
Revenues grossed $1.7 billion in the reported quarter, down 2.4% year over year. The metric also missed the Zacks Consensus Estimate.
Foreign currency translation had a negative impact of 0.4% in the reported quarter, resulting in an organic sales decline of 2%.
Segmental Analysis
Effective Jan 1, 2024, Avantor changed its operating model and reporting segment structure from three reportable segments to two reportable segments — Laboratory Solutions and Bioscience Production.
The Laboratory Solutions segment’s net sales were $1.16 billion, reflecting a decline of 3.2% year over year. Organic sales fell 2.7% in the reported quarter. The decline was primarily due to inventory destocking and cautious spending by the company’s biopharma customers.
Bioscience Production’s net sales were $547.1 million, reflecting a year-over-year decrease of 0.5%. Organic sales decreased 0.3% year over year.
In the quarter under review, Avantor’s commercial intensity drove share gains with meaningful new contract wins and expanded customer relationships in the biopharma, education, and applied end markets. The customer-driven innovation agenda and internal R&D engine continued to develop inherently sticky products. Avantor’s integrated sales and customer excellence organization created a stronger, more cohesive customer experience.
Margin Analysis
In the quarter under review, Avantor’s gross profit declined 1.4% to $581.5 million. The gross margin expanded 30 basis points (bps) to 34.1%.
We had projected a gross margin of 34% for the second quarter.
Selling, general and administrative expenses increased 13.5% year over year to $405.7 million.
Operating profit totaled $175.8 million, up 145.2% from the prior-year quarter’s level. The operating margin in the quarter contracted 620 bps to 10.32%
Financial Position
Avantor exited the second quarter of 2024 with cash and cash equivalents of $272.6 million, compared with $234.9 million at the end of the first quarter. Total debt at the end of second-quarter 2024 was $5.12 billion compared with $5.3 billion at the end of the first quarter.
Net cash provided by operating activities at the end of the second quarter of 2024 was $281.1 million compared with $168.2 million a year ago.
Guidance
Avantor maintained its outlook for 2024.
The company continues to project revenues in the range of $6.85 billion-$7.06 billion (down 1.7% to up 1.3% from 2023 levels). The Zacks Consensus Estimate is pegged at $6.92 billion.
Avantor continues to expect its organic revenues to be down 2% to up 1% for the full year. For the third quarter, the company expects organic revenues to be down 1% to up 2%.
The company continues to expect its adjusted EPS to be within 96 cents-$1.04 for the full year. The Zacks Consensus Estimate is pegged at $1.
Our Take
Avantor exited the second quarter of 2024 with higher-than-expected earnings. The decline in segmental revenues was discouraging. Per management, inventory destocking and cautious customer spending continued to impact demand. These raise our apprehension about the stock.
Although sales declined for both segments, the bioprocessing end market in Bioscience Production remained healthy with a robust pipeline of new therapies, a favorable regulatory landscape (including three new cell and gene therapy approvals in the quarter) and strong patient demand. The company also saw sequential improvement in its bioprocessing order rate. This is likely to help Bioscience Production’s sales improve going forward.
In the second quarter, Avantor launched several innovative products, including the J.T. Baker Cell Lysis Solution and J.T. Baker Endonuclease, designed to enhance the gene therapy harvest process and the Masterflex MasterSense gear pump for mRNA encapsulation. The company also secured new contracts and renewals with biopharma, CDMO customers and leading academic and government institutions. To improve service levels and operational excellence, Avantor opened a new North American customer service center in Mexico, modeled after successful centers in Europe and Asia.
Avantor's commitment to sustainability remains strong, evidenced by the publication of its annual sustainability report in June, which highlighted progress under the Science for Goodness platform. This includes expanding their sustainable product offerings and working with suppliers to create a more sustainable supply chain. Additionally, the company is advancing a multiyear cost transformation initiative aimed at aligning its manufacturing and distribution footprint with growth areas and improving organizational efficiency.
Quest Diagnostics has an estimated long-term growth rate of 5.20%. DGX’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 3.67%.
Quest Diagnostics shares have gained 3.2% so far this year compared with the industry’s 10.9% rise.
Universal Health Services has an estimated long-term growth rate of 15.20%. UHS’ earnings surpassed estimates in each of the trailing four quarters, with the average being 8.12%.
Universal Health Services has gained 17.5% compared with the industry's 10.2% rise so far this year.
ABM’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 7.34%.
ABM Industries’ shares have risen 21.2% in the past year compared with the industry’s 23.5% increase
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Avantor's (AVTR) Q2 Earnings Beat, Operating Margin Declines
Avantor, Inc. (AVTR - Free Report) reported second-quarter 2024 adjusted earnings per share (EPS) of 25 cents, down 10.7% year over year. The bottom line however surpassed the Zacks Consensus Estimate by 2%.
GAAP EPS for the quarter was 14 cents against a loss of 1 cent in the year-ago period.
Revenue Details
Revenues grossed $1.7 billion in the reported quarter, down 2.4% year over year. The metric also missed the Zacks Consensus Estimate.
Foreign currency translation had a negative impact of 0.4% in the reported quarter, resulting in an organic sales decline of 2%.
Segmental Analysis
Effective Jan 1, 2024, Avantor changed its operating model and reporting segment structure from three reportable segments to two reportable segments — Laboratory Solutions and Bioscience Production.
The Laboratory Solutions segment’s net sales were $1.16 billion, reflecting a decline of 3.2% year over year. Organic sales fell 2.7% in the reported quarter. The decline was primarily due to inventory destocking and cautious spending by the company’s biopharma customers.
Bioscience Production’s net sales were $547.1 million, reflecting a year-over-year decrease of 0.5%. Organic sales decreased 0.3% year over year.
In the quarter under review, Avantor’s commercial intensity drove share gains with meaningful new contract wins and expanded customer relationships in the biopharma, education, and applied end markets. The customer-driven innovation agenda and internal R&D engine continued to develop inherently sticky products. Avantor’s integrated sales and customer excellence organization created a stronger, more cohesive customer experience.
Margin Analysis
In the quarter under review, Avantor’s gross profit declined 1.4% to $581.5 million. The gross margin expanded 30 basis points (bps) to 34.1%.
We had projected a gross margin of 34% for the second quarter.
Selling, general and administrative expenses increased 13.5% year over year to $405.7 million.
Operating profit totaled $175.8 million, up 145.2% from the prior-year quarter’s level. The operating margin in the quarter contracted 620 bps to 10.32%
Financial Position
Avantor exited the second quarter of 2024 with cash and cash equivalents of $272.6 million, compared with $234.9 million at the end of the first quarter. Total debt at the end of second-quarter 2024 was $5.12 billion compared with $5.3 billion at the end of the first quarter.
Net cash provided by operating activities at the end of the second quarter of 2024 was $281.1 million compared with $168.2 million a year ago.
Guidance
Avantor maintained its outlook for 2024.
The company continues to project revenues in the range of $6.85 billion-$7.06 billion (down 1.7% to up 1.3% from 2023 levels). The Zacks Consensus Estimate is pegged at $6.92 billion.
Avantor continues to expect its organic revenues to be down 2% to up 1% for the full year. For the third quarter, the company expects organic revenues to be down 1% to up 2%.
The company continues to expect its adjusted EPS to be within 96 cents-$1.04 for the full year. The Zacks Consensus Estimate is pegged at $1.
Our Take
Avantor exited the second quarter of 2024 with higher-than-expected earnings. The decline in segmental revenues was discouraging. Per management, inventory destocking and cautious customer spending continued to impact demand. These raise our apprehension about the stock.
Although sales declined for both segments, the bioprocessing end market in Bioscience Production remained healthy with a robust pipeline of new therapies, a favorable regulatory landscape (including three new cell and gene therapy approvals in the quarter) and strong patient demand. The company also saw sequential improvement in its bioprocessing order rate. This is likely to help Bioscience Production’s sales improve going forward.
In the second quarter, Avantor launched several innovative products, including the J.T. Baker Cell Lysis Solution and J.T. Baker Endonuclease, designed to enhance the gene therapy harvest process and the Masterflex MasterSense gear pump for mRNA encapsulation. The company also secured new contracts and renewals with biopharma, CDMO customers and leading academic and government institutions. To improve service levels and operational excellence, Avantor opened a new North American customer service center in Mexico, modeled after successful centers in Europe and Asia.
Avantor's commitment to sustainability remains strong, evidenced by the publication of its annual sustainability report in June, which highlighted progress under the Science for Goodness platform. This includes expanding their sustainable product offerings and working with suppliers to create a more sustainable supply chain. Additionally, the company is advancing a multiyear cost transformation initiative aimed at aligning its manufacturing and distribution footprint with growth areas and improving organizational efficiency.
Avantor, Inc. Price, Consensus and EPS Surprise
Avantor, Inc. price-consensus-eps-surprise-chart | Avantor, Inc. Quote
Zacks Rank and Stocks to Consider
Currently, Avantor carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the broader medical space are Quest Diagnostics (DGX - Free Report) , Universal Health Service (UHS - Free Report) and ABM Industries (ABM - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Quest Diagnostics has an estimated long-term growth rate of 5.20%. DGX’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 3.67%.
Quest Diagnostics shares have gained 3.2% so far this year compared with the industry’s 10.9% rise.
Universal Health Services has an estimated long-term growth rate of 15.20%. UHS’ earnings surpassed estimates in each of the trailing four quarters, with the average being 8.12%.
Universal Health Services has gained 17.5% compared with the industry's 10.2% rise so far this year.
ABM’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 7.34%.
ABM Industries’ shares have risen 21.2% in the past year compared with the industry’s 23.5% increase