Illumina (ILMN) Beats on Q1 Earnings, Lifts '18 Guidance

Illumina, Inc. ILMN reported adjusted earnings per share (EPS) of $1.45 in the first quarter of 2018, beating the Zacks Consensus Estimate of $1.22 by 40.8%. Also, the bottom line exceeded the year-ago number by a stupendous 126.6%.

Including one-time items, the company reported EPS of $1.41 compared with $2.48 a year ago. The year-ago figure included the impact of a pre-tax gain of $453 million as a result of the GRAIL repurchase of shares from Illumina.

Revenues

In the quarter under review, Illumina's revenues surged 30.8% year over year to $782 million. The top line surpassed the Zacks Consensus Estimate by 5.2%. This huge upside can be attributed to strong consumables growth across Illumina’s sequencing portfolio with notable strength in high throughput family. Moreover, the NovaSeq platform continued the growth momentum.Excluding the $19-million stocking order in fourth-quarter 2017, NovaSeq consumables soared approximately 60% sequentially with a strong performance from both the S2 and S4 flow cells.

Illumina, Inc. Price, Consensus and EPS Surprise

Illumina, Inc. Price, Consensus and EPS Surprise | Illumina, Inc. Quote

 

While Product revenues (80.3% of total revenues) increased 27.9% year over year to $628 million, Service and Other (19.7%) revenues were up 43.9% year over year to $154 million.

Operational Update

Adjusted gross margin (excluding amortization of acquired intangible assets and including stock-based compensation expenses) came in at 69.8%, reflecting an expansion of 340 basis points (bps) year over year owing to a favorable product mix within sequencing consumables. Also, microarrays contributed 19% of overall revenues in the reported quarter as compared to 16% a year ago.

While research and development expenses declined 5.5% year over year to $137 million, selling, general & administrative expenses rose 7.01% to $183 million. The adjusted operating margin of 28.9% expanded 1837 bps from the year-ago quarter.

Financial Update

Illumina exited the first quarter with cash and cash equivalents plus short-term investments of $2.37 billion, up from $2.15 billion last year. Net cash provided by operating activities as of Mar 31, 2018 was $255 million compared with $168 million as of Mar 31, 2017.

2018 Guidance

For 2018, the company projects 15-16% revenue growth, GAAP earnings per share attributable to Illumina stockholders of $4.45-$4.55 and non-GAAP earnings attributable to Illumina stockholders of $4.75-$4.85.

Illumina has raised its full-year revenues 15-16% as compared to the earlier projection of 13-14% rise. Meanwhile, the Zacks Consensus Estimate for the metric is pegged at $3.14 billion.

Adjusting for certain net specified items for the full year, the EPS is expected in the band of $4.75-$4.85, a raise from the earlier forecast of $4.50-$4.60. The consensus mark for the metric stands at $4.60, below the predicted range.

Our Take

Illumina exited the first quarter of 2018 on a solid note with better-than-expected earnings as well as revenues. We are encouraged by the year-over-year increase on both counts. Moreover, management is hopeful about the recently launched NovaSeq S1 flow cell reagent kit. The company also received a product approval certificate for the NextSeq 550Dx instrument from the Ministry of Food and Drug Safety (MFDS) in South Korea. In the field of oncology, Illumina’s collaboration with Bristol-Myers Squibb and Loxo Oncology are expected to garner positive results down the line.

Additionally, improving margins buoy optimism. Meanwhile, the company is operating in a tough competitive landscape which is a concern.

Zacks Rank & Other Key Picks

Illumina has a Zacks Rank #2 (Buy). Other top-ranked stocks in the broader medical sector include Abaxis, Inc. ABAX, Bio-Rad Laboratories, Inc. BIO and ResMed Inc. RMD. While Abaxis and Bio-Rad sport a Zacks Rank #1 (Strong Buy), ResMed carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Abaxis is expected to release fourth-quarter fiscal 2018 results on Apr 26. The Zacks Consensus Estimate for adjusted EPS is 32 cents and for revenues, the same is pegged at $67 million.

Bio-Rad is expected to report first-quarter 2018 results on May 3. The Zacks Consensus Estimate for adjusted EPS is 90 cents and for revenues, $529.5 million.

ResMed is slated to release third-quarter fiscal 2018 results on Apr 26. While the consensus mark for adjusted EPS is 83 cents, the same for revenues stands at $564.9 million.

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