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Illumina (ILMN) Tops Q4 Earnings & Revenues, Issues Guidance

Zacks Equity Research
Updated

Illumina, Inc. ILMN reported adjusted earnings per share (EPS) of $1.44 in the fourth quarter of 2017, which beat the Zacks Consensus Estimate of $1.22 by 18%. Adjusted earnings surpassed the year-ago number by 69.4%.

Including one-time items, the company reported EPS of 46 cents, compared with 84 cents a year ago. This includes the provisional estimate of the one-time transition tax impact from the U.S. tax reform.

Full-year 2017 adjusted EPS came in at $4, beating the Zacks Consensus Estimate of $3.80 by 5.3%. Moreover, the figure beat the year-ago number by 20.1%.

Revenues

In the quarter under review, Illumina's revenues grew 25.7% year over year to $778 million. The top line beat the Zacks Consensus Estimate by 3.3%.

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Net revenues in 2017 totaled $2.75 billion, outpacing the Zacks Consensus Estimate of $2.72 billion. The figure also improved 15.1% from the year-ago number.

Per management, top-line growth in the fourth quarter can be attributed to strong uptake of sequencing consumables and instruments as well as microarray portfolios. Moreover, the NovaSeq platform continued to drive growth with close to 285 NovaSeq systems currently at customers’ hands since the launch in January 2017.

Product revenues (84.7% of total revenue) increased 25.5% year over year to $659 million. Service and Other (15.3%) revenues were up 26.6% year over year to $119 million.

Illumina, Inc. Price, Consensus and EPS Surprise

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

Operational Update

Adjusted gross margin came in at 69.7%, reflecting an expansion of 200 basis points (bps) year over year owing to favorable product mix within sequencing consumables. Excluding amortization of acquired intangible assets and including stock-based compensation expenses, adjusted gross margin was 70.9%, highlighting an expansion of 140 bps from a year ago.

Research and development expenses were up 5.4% year over year to $137 million and selling, general & administrative expenses rose 19.9% to $175 million. However, the adjusted operating margin of 31.4% reflected a rise of 630 bps from the year-ago quarter.

Financial Update

Illumina exited 2017 with cash and cash equivalents and short-term investments of $2.15 billion, up from $1.56 billion in 2016. Net cash provided by operating activities in 2017 was $875 million, compared with $779 million a year ago.

2018 Guidance

Illumina projects full-year 2018 revenue growth in the 13-14% range. Meanwhile, the Zacks Consensus Estimate for 2018 revenues is pegged at $3.10 billion.

Adjusting for certain net specified items for the full year, adjusted earnings per share from continuing operations are expected in the band of $4.50-$4.60. The Zacks Consensus Estimate for earnings stands at $4.53, near the low end of the projected range.

Our Take

Illumina exited the fourth quarter on a solid note. We are encouraged by the year-over-year increase in both the fronts. Management is hopeful that products like NovaSeq, recently-launched iSeq and a broad clinical portfolio comprising the VeriSeq NIPT Solution, NextSeqDx and MiSeqDx will drive the top line.

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

Zacks Rank & Key Picks

Illumina has a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical sector are ResMed RMD, PerkinElmer PKI and Accuray ARAY. All the three companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ResMed posted second-quarter fiscal 2018 adjusted earnings of $1, up 36.9% from the prior-year quarter. Revenues increased 13.4% year over year (up 11% at constant exchange rate or CER) to $601.3 million.

PerkinElmer reported fourth-quarter 2017 adjusted earnings of 97 cents. The company reported adjusted revenues of approximately $641.6 million, surpassing the year-ago quarter’s $567 million.

Accuray reported a loss of 6 cents in the second quarter of fiscal 2018, 5 cents narrower than the year-ago figure. Total revenues increased 15% year over year to $100.3 million.

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