Bruker (BRKR) Beats On Q3 Earnings, Lowers '16 Sales View

Bruker Corporation (NASDAQ:BRKR) reported adjusted earnings per share (EPS) of 32 cents in the third quarter of 2016, which exceeded the year-ago figure by 63.2%. Adjusted EPS was also way ahead of the Zacks Consensus Estimate of 20 cents.

Excluding one-time adjustments, Bruker reported net income of $46.5 million or 29 cents per share in the third quarter, exhibiting year-over-year growth of 294% or 314.3%, respectively.

Revenues in Detail

Bruker reported revenues of $393.9 million in the third quarter, down 0.6% year over year. The top line, however, edged past the Zacks Consensus Estimate of $393 million. While the Jordan Valley acquisition boosted Bruker's third-quarter revenues by 1.6%, foreign exchange rates had a 0.2% positive impact. Excluding these, Bruker's organic revenues declined 2.4% on a year-over-year basis.

BRUKER CORP Price, Consensus and EPS Surprise

BRUKER CORP Price, Consensus and EPS Surprise | BRUKER CORP Quote

Geographically and currency adjusted European revenue declined in the high teens during the third quarter primarily on poor performance in Germany due to academic and government funding weakness. Sales from North America sales were up in the high single-digits while Japan was up in the low single-digits. China revenue increased in low teens during the quarter.

Margin Trends

Adjusted gross margin in the reported quarter expanded 280 basis points (bps) to 48.9%, owing to the company’s improvements in its BIOSPIN Group, Optics, Nano Surfaces and semiconductor metrology businesses within CALID and NANO Groups. However, these positives were marginally neutralized by the lower Nano and CALID volume observed in the third quarter.

Selling, general & administrative expenses increased 0.7% to $96.8 million, while research and development expenses rose 10.5% to $37.9 million. Adjusted operating income surged 36.1% year over year to $50.5 million. The adjusted operating margin expanded 345 bps to 12.8% in the quarter.

Financial Position

Bruker exited the reported quarter with cash and cash equivalents and short-term investments of $441.5 million compared with $420.4 million at the end of second-quarter 2016. Year-to-date net cash flow from operating activities was $40 million, compared with $79.6 million of net cash flow recorded in the year-ago period.

Free cash flow was $14 million at the end of the last nine months, compared with free cash outflow worth $56.8 in the prior-year quarter. This decline was primarily due to increased working capital.

During the reported quarter, Bruker repurchased 1.2 million shares for $25.9 million. At the end of the third quarter, the company was left with approximately $60.5 million of the remaining authorization to buy back shares.

Guidance

Bruker updated its guidance for full-year 2016. Management currently expects its reported revenue in 2016 to decline approximately 1% from 2015 (a reduction from the earlier expectation of flat performance compared to the prior year). The current Zacks Consensus Estimate for 2016 revenues stands at $1.63 billion. The company also expects its adjusted operating margin to increase by approximately 100 bps or more year over year (75–100 bps projected earlier).

However, on the bottom-line front, Bruker raised its adjusted EPS projection for 2016 to the range of $1.07−$1.11 from the earlier band of 97 cents to $1.02. The current Zacks Consensus Estimate for 2016 EPS stands at $1.00, much below the company’s guidance.

Our Take

Bruker ended the third quarter of 2016 on a mixed note. The company’s quarterly earnings were much ahead of the Zacks Consensus Estimate. Revenues edged past the mark but declined on a year-over-year basis. Further, organic revenues suffered a formidable decline, adding to our woes. The reduced revenue guidance also indicates a gloomy operating scenario down the line.

On a brighter note, the company exhibited a solid cash balance position on the back of improved free cash flow compared to the prior-year period. Further, a comparatively better performance delivered by Bruker’s BioSpin group, optics and semiconductor metrology businesses as well as margin recovery observed in the Bruker Nano-surfaces business, encourage us. Evidently the cost-reduction action previously adopted by the company in its Nano-surfaces business played its role suitably.

Zacks Rank & Other Key Picks

Bruker currently carries a Zacks Rank #3 (Hold). Better-ranked medical stocks are GW Pharmaceuticals plc (NASDAQ:GWPH) , Baxter International Inc. (NYSE:BAX) and Bovie Medical Corporation (NYSE:BVX) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

GW Pharmaceuticals surged 63.2% year to date compared to the S&P 500’s 2.6% over the same period. The company’s four-quarter average earnings surprise is 41.6%.

Baxter international rallied 24.4% in the past one year, as against the S&P 500’s 0.2% decline. It has a trailing four-quarter average positive earnings surprise of 27%.

Bovie Medical recorded a 162.6% gain in the past one year, above the S&P 500’s 2.4%. The company has a trailing four-quarter average earnings surprise of 6.3%.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>