Bruker (BRKR) Tops Q1 Earnings & Revenues; Keeps '16 View

Bruker Corporation (NASDAQ:BRKR) reported adjusted earnings per share (EPS) of 21 cents in the first quarter of 2016, up 50% year over year. Adjusted EPS also beat the Zacks Consensus Estimate by 50%.

Improved operating performance and a lower tax rate primarily contributed to the upside in earnings. Bruker's lower average share count, which declined 3% year over year owing to management’s share buyback program which also contributed to bottom-line growth.

Excluding one-time adjustments, Bruker reported net income of $23.6 million or 14 cents per share, reflecting a massive year-over-year improvement of 263.1% or 250% in the first quarter.

Revenues in Detail

Bruker reported revenues of $375.4 million in the first quarter, up 6.2% year over year and also above the Zacks Consensus Estimate of $358 million. While acquisition and divestitures affected Bruker's first-quarter revenues by 1.5%, foreign exchange rates had a 0.9% impact. Excluding these, Bruker's organic revenues increased 5.6% on a year-over-year basis.

Per management, strong revenue growth in the company’s BioSpin and CALID Groups primarily drove the top-line growth. Geographically, organic revenue growth was largely driven by strong performance by Bruker’s businesses in North America and China.

Margin Trends

Adjusted gross margin in the reported quarter contracted 60 basis points (bps) to 46.7%, owing to lower NANO volume and unfavorable CALID product mix. However, higher BioSpin volume price and operational improvement partially offset the effects of these negative factors.

Selling, general & administrative expenses declined 2% to $92.7 million and research and development expenses fell 3% to $36.1 million. The decrease in operating expenses was driven by the company’s BioSpin restructuring in 2015 as well as lower discretionary spending across most businesses. As a result, adjusted operating income improved 32.1% year over year to $47.3 million. Consequently, the adjusted operating margin expanded 250 bps to 47.3% in the quarter.

Financial Position

Bruker exited the reported quarter with cash and cash equivalents and short-term investments of $420.5 million compared with $468.3 million at the end of 2015. At the end of the first quarter, net cash outflow from operating activities was $14 million, compared with $27 million recorded in the year-ago quarter.

Adjusted free cash outflow was $22 million in the quarter, compared with free cash flow worth $21.3 in the prior-year quarter. High customer advances associated with high NMR order entry in the comparable first quarter of 2015 and higher tax and bonus payments made by the company in the first quarter of 2016 led to the deterioration in free cash flow.

Guidance

For full-year 2016, Bruker reaffirmed its guidance. Management projects organic revenue growth of approximately 3% as well as adjusted operating margin expansion of 100 bps, year over year. At the bottom-line front, Bruker maintains adjusted EPS projection in the range of 97 cents–$1.02 for 2016.

The current Zacks Consensus Estimate for 2016 revenues is pegged at $1.68 billion, while the same for EPS is $1.00.

Our Take

Bruker has had a promising journey so far this year, with its first-quarter results beating the Zacks Consensus Estimate on both the fronts. Strong year-over-year upside in the top line, enhanced operating performance and significant bottom-line growth buoy optimism.

Moreover, the company’s recently launched products like the honey profiling module of the NMR FoodScreener solution, the latest version of NMR wine screener module, enhancements to the MALDI Biotyper workflow, MBT Biotargets 96 and new MALDI Biotyper research use-only are expected to contribute significantly to Bruker’s revenues.

On the flip side, the company’s weak cash balance as well as continued softness in NANo Group disappoints us. Also, the steep decline in the gross margin figure is also a drag. Although the extent of currency headwind impact on the company’s revenue is expected to lessen in the upcoming quarters, unfavorable currency translations are expected to impact the company’s growth trajectory at large.

Zacks Rank & Other Key Picks

Currently, the company carries a Zacks Rank #2 (Buy). Other favorably ranked medical stocks are Baxter International Inc. (NYSE:BAX) , SurModics, Inc. (NASDAQ:SRDX) and Boston Scientific Corporation (NYSE:BSX) . While Baxter and SurModics sport a Zacks Rank #1 (Strong Buy), Boston Scientific carries a Zacks Rank #2.