PerkinElmer (PKI) Beats On Earnings, Misses Revenue In Q3

Waltham, MA-based PerkinElmer Inc (NYSE:PKI) , a worldwide provider of products, services and solutions to the diagnostics, research, and laboratory services markets, reported third-quarter 2016 earnings of 68 cents per share, which beat the Zacks Consensus Estimate by 2 cents.

Additionally, the figure surpassed management’s guided range of 65 cents to 67 cents. Earnings also improved 3% year over year.

However, adjusted revenues fell 2.7% on a year-over-year basis to $548.2 million, which lagged the Zacks Consensus Estimate of $572 million.

In fact, revenues were below management’s guided range of $570–$575 million, owing to cutthroat competition in the radiochemicals and other capital-intensive business segments.

Quarter Highlights

Year to date, PerkinElmer witnessed 2% organic revenue growth to $5 million, by the end of the third quarter.

The company reorganized the Diagnostics business segment and formed an applied genomics group under the platform to better serve the fast-growing genomics market. Per management, this will fortify PerkinElmer’s market position as an integrated provider offering preclinical and clinical applications.

PerkinElmer has gained considerable prominence in the markets in the third quarter with its series of innovative product launches. Per management, new product introductions will generate an incremental $40 million in revenue for the full year.

Taking the end markets into consideration, the company witnessed strong growth in the Diagnostics, healthy-pharma and biotech segments in the quarter.

Lower-than-estimated growth in academic and government sales (experiencing low single-digit organic revenue declines) and flat industrial revenues were major drags. Additionally, growth in the Medical Imaging segment declined in double digits in the quarter under review.

Region-wise, solid organic revenue growth from China and India was noticed, demonstrating a year-over-year growth of growth of greater than 20% and 10% respectively in the third quarter.

Quarter in Details

Human Health (61.7% of total revenues) revenues deteriorated 1.6% year over year to $338.4 million, while Environmental health (38.3% of total revenues) revenues decreased 4.5% year over year to $209.8 million in the quarter, due to softer capital equipment end markets. Environmental Health organic revenues declined 5%, while Human health remained flat year over year. On the Environmental front, the company introduced products in China, a standout region for PerkinElmer in terms of analytical equipment demand. However, lower sales in the U.S. and Europe caused a drag on Environmental sales.

Coming to the Diagnostics Business segment, the company witnessed high single-digit organic revenue growth in the third quarter. Life Science Solutions organic revenues declined in low single-digits in the quarter.

Margin Details

Adjusted gross margin was 48.9%, up 170 basis points (bps) year over year, driven by successful cost-cutting (Lean) initiatives, volume leverage and favorable product mix.

Adjusted selling, general & administrative (SG&A) expenses, as a percentage of revenues, were 24%, down 5.9% from the year-ago quarter. Research and Development (R&D) expenses, as a percentage of revenues, expanded 50 bps in the quarter to $33.1 million, thanks to incremental investments in product development, primarily under reproductive health. Adjusted operating margin expanded approximately 140 bps in the reported quarter.

Guidance

Management at PerkinElmer intends to focus on continued operational improvement to counter the sluggish growth in the environment business going ahead.

Diagnostic Business is expected to prove accretive in the fourth quarter. However, lower-than-estimated demand in the academic and government segments and sluggishness in the developed markets are likely to mar opportunities for PerkinElmer.

For the fourth quarter of 2016, revenues are likely to represent low single-digit organic growth and are forecasted in the range of $610 million to $620 million. Adjusted earnings are projected in the range of 85 cents to 87 cents per share.

Adjusted earnings per share for the full year are projected in the band of $2.75 to $2.77, compared to the previous range of $2.75 to $2.85.

Zacks Rank & Stocks to Consider

Currently, PerkinElmer has a Zacks Rank #4 (Sell).

Better-ranked stocks in the broader medical space include Cardiovascular Systems Inc. (NASDAQ:CSII) , Exelixis, Inc. (NASDAQ:EXEL) and IDEXX Laboratories, Inc. (NASDAQ:IDXX) .

Notably, Cardiovascular Systems and Exelixis carry a Zacks Rank #2 (Buy) while IDEXX Laboratories sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cardiovascular Systems represents a stellar one-year return of 55.3%. Notably, the company has an expected long-term growth rate of 22.5%.

Exelixis has a stupendous one-year return of almost 102.6%. In the last reported quarter, the company registered an impressive earnings surprise of 40.74%.

IDEXX Laboratories represents a promising one-year return of 50.6%. The company has a long-term expected growth rate of almost 14.8%.

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