QIAGEN (QGEN) Beats Q1 Earnings Estimates, Retains View

QIAGEN N.V. (NASDAQ:QGEN) reported first-quarter 2017 adjusted earnings per share (considering restructuring expenses as one time item) of 22 cents, up 15.8% year over year. The reported figure was ahead of the Zacks Consensus Estimate by a penny.

At constant exchange rate or CER, the company reported adjusted earnings per share (EPS) of 21 cents, which is in line with the lower-end of the company’s guidance range of 21–22 cents at CER.

Considering one-time items, QIAGEN’s reported EPS for the quarter is 8 cents, up 14.3% year over year.

Revenues in Detail

Net sales at actual rates in the first quarter grew 3.1% on a year-over-year basis to $307.7 million (up 5% at CER). The top line was in line with the Zacks Consensus Estimate. Adverse currency translation impacted the top line by 2%.

Qiagen N.V. Price, Consensus and EPS Surprise

Qiagen N.V. Price, Consensus and EPS Surprise | Qiagen N.V. Quote

Meanwhile, considering the acquisitions of OmicSoft during the first quarter, revenues increased 6%. Adverse currency translation impacted the top line by 3%.

There has been 3% organic growth in the reported quarter. Sales grew at 7% CER rate, excluding 1% CER decline in U.S. HPV test sales from the year-ago quarter.

Region-wise, sales from the Americas (46% of revenues) grew 3% at CER while revenues from Europe-Middle East-Africa (33%) and Asia-Pacific/Japan (21%) increased 7% and 10%, respectively, at CER. Sales in the top seven emerging markets (14%) exhibited growth of 15% year over year at CER in the quarter.

Segments in Detail

QIAGEN primarily generates revenues from Molecular Diagnostics, Applied Testing, Pharma and Academia, which represented 46%, 9%, 21% and 24% of net sales, respectively, during the reported quarter.

Molecular diagnostics sales were up 3% at CER. Excluding the adverse impact related to the declining U.S. HPV test solutions sales, Molecular Diagnostics sales increased 6% at CER. Sales derived from Applied Testing rose 21% at CER, on increased uptake of new products in human ID and forensics.

Pharma sales rose 8% at CER in the first quarter, in line with the recent trend. Academia sales improved 3% at CER amid a difficult funding scenario in Europe.

Operational Update

Gross profit increased 5.9% to $195.8 million in the first quarter. Gross margin accordingly expanded 172 basis points (bps) to 63.6% despite a 1.2% drop in cost of goods sold.

Meanwhile, research and development expenses declined 4.4% to $37.8 million, sales and marketing expenses also dropped 1.1% to $92.3 million and general, administrative, integration and other expenses rose 26.4% to $32.2 million. Adjusted operating income in the quarter increased 27.1% year over year to $33.4 million. Adjusted operating margin expanded 205 bps to 10.9%, as a result of a mere 2.5% rise in overall operating expenses to $162.4 million.

Financial Update

QIAGEN exited the first quarter with cash and cash equivalents and short-term investment of $439.1 million, down from $532.1 million in 2016. The quarter’s net cash provided by operating activities was $60.2 million, up from $48.7 million a year ago. This resulted in a 46% improvement in free cash flow to $44.2 million in the quarter.

In Jan 2017, QIAGEN completed a synthetic share repurchase that combined a direct capital repayment with a reverse stock split as part of a commitment to return $300 million to shareholders. The transaction was announced in Aug 2016 and involved an approach used by various large, multinational Dutch companies to provide returns to all shareholders in a faster and more efficient manner than traditional open-market purchases. QIAGEN intends to return the balance of the commitment through open-market share repurchases during 2017.

2017 Guidance

Management once again reaffirmed its earlier provided 2017 guidance for adjusted net sales growth at approximately 6–7% at CER. Also, the adjusted EPS guidance has been reiterated in the band of $1.25–$1.27 at CER. This is based on operating and financial leverage which includes benefits from completion of the $300 million share repurchase plan by the end of 2017 and efficiency actions taken in 2016. This, however, excludes the expected 3 cents per share of restructuring costs planned for 2017. The Zacks Consensus Estimate for earnings of $1.23 is below the guided range. The Zacks Consensus Estimate for 2017 revenues is pegged at $1.40 billion.

The company also provided its financial guidance for the second quarter of 2017. Net sales growth is expected in the band of 5–6% at CER. Adjusted EPS is expected to be likely 28–29 cents at CER on an underlying basis, and about 27–28 cents at CER including the anticipated restructuring charge of about a penny per share. The Zacks Consensus Estimate for the second quarter revenues is $348.5 million while earnings estimates remain stable at 29 cents.

Our Take

QIAGEN delivered an overall impressive first quarter with earnings beating the Zacks Consensus Estimate and revenues in line with the same. We are impressed with the company registering balanced growth across all its segments. However, adverse foreign currency movement and declining HPV sales in the U.S. continue to be a drag on overall sales. Furthermore, on the profitability front, QIAGEN delivered strong performance with respect to both gross and operating margin.

Meanwhile, its overall cash balance seems strong with escalating free cash flow reserve. Moreover, its commitment to return more to its shareholders through increased share repurchases reflects its solid cash position.

Zacks Rank & Key Picks

QIAGEN currently has a Zacks Rank #3 (Hold). Better-ranked medical stocks include Hologic, Inc. (NASDAQ:HOLX) , Baxter International Inc. (NYSE:BAX) and Progenics Pharmaceuticals, Inc. (NASDAQ:PGNX) . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Hologic gained 33.7% in the last one year compared with the S&P 500’s 16.6% gain. The company reported a four-quarter average earnings surprise of over 4.16%.

Baxter International rose around 23.4% in the last one year compared with the S&P 500. It posted an four-quarter average earnings surprise of 17.14%.

Progenics Pharmaceuticals gained 52.7% in the past one year, better than the S&P 500 mark. It delivered a four-quarter average earnings surprise of 8.45%.

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