Gen-Probe Beats, Backs Guidance - Analyst Blog
April 29 2011 - 2:44PM
Zacks
Diagnostic products maker Gen-Probe Inc (GPRO)
posted better-than-expected first-quarter fiscal 2011 results with
adjusted (excluding one-time charges) earnings of 54 cents beating
the Zacks Consensus Estimate of 52 cents while exceeding the
year-ago adjusted earnings of 48 cents. However, profit (as
reported) slipped 4% year over year to $23.3 million (or 48 cents a
share) as higher costs offset an increase in sales.
Revenue Analysis
Revenues for the quarter rose 6% year over year to $143 million,
boosted by higher product sales, also surpassing the Zacks
Consensus Estimate of $141 million. Product sales climbed 6% year
over year to $138.1 million riding on record clinical diagnostic
revenues, which cruised 15% year over year to $88.3 million. The
growth more than offset the declines across the California-based
company’s blood screening and research products and services
businesses.
The healthy growth in clinical diagnostic sales was driven by
higher sales of GTI Diagnostics (acquired in late 2010) products,
APTIMA Combo 2 assay and the PRODESSE influenza assay. Revenues
from blood screening products dipped 6% year over year to $46.7
million on account of lower sales of TIGRIS systems to the
company’s partner Novartis (NVS) and unfavorable
foreign exchange movements.
Revenues from research products and services toppled 24% year
over year to $3.1 million, due to sustained weakness in
pharmaceutical outsourcing.
Collaborative research sales jumped 9% to $3.6 million, mainly
driven by increased funding from Novartis for the development of
the fully automated PANTHER instrument and the PROCLEIX ULTRIO Plus
assay. Royalty and license revenues slid 13% to $1.4 million.
Margins & Expenses
Gross margin on product sales increased to 69.6% from 67.3% a
year-ago, helped by favorable sales mix. Total operating expenses
rose 4% year over year to $108.4 million. Research and development
expenses fell 2% year over year to $29 million.
Marketing and sales expenses increased 12% to $16.5 million,
partly due to sales force expansion in Europe and market
development initiatives. General and administrative expenses bumped
up 24% to $18.2 million owing to the addition of GTI Diagnostics
and legal expenses related to the company's patent infringement
case with Becton Dickinson (BDX).
Balance Sheet, Cash flow & Share
Repurchases
Gen-Probe ended the quarter with cash and cash equivalents and
marketable securities of $491.3 million, down 8% year over year,
and short-term debt of $250 million (up 4% year over year). The
company generated $40.1 million in cash flows from operations
during the quarter and invested $10.8 million in capital
expenditure, resulting in a free cash flow of $29.3 million. The
company repurchased 756,000 shares for $48 million in the
quarter.
Guidance Reaffirmed
Gen-Probe has backed its financial forecast for fiscal 2011. The
company continues to envision high single-digit growth in product
revenues and expects improving margins to drive healthy earnings
growth, despite higher litigation expanses.
Revenue target for fiscal 2011 remain in the range of $570
million to $595 million. Adjusted earnings per share for the year
have been projected in the range of $2.28 to $2.40, unchanged
vis-à-vis prior guidance.
Gen-Probe still expects adjusted operating margin between 27%
and 29% and product gross margin between 68% and 69.5%. The current
Zacks Consensus Estimates for 2011 revenue and EPS are $581 million
and $2.34, respectively.
Our Take
Gen-Probe is a dominant player in the rapidly expanding nucleic
acid test (“NAT”) market, the fastest growing segment of the
clinical diagnostic market. It is a market leader in domestic
gonorrhea and chlamydia testing with its PACE and APTIMA assay
product lines.
Gen-Probe
has a strong pipeline of novel assay products that are expected to
drive future growth. Moreover, the ongoing market shift away from
traditional diagnostic methods towards molecular testing
represents a tailwind for the company.
However, Gen-Probe competes with more established firms such as
Roche (RHHBY), Becton, Dickinson
and Abbott Labs (ABT) in the maturing molecular
diagnostic industry. Moreover, the company’s clinical diagnostics
products are susceptible to reimbursement risk and its
international sales are subject to foreign exchange swings.
Currently, we have a Neutral recommendation on Gen-Probe.
ABBOTT LABS (ABT): Free Stock Analysis Report
BECTON DICKINSO (BDX): Free Stock Analysis Report
GEN-PROBE INC (GPRO): Free Stock Analysis Report
NOVARTIS AG-ADR (NVS): Free Stock Analysis Report
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