Gen-Probe's EPS Trounces, Net Slips - Analyst Blog
February 15 2012 - 7:00AM
Zacks
Diagnostic products maker
Gen-Probe’s (GPRO) fourth-quarter fiscal 2011
adjusted (excluding one-time charges) earnings of 72 cents a share
topped the Zacks Consensus Estimate by 4 cents while exceeded the
year-ago adjusted earnings of 61 cents.
However, the California-based
company’s profit (as reported) plummeted 27% in the quarter to
$19.9 million (or 42 cents a share), hammered by a $12.7 million
charge related to the impairment of goodwill and
intangible assets .
For the full year, adjusted
earnings of $2.34 a share outperformed the Zacks Consensus Estimate
of $2.31 and surpassed the year-ago earnings of $2.19. Profit (as
reported) for the year more than halved year over year to $50.1
million or $1.04 a share.
Revenue
Analysis
Revenues for the quarter surged 16%
year over year to $158.2 million, essentially in line with the
Zacks Consensus Estimate. For the fiscal, sales rose 6% year over
year to $576.2 million, just missing the Zacks Consensus Estimate
of $577 million.
Product sales soared 18% to $155.2
million in the fourth quarter as double-digit growth across
clinical diagnostic and blood screening businesses more than
neutralized the decline in revenues from research products and
services.
Clinical diagnostic revenues spiked
13% year over year to $90.6 million, boosted by higher sales of
APTIMA Combo 2 assay across domestic and overseas markets and GTI
Diagnostics acquisition. However, foreign exchange swings trimmed
sales by roughly $0.1 million. The APTIMA women’s health business
remains the key growth engine for the clinical diagnostic
franchise.
Gen-Probe clocked solid growth in
its blood screening business in the quarter with sales zooming 30%
year over year to $62.1 million, paced by higher shipment of assays
and instruments (including the TIGRIS systems) to Gen-Probe’s
partner Novartis (NVS). Foreign exchange movements
had a favorable impact of $0.2 million on blood screening
sales.
Revenues from research products and
services slid 29% year over year to $2.4 million. Collaborative
research sales tanked 62% year over year to $1.4 million, hurt by
lower funding from Novartis for the development of the fully
automated PANTHER instrument for blood screening.
Gen-Probe expects to launch the
PANTHER system in international blood screening markets in 2012.
Royalty and license revenues dipped 16% to $1.6 million on account
of lower royalties from Novartis associated with the plasma testing
market.
Margins &
Expenses
Gross margin on product sales
slipped to 66.7% in the quarter from 69.4% a year-ago, resulting
from unfavorable sales mix. Total operating expenses jumped 29%
year over year to $128.7 million. Research and development expenses
rose 5% year over year to $28.2 million.
Marketing and sales expenses
climbed 13% to $17.1 million due to the investment in European
commercial infrastructure and addition of GTI Diagnostics. General
and administrative expenses rose 6% to $16.2 million as a result of
the GTI acquisition.
Financial
Health
Gen-Probe ended the fiscal with
cash and cash equivalents and marketable securities of $368
million, down 25% year over year, and short-term debt of $248
million (up 3% year over year). The company generated $53.4 million
in cash flows from operations during the fourth quarter and
invested $7.2 million in capital expenditure, resulting in a free
cash flow of $46.2 million.
The company bought back 1.7 million
shares during the fourth quarter for $100 million, thereby
completing the $100 million repurchase program announced in
November 2011.
Guidance and
Recommendation
Moving ahead, Gen-Probe expects to
register low double-digit organic sales and earnings growth in 2012
on the back of multiple new products (including APTIMA Trichomonas
and APTIMA HPV). The company envisions modest growth in its blood
screening business in 2012 while clinical diagnostic revenues are
expected to be boosted by strong sales from APTIMA Combo 2
assay.
For 2012, Gen-Probe expects
revenues in the range of $630 million to $655 million. Adjusted
earnings per share target for the year have been pegged between
$2.50 and $2.68. The current Zacks Consensus Estimates for 2012
revenue and earnings are $641 million and $2.59, respectively.
Gen-Probe expects operating margin
(on a reported basis) in the band of 24.5% to 26% and adjusted
operating margin of between 26.5% and 28% for 2012. Product gross
margin (both reported and adjusted basis) is expected between of
68% and 69.5%.
For first-quarter 2012, the company
expects sales between $148 million and $152 million and earnings in
the range of 48 cents and 52 cents a share.
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.
We believe Gen-Probe is well placed
with a strong cadence of new products that are expected to support
growth in the years ahead. Moreover, Gen-Probe’s PANTHER molecular
testing platform will significantly contribute to its revenues as
it broadens the testing menu for the instrument.
However, Gen-Probe competes with
more established firms such as Roche (RHHBY),
Becton Dickinson (BDX), and Abbott
Labs (ABT) in the maturing molecular diagnostic industry.
Moreover, the company is exposed to foreign exchange headwinds
which may hurt its sales and margins in 2012. Higher tax is also
expected to weigh on its bottom line this year.
Currently, we have a long-term
Neutral recommendation on Gen-Probe, which is in tandem with a
short-term Zacks #3 Rank (Hold).
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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