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Bio-Rad (BIO) Down 6.9% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Bio-Rad Laboratories (BIO). Shares have lost about 6.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Bio-Rad due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Bio-Rad Q2 Earnings Beat Estimates, Gross Margin Rises

Bio-Rad posted second-quarter 2020 adjusted earnings per share of $1.61, which surpassed the Zacks Consensus Estimate by 23.8%. Moreover, the bottom line rose 8.1% from the prior-year quarter.

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The quarter’s adjustments eliminate the impacts of certain non-recurring items like asset amortization costs, legal charges, restructuring costs and acquisition-related one-time benefits.

GAAP earnings per share of the company was $32.15 per share in the quarter, up 61.9% year over year.

Revenues in Detail

Bio-Rad’s revenues of $536.9 million in the quarter surpassed the Zacks Consensus Estimate by 1.9%. However, revenues declined 6.2% from the year-ago quarter (down 4.4% at constant exchange rate or CER).

Per the company, while boosting demand for some of its products, the pandemic adversely impacted some of its business operations during the second quarter of 2020.

Segmental Analysis

Sales at the Life Sciences segment in the second quarter totaled $252.1 million, up 18.7% year over year and 20% at CER. The reported growth was primarily driven by sales of PCR, ddPCR and Process Media products. Geographically, the company’s quarterly growth was led by Asia and Europe.

Net sales at the Clinical Diagnostics segment totaled $283.2 million, down 20.7% on a year-over-year basis and 18.7% at CER. The downside was seen across all regions and products.

Margins

In the quarter under review, Bio-Rad’s gross profit fell 4.8% to $292.9 million. However, gross margin expanded 82 basis points (bps) to 54.6%. Per the company, adjusted gross margin was 55.5%, expanding 110 bps.

Operating expenses were $241.2 million in the second quarter, down 4% year over year. Operating profit totaled $51.7 million, reflecting an 8.2% fall from the prior-year quarter. However, operating margin in the second quarter contracted 21 bps to 9.6%.

Company-adjusted operating margin was 11.8%, expanding 70 bps year over year.

Financial Update

Bio-Rad exited the second quarter with cash and cash equivalents (including short-term investments) of $1.037 billion compared with $1.042 billion at the end of the first quarter of 2020. Long-term debt (including current maturities) at the end of the second quarter was $438.7 million compared with $438.5 million.

Cumulative net cash flow from operating activities at the end of the quarter under review was $154.9 million compared with $198.3 million in the year-ago quarter.

Bio-Rad, on Nov 28, 2017, had announced management’s authorization of a new share repurchase program. This granted Bio-Rad the authority to repurchase, on a discretionary basis, up to $250 million of the outstanding shares of its common stock ("Share Repurchase Program"). Per this, $73.1 million remained under the Share Repurchase Program till Jun 30, 2020. On Jul 30, 2020 Bio-Rad announced management’s authorization to increase the Share Repurchase Program, allowing repurchase of up to an additional $200 million of stocks.

2020 Guidance

Given the economic impact of the coronavirus pandemic and uncertainties regarding the duration of the same, Bio-Rad has not provided its annual guidance for 2020.

However, the company expects third-quarter sales to be flat to up 5% at CER.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 36.03% due to these changes.

VGM Scores

Currently, Bio-Rad has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Bio-Rad has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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