Illumina Inc. ILMN reported adjusted earnings per share (EPS) of 8 cents in the first quarter of 2023, sailing past the Zacks Consensus Estimate of 2 cents by a remarkable margin. However, the bottom line declined 92.5% from the year-ago quarter’s earnings of $1.07.
The adjustments exclude the impact of GRAIL pre-acquisition net operating losses on GILTI, the utilization of U.S. foreign tax credits and incremental non-GAAP tax expenses, among others.
Including one-time items, the company’s GAAP EPS was 2 cents compared with the year-ago quarter’s EPS of 55 cents.
In the quarter under review, Illumina’s revenues were $1.09 billion, down 11.1% year over year (9% at CER). The decrease was driven by an anticipated year-over-year slowdown in COVID-19 monitoring, pandemic-related disruptions in China, the transition of Illumina’s high-throughput customers to NovaSeq X, and globally constrained capital markets.
However, the top line beat the Zacks Consensus Estimate by 2.4%.
Illumina, Inc. Price, Consensus and EPS Surprise
Illumina, Inc. price-consensus-eps-surprise-chart | Illumina, Inc. Quote
Post the acquisition of GRAIL on Aug 18, 2021, Illumina has two reportable segments — Core Illumina and GRAIL.
Core Illumina revenues fell 11.9% year over year (down 10% at the constant exchange rate or CER) to $1.08 billion. Core Illumina Sequencing Consumable revenues totaled $692 million in the reported quarter, down 12% year over year.
Sequencing Instrument revenues for Core Illumina were $154 million, down 27% from the year-ago quarter’s figure. The decline was primarily due to lower NovaSeq 6000 shipments compared with the previous year’s quarter and reduced mid-throughput shipments led by fewer NextSeq 550 placements in China. The decrease was partially offset by strength in NovaSeq X shipments.
Core Illumina sequencing service and other revenues were $119 million (up 7% year over year). The upside was driven by higher instrument service contract revenues on a growing installed base.
GRAIL contributed $20 million to revenues during the reported quarter.
The adjusted gross margin (excluding amortization of acquired intangible assets) was 64.7% in the reported quarter, highlighting a contraction of 524 basis points (bps) year over year. The decline is attributed to lower fixed-cost leverage on reduced manufacturing volumes and lower instrument margins due to the NovaSeq X launch, as expected for a new platform introduction.
Research and development expenses increased 5.6% year over year to $341 million, whereas SG&A expenses rose 22.7% to $378 million. These pulled up adjusted operating costs by 13.9% to $719 million.
The adjusted operating loss in the quarter was $16 million against the prior-year quarter’s adjusted operating income of $224 million.
Illumina exited the first quarter of 2023 with cash and cash equivalents plus short-term investments of $1.52 billion compared with $2.04 billion at the end of 2022.
The company did not repurchase any common stock in the quarter.
Cumulative net cash provided by operating activities at the end of the first quarter of 2023 was $10 million compared with $172 million a year ago.
Illumina reaffirmed its 2023 outlook which was originally announced during its fourth-quarter earnings call.
The company expects fiscal 2023 consolidated revenue growth in the range of 7-10% year over year (similar to the previous guidance). The Zacks Consensus Estimate for the same is currently pegged at $4.94 billion.
The adjusted EPS for 2023 is expected in the range of $1.25-$1.50 (unchanged). The Zacks Consensus Estimate for the same is currently pegged at $1.41.
Core Illumina revenue growth is expected in the range of 6-9% year over year. GRAIL revenues are anticipated within $90 and $110 million. Both the guidance remain unchanged from the outlook provided in the last-reported earnings update.
For the second quarter of 2023, Illumina anticipates consolidated revenues between $1.15 and $1.17 billion and an adjusted EPS of 1 cent. The Zacks Consensus Estimate for second-quarter revenues is currently pegged at $1.19 billion and 2 cents for earnings.
Throughout the first quarter, Illumina headlined on many occasions. Earlier this month, the company’s NovaSeq X sequencing system exceeded its 200th order across geographies, the strongest pre-launch demand for any instrument. ILMN’s latest Illumina Complete Long Read technology enables access to both long and short-read data on the same instrument for the first time.
Illumina’s partnership with Henry Ford Health will focus on the impact of comprehensive genomic testing for cardiovascular patients through a series of studies.
The company also expanded its strategic partnership with Myriad Genetics Inc. for broader access and availability of oncology homologous recombination deficiency testing in the United States.
Further, Illumina’s newly released cloud-based software, Connected Insights, enables tertiary analysis for clinical next-generation sequencing (NGS) data. The company also received the international privacy certification for six of its cloud-based informatics program, recognizing Illumina’s compliance with robust, international data privacy requirements.
In January 2023, Illumina teamed up with the biopharmaceutical company, Amgen, for the whole-genome sequencing of nearly 35,000 de-identified, diverse genomic DNA samples. This is the largest data set of genomes of its kind to date.
Illumina delivered better-than-expected first-quarter 2023 earnings and revenues. Building on strong global interests, the company executed robust shipments of NovaSeq X instruments, exceeding its first-quarter guidance of 40 to 50 shipments.
Meanwhile, the year-over-year performance remained sluggish. An expected Covid-19 surveillance headwind adversely affected Core Illumina’s revenues, including sequencing consumables revenues.
On the flip side, contraction in both margins raises apprehension. Illumina emphasized its commitment to achieving higher adjusted operating margins from Core Illumina in the next two years.
Since November 2022, the company has taken several cost-reduction steps to decrease its annualized run rate expenses by more than $100 million from the latter half of 2023 onward. Further, Illumina looks forward to accelerating its IT optimization efforts and freeing up capital to prioritize investments in high-growth areas.
Meanwhile, the chaos surrounding the GRAIL divestment is worrisome and is putting immense bottom-line pressure.
Zacks Rank and Key Picks
Illumina currently carries Zacks Rank #4 (Sell).
Some better-ranked stocks in the broader medical space that have announced quarterly results are Insulet PODD, Lantheus LNTH and Henry Schein HSIC.
Insulet, carrying a Zacks Rank #2 (Buy), reported a fourth-quarter 2022 adjusted EPS of 55 cents, beating the Zacks Consensus Estimate by 129.2%. Revenues of $370 million outpaced the consensus estimate by 11.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Insulet has an estimated earnings growth rate of 57.8% for the next year. PODD’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, the average being 59.8%.
Lantheus, sporting a Zacks Rank #1, reported a fourth-quarter 2022 adjusted EPS of $1.37, which beat the Zacks Consensus Estimate by 42.7%. Revenues of $263 million outpaced the consensus estimate by 7.6%.
Lantheus has an earnings yield of 5.29% compared to the industry’s -3.11%. LNTH’s earnings surpassed estimates in all the trailing four quarters, the average being 50%.
Henry Schein reported fourth-quarter 2022 adjusted earnings of $1.21 per share, which matched the Zacks Consensus Estimate. Revenues of $3.37 billion surpassed the Zacks Consensus Estimate by 0.4%. It currently has a Zacks Rank #2.
Henry Schein has an earnings yield of 6.28% compared to the industry’s 4.55%. HSIC’s earnings surpassed estimates in three of the trailing four quarters and matched the same in one, the average surprise being 2.97%.
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