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Avantor's (AVTR) Stock Falls 8.8% Since Q2 Earnings Miss

Zacks Equity Research
·5-min read

Shares of Avantor, Inc. AVTR fell 8.8% till Aug 1, following the company's second-quarter 2022 results announcement on Jul 28.

Avantor reported second-quarter 2022 adjusted earnings per share (EPS) of 37 cents, up 5.7% year over year. The bottom line, however, missed the Zacks Consensus Estimate by a penny.

GAAP EPS for the quarter was 28 cents, up 16.7% year over year.

Revenue Details

Revenues grossed $1.91 billion in the reported quarter, up 2.8% year over year. The metric missed the Zacks Consensus Estimate by 3.6%.

Avantor's organic sales growth in the reported quarter was 2.3%, whereas core organic sales growth was 6.4%.

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Per management, the year-over-year uptick in the second quarter’s top line was driven by more than 20% core organic growth in bioproduction.

COVID-related headwinds were 4.1% in the reported quarter. Excluding COVID headwinds, Avantor's underlying core organic growth rate was 6.4% compared with 18.4% in the prior-year comparable period.

Segmental Analysis

Avantor reports financial results in three geographic segments based on customer location — the Americas, Europe and AMEA (Asia, Middle-East and Africa).

The Americas segment’s net sales were $1,156.6 million, reflecting 8.1% reported growth year over year. Core organic sales also increased by 8.1% in the reported quarter, driven by continued strength in biopharma, advanced technologies and applied materials.

Europe’s net sales were $623.8 million, reflecting a reported decrease of 6.3%, whereas core organic sales increased 4.7% year over year. Per management, underlying demand remained strong despite a challenging economic climate across Europe.

AMEA arm’s net sales were $130.1 million, indicating a reported improvement of 5.9% year over year. However, core organic sales decreased 0.3% year over year due to lockdowns in China impacting sales for the quarter. Excluding China, AMEA core organic sales increased high-single digits.

Avantor, Inc. Price, Consensus and EPS Surprise

Avantor, Inc. Price, Consensus and EPS Surprise
Avantor, Inc. Price, Consensus and EPS Surprise

Avantor, Inc. price-consensus-eps-surprise-chart | Avantor, Inc. Quote

Margin Analysis

In the quarter under review, Avantor’s gross profit improved 3.4% to $647.7 million. The gross margin expanded 19 basis points (bps) to 33.9%.

Selling, general and administrative expenses fell 5.3% to $352.1 million year over year.

Operating profit totaled $295.6 million, up 16.1% from the prior-year quarter’s level. The operating margin in the quarter also expanded 177 bps to 15.5%.

Financial Position

Avantor exited second-quarter 2022 with cash and cash equivalents of $237.5 million compared with $283.6 million at the end of first quarter. Total debt at the end of second-quarter 2022 was $6.54 billion compared with $6.86 billion at the end of first quarter.

Cumulative net cash flow from operating activities at the end of second-quarter 2022 was $379.7 million compared with $390.7 million a year ago.

Guidance

Avantor has revised its financial outlook for full-year 2022.

The company has maintained its outlook of organic revenue growth for the year at 4-6%.

Avantor now expects its adjusted EPS to lie within $1.43-$1.49, lowered from the previous expectation of $1.48 - $1.54. This primarily reflects foreign exchange translation headwinds and recent acquisitions. The Zacks Consensus Estimate for the same is pegged at $1.50.

Our Take

Avantor exited the second quarter with lower-than-expected results. The decline in Europe’s reported net sales and continued pandemic-induced headwinds are worrying. The company’s expectations of lower revenues from its COVID-related business are concerning from the business perspective. Macroeconomic factors like tighter financial conditions, global supply-chain constraints and the ongoing geopolitical conflict also raises apprehensions about the company’s financial strength.

On a positive side, the company registered a robust year-over-year uptick in both its top and bottom lines, along with solid performances across majority of its segments. Strength in Avantor’s end markets is encouraging. Product launches in several areas, including J.T. Baker high-precision consumables, viral and activation solutions, and a new line of Masterflex pumps with an advanced user interface looks promising. Collaborations with GeminiBio and Cytovance also buoy our optimism. Expansion of both margins also bodes well.

Zacks Rank and Stocks to Consider

Avantor currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Quest Diagnostics Incorporated DGX, Humana Inc. HUM and Alkermes plc ALKS.

Quest Diagnostics, carrying a Zacks Rank #2 (Buy), reported second-quarter 2022 adjusted EPS of $2.36, which beat the Zacks Consensus Estimate by 9.8%. Revenues of $2.45 billion outpaced the consensus mark by 7.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Quest Diagnostics has an earnings yield of 7.1% compared with the industry’s 3.3%. DGX’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, the average being 12.1%.

Humana, having a Zacks Rank #2, reported second-quarter 2022 adjusted EPS of $8.67, which beat the Zacks Consensus Estimate by 13%. Revenues of $23.7 billion outpaced the consensus mark by 1.2%.

Humana has an estimated long-term growth rate of 13.5%. HUM’s earnings surpassed estimates in all the trailing four quarters, the average being 9.1%.

Alkermes reported second-quarter 2022 adjusted EPS of 6 cents, which surpassed the Zacks Consensus Estimate by 50%. Second-quarter revenues of $276.2 million outpaced the Zacks Consensus Estimate by 1.1%. It currently has a Zacks Rank #2.

Alkermes has an estimated long-term growth rate of 24.9%. ALKS’s earnings surpassed estimates in all the trailing four quarters, the average being 325.5%.


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