Catalent (CTLT) Down 6.4% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Catalent (CTLT). Shares have lost about 6.4% in that time frame, underperforming the S&P 500.

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

Catalent Q1 Earnings Top Estimates, FY22 View Up

Catalent, Inc. reported first-quarter fiscal 2022 adjusted earnings per share of 71 cents, up 65.1% year over year. The bottom line exceeded the Zacks Consensus Estimate by 7.6%.

The adjustments include charges and benefits related to amortization as well as acquisition, integration and other special items costs.

The company’s GAAP earnings per share was 49 cents in the quarter, up 19.5% year over year.

Revenues in Detail

Revenues grossed $1.03 billion in the reported quarter, up 21.2% year over year (up 20% at constant exchange rate or CER). The metric surpassed the Zacks Consensus Estimate by 1.1%.

The top line was driven by robust growth in the Biologics segment and improving dynamics in the Softgel and Oral Technologies as well as Oral and Specialty Delivery segments in the reported quarter.

Organic net revenues (excluding the impact of acquisitions, divestitures and currency translation) increased 23% year over year.

Segments in Detail

Revenues in the Biologics segment rose 44.8% year over year (up 44% at CER) to $546 million in the quarter under review.

Revenues in the Softgel and Oral Technologies segment increased 9.9% from the year-ago period’s levels (up 9% at CER) to $243 million.

The Oral and Specialty Delivery arm recorded revenues of $146 million, down 8.2% and 10% on a reported basis and at CER, respectively, year over year. Net revenues inched up 1% on excluding the impact of acquisitions, but declined 14% on excluding the impact of divestitures.

Revenues in the Clinical Supply Services business rose 3.2% year over year (up 2% at CER) to $96 million.

Operational Update

In the quarter under review, Catalent’s gross profit rose 30.1% to $324 million. Gross margin expanded 218 basis points (bps) to 31.6%.

Selling, general and administrative expenses rose 10.9% to $183 million year over year.

Adjusted operating profit totaled $141 million, rising 67.9% from the prior-year quarter’s levels. Adjusted operating margin in the quarter expanded by 383 bps to 13.8%.

Financial Update

Catalent exited the first quarter of fiscal 2022 with cash and cash equivalents of $1.97 billion compared with $896 million at the end of fiscal 2021. Total debt at the end of the fiscal first quarter was $4.30 billion compared with $3.24 billion at the end of fiscal 2021.

Net cash provided by operating activities at the end of first-quarter fiscal 2022 was $163 million compared with $150 million a year ago.

FY22 Guidance

Catalent, to account for the Bettera acquisition (closed on Oct 1), raised its earlier-provided financial outlook for the year.

The company projects revenues within $4,620 million-$4,820 million for the full year, up from the previous projection of $4,300 million-$4,500 million. The Zacks Consensus Estimate for fiscal 2022 revenues is currently pegged at $4.54 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 6.58% due to these changes.

VGM Scores

At this time, Catalent has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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 these revisions looks promising. Notably, Catalent has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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