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Can Diagnostic Revenues Drive PerkinElmer (PKI) Q2 Earnings?

Zacks Equity Research
Updated

PerkinElmer, Inc’s PKI second-quarter 2018 results, expected to release after the market closes on Aug 1, are likely to reflect steady growth in the core Diagnostics business. While this might prove to be a major driver, let’s take a quick look at the other factors which will drive the upcoming results.

In the first quarter of 2018, the company reported adjusted earnings of 63 cents per share, beating the Zacks Consensus Estimate by 3.3%. PerkinElmer reported adjusted revenues of approximately $644 million, which beat the Zacks Consensus Estimate of $616 million. Revenues also improved 25.3% from the year-ago quarter’s tally.

Notably, for the second quarter, the Zacks Consensus Estimate for earnings is pegged at 86 cents, reflecting year-over-year growth of 28.4%. The same for revenues is pinned at $693.8 million, indicating 26.8% growth. PerkinElmer delivered an average positive earnings surprise of almost 2% in the trailing four quarters.

Let’s delve into the factors that are likely to have an impact on second-quarter results.

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PerkinElmer, Inc. Price and EPS Surprise

 

PerkinElmer, Inc. Price and EPS Surprise | PerkinElmer, Inc. Quote

Diagnostics Revenues to Drive Q2

Diagnostic revenues have been fortifying the company’s market position in terms of exclusiveness of services in the respective markets. The segment accounted for 38.4% of total revenues in the last reported quarter. Adjusted operating income in the segment came in at $52.7 million, up from $44.7 million in the first quarter of 2017.

Revenues were $247.5 million compared with $156.8 million a year ago, up 62% on a year-over-year basis. This indicates an improvement of 7% organically.

For the Diagnostics market, the company offers products that are used to detect genetic disorders. PerkinElmer also provides digital x-ray flat panel detectors and infectious disease testing solutions in its Diagnostics portfolio.

The second-quarter results are likely to reflect strong growth in the Diagnostic segment, particularly in the infectious disease business and reproductive health business. However, the applied genomics business, which was down on a year-over-year basis due to lesser-than-expected micro fluidic sales in the first quarter, may continue to be soft in the second quarter as well.

It is also encouraging to note that the Zacks Consensus Estimate for the Diagnostics segment is pegged at $274 million, up 10.9% sequentially.

What Are the Other Factors Driving Q2?

DAS – a Key Contributor

PerkinElmer has formulated a ‘DAS Growth Strategy’ that focuses on finalizing the organizational changes associated with the life sciences business under Discovery & Analytical Solutions (“DAS”) segment. The company continues to leverage on its informatics and OneSource service offerings to improve the pharmaceutical customer’s lab productivity in the DAS unit. Another important component of the DAS growth strategy is to accelerate growth in China and other emerging markets with increased investments.

In the last reported quarter, Discovery and Analytical Solutions represented 61.2% of the company’s total sales. Revenues from DAS totaled $247.5 million, up 62% year over year.

Recently, the company collaborated with Helix to develop and commercialize exome sequencing-based tests that will help consumers make proactive health management decisions.

Buoyed by the solid prospects, the Zacks Consensus Estimate for revenues is pegged at $418 million, reflecting an improvement of 21.2% sequentially.

Improving Margin Trend to Continue

PerkinElmer’s gross and operating margin continues to improve primarily on the back of productivity initiatives and volume leverage. The new product introductions are expected to improve product mix and enhance gross margin. This along with stringent cost control will continue to drive operating margin in the second quarter.

In the first quarter of 2018, adjusted gross profit in the quarter came in at $313.3 million, up 25.8% year over year. Adjusted gross margin, as a percentage of revenues, was 48.6% in the quarter, up 20 basis points (bps) year over year. The company expects significant gross margin expansion over the next three years.

Guidance Raised

For 2018, PerkinElmer expects adjusted earnings of $3.60 per share, which is significantly higher than the previous guidance of $3.50. Notably, the Zacks Consensus Estimate for earnings is also pegged at $3.60. The company expects revenues of $2.8 billion in 2018, up from the earlier range of $2.72-$2.74 billion. The Zacks Consensus Estimate is currently pegged at $2.8 billion.  

Thus, PerkinElmer is confident about improving growth trajectory, which is likely to drive the second-quarter results.

What Does Our Model Predict?

Per our proven model, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to deliver a positive earnings surprise in the fiscal third quarter. This is exactly the case here as you will see below.

Earnings ESP: PerkinElmer has an Earnings ESP of +1.03. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: PerkinElmer carries a Zacks Rank #3.

Please note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revision.

Other Stocks Worth a Look

Here are a few other medical stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

Bio-Rad Laboratories BIO has an Earnings ESP of +7.41% and a Zacks Rank of 2.

Baxter International Inc BAX has an Earnings ESP of +0.90% and a Zacks Rank of 2.

DexCom, Inc DXCM has an Earnings ESP of +12.84% and a Zacks Rank of 3.

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