Can Diagnostic Revenues Drive PerkinElmer (PKI) Q1 Earnings?

PerkinElmer, Inc.’s PKI first-quarter 2018 results, expected to release on Apr 30 after market close, are likely to show steady growth in the core Diagnostics business. While this might prove to be a major driver, declining revenues in all other segments might mar overall results.

In the fourth quarter of fiscal 2017, the company reported adjusted earnings of 97 cents per share, beating the Zacks Consensus Estimate of 94 cents. Meanwhile, revenues were approximately $641.6 million, which beat the Zacks Consensus Estimate of $617 million. Revenues also surpassed the year-ago quarter’s $567 million.

Notably, for the first quarter, the Zacks Consensus Estimate for earnings is pegged at 61 cents, reflecting year-over-year growth of 10.9%. The same for revenues is pinned at $615.86 million, indicating 19.8% growth.
PerkinElmer delivered an average positive earnings surprise of 1.6% for the trailing four quarters.

PerkinElmer, Inc. Price and EPS Surprise

 

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

Let’s dig deeper.

Diagnostics Revenues in Focus

Diagnostic revenues accounted for 30.1% of total revenues in the last quarter. Revenues in the segment rose to $193.4 million, up 23.3% from $193.4 million a year ago. This also reflects an improvement of 6% organically. The segment has been fortifying the company’s market position in terms of exclusiveness of services in the respective markets.

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 first-quarter results are likely to indicate strong growth in the Diagnostic revenues.

In the last-reported quarter, operating profit margin for the segment, as a percentage of revenues, was 30.8%, up 20 basis points (bps) year over year.

It is also encouraging to note that the Zacks Consensus Estimate for the Diagnostics segment is at $235 million, up 21.5% sequentially.

Other Factors at Play

EUROIMMUN Buyout: A Positive

The divestment of medical imaging business and the acquisition of EUROIMMUN Medical Laboratory Diagnostics AG have been major drivers for the segment. PerkinElmer announced the completion of the EUROIMMUN buyout for approximately $1.3 billion in cash in December 2017. EUROIMMUN is an autoimmune testing company and an emerging player in the infectious disease and allergy testing space.

Per management, the EUROIMMUN buyout has expanded PerkinElmer’s capabilities and helped it gain considerable traction. It has led to an increase in Diagnostics employees by more than 3000, strengthening the company’s R&D platform. The company is optimistic about increasing its R&D spending by 30% in 2018 from 2017 which is likely to account for 8.7% of product revenues.

In the fourth quarter, EUROIMMUN contributed revenues of approximately $360 million, representing growth of 13-15%. It is also likely to add 100 bps to PerkinElmer’s organic growth.

Discovery & Analytical Solutions (DAS)

Revenues from DAS totaled $448.2 million in the fourth quarter, up 9.3% from $409.9 million in the year-ago quarter. PerkinElmer has been focusing on finalizing the organizational changes associated with the life sciences business under DAS.

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

However, the Zacks Consensus Estimate for revenues is at $381 million, down 15% sequentially.

Guidance Solid

The company issued adjusted earnings guidance for 2018. Adjusted earnings are expected at $3.50 a share. Further, it expects reported revenues in the range of $2.72-$2.74 billion, which includes approximately $25 million in foreign exchange tailwinds and around $360 million from EUROIMMUN. PerkinElmer projects 5-6% organic revenue growth for 2018.

Thus, PerkinElmer is confident about improving growth trajectory in the first quarter.

Our quantitative model shows an earnings beat for PerkinElmer this quarter. This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates.

Zacks ESP: Earnings ESP for PerkinElmer is +0.52%. 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. A favorable Zacks Rank increases the predictive power of ESP.

Stocks Worth a Look

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

Stryker Corporation SYK has an Earnings ESP of +0.13% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hologic, Inc. HOLX has an Earnings ESP of +0.94% and a Zacks Rank #3.

Edwards Lifesciences EW has an Earnings ESP of +0.99% and a Zacks Rank #3.

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