Why Is Align Technology (ALGN) Down 13% Since Last Earnings Report?
A month has gone by since the last earnings report for Align Technology (ALGN). Shares have lost about 13% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Align Technology due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Align Technology Q4 Earnings Top Estimates, Margins Drop
Align Technology’s fourth-quarter 2022 earnings per share were $1.73, reflecting a 38.9% plunge from the year-ago earnings. The quarter’s earnings per share, however, exceeded the Zacks Consensus Estimate by 13.8%.
GAAP earnings per share for the quarter was 54 cents, significantly down from the year-ago earnings per share of $2.40, reflecting a 77.5% decline year over year.
Full-year adjusted earnings per share was $7.76, plunging 30.8% from the year-ago period. However, it exceeded the Zacks Consensus Estimate by 10.5%.
Revenues declined 12.6% year over year to $901.5 million in the quarter and beat the Zacks Consensus Estimate by 1.4%. Revenues were impacted by unfavorable foreign exchange of approximately $67.6 million or 7% year over year.
For 2022, revenues were $3.73 billion, down 5.5% from 2021. The figure exceeded the Zacks Consensus Estimate by 0.3%.
Segments in Detail
In the fourth quarter, revenues at the Clear Aligner segment were down 10.3% year over year to $731.7 million. Revenues were unfavorably impacted by lower volumes and lower ASPs. This was partially offset by higher non-case revenues. Within the segment, Invisalign case shipments amounted to 583,655, down 7.5% year over year.
Revenues from Imaging Systems & CAD/CAM Services were down 21.3% to $169.9 million in the quarter. Lower scanner volume and ASPs were partially offset by higher services revenues from the larger installed base of scanners and increased non-system revenues related to the company’s certified preowned and leasing and rental programs. Revenues witnessed an unfavorable currency impact of 6.2% year over year.
Gross profit in the fourth quarter was $617.7 million, reflecting a 17% decline year over year. Gross margin in the quarter under review contracted 369 basis points (bps) year over year to 68.5% despite a 0.9% decline in cost of net revenues.
During the quarter, Align Technology witnessed a 9.1% year-over-year fall in selling, general and administrative expenses to $410.1 million and a 15.3% rise in research and development expenses to $83.5 million.
Operating income in the quarter under review was $124.1 million, indicating a decline of 43.8%. The operating margin contracted 766 bps to 13.8%.
Align Technology exited 2022 with cash, cash equivalents of $942 million compared with $1.09 billion recorded at the end of 2021.
Cumulative net cash provided by operating activities at the end of the year was $568.7 million compared with $1.17 billion a year ago.
The company repurchased $475 million shares in 2022), with plans to repurchase $250 million more starting the first quarter of 2023 and expects to entirely complete its 2021 $1 billion Stock Repurchase Program in the second quarter of 2023.
Align Technology expects to report 2023 GAAP operating margin to be slightly above 16% and adjusted operating margin to be slightly above 20%.
For 2023, the company expect investments in capital expenditures to exceed $200 million. Capital expenditures primarily related to building construction and improvements, as well as additional manufacturing capacity to support Align Technology’s international expansion.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month.
Currently, Align Technology has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Align Technology has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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