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Why Is PerkinElmer (PKI) Up 7% Since Last Earnings Report?

Zacks Equity Research
Updated
Ross Stores (ROST) has an impressive earnings surprise history and currently possesses the right combination of the two key ingredients for a likely beat in its next quarterly report.

A month has gone by since the last earnings report for PerkinElmer (PKI). Shares have added about 7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is PerkinElmer due for a pullback? 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 catalysts.

Recent Earnings

Maintaining its streak of positive earnings surprises, PerkinElmer reported second-quarter 2018 adjusted earnings of 91 cents per share, beating the Zacks Consensus Estimate by 5.8%.

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Based in Waltham, MA, the leading MedTech company reported adjusted revenues of approximately $703.4 million, which surpassed the Zacks Consensus Estimate of $693.8 million. Revenues also surpassed the year-ago quarter’s figure by 28.6%.

Segment Details

Discovery & Analytical Solutions(DAS)

With robust growth in the life sciences business and applied end markets, revenues from DAS totaled $430.6 million in the second quarter, up 12.4% year over year. Organic revenues increased 10% year over year.

Within life sciences business, the company saw strong performance in the pharma biotech end market led by strength in the Drug Discovery segment. Further, driven by strong instrument sales, industrial, environmental and Asian food end markets led the impressive performance delivered by the applied end markets in the reported quarter.

Coming to profits at the DAS segment, the company reported second-quarter 2018 adjusted operating income of $76.4 million, up from $63.6 million in the year-ago quarter.

PerkinElmer registered double-digit organic revenue growth in Asia and Europe and high single-digit organic revenue growth in the Americas. In emerging markets, the company reported double-digit organic revenue growth on strength in China and India.

Diagnostics segment

Revenues were $272.7 million compared with $163.8 million a year ago, reflecting a 66.2% year-over-year increase. This reflects an improvement of 10% organically.

Within the Diagnostics business, PerkinElmer witnessed high single-digit organic revenue growth in reproductive health, and double-digit growth in genomics and immunodiagnostics. New launches like Tulip and EUROIMMUN saw a strong quarter. Furthermore, on a geographical basis, PerkinElmer saw organic revenue growth of low teens in Asian markets. In Europe, revenues increased double digits whereas in the Americas, the company saw high single-digit organic revenue growth.

Adjusted operating income in the segment totaled $77.2 million, compared with $48.1 million in the second quarter of 2017.

Margin Analysis

Adjusted gross profit in the quarter came in at $360.9 million, up 35.2% year over year. Adjusted gross margin, as a percentage of revenues, was 51.3% in the quarter, up 250 basis points (bps) year over year.Adjusted operating income came in at $138.3 million, up 41.4% year over year. Adjusted operating margin, as a percentage of revenues, was 19.7% in the quarter, up 180 bps.

Guidance Updated

For 2018, PerkinElmer expects adjusted earnings of $3.65 per share, which is significantly higher than the previously issued guidance of $3.60. Notably, the Zacks Consensus Estimate for the same is currently pegged at $3.60, below the company’s estimate.   The company projects revenues of $2.78 billion for 2018. This guidance includes EUROIMMUN sales of around $370 million and $30 million of gains from favorable currency movement. Notably, the company previously expected $2.8 billion of revenues in 2018.

Despite an unfavorable foreign exchange environment, which had an adverse impact on financials in the quarter under review, the company expects strong adjusted operating margin improvement over the second half of 2018. Management continues to expect a 70-90 bp margin expansion in 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, PerkinElmer has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for momentum investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, PerkinElmer has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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