Illumina Q4 earnings miss estimates

Gene-sequencing firm Illumina (NASDAQ: ILMN) reported mixed Q4 results. The company failed to beat street estimates on the earnings front due to impairments recorded from its investments, but revenue topped analyst expectations. Shares of the firm were down nearly 2% in the extended hours of trading post the earnings announcement.

Revenue in the fourth quarter improved 11% to $867 million and adjusted earnings dipped 8% to $1.32 per share dragged by the impairments recorded for its acquisitions. In addition, last year the company benefited from one-time benefit due to the tax reforms. Analysts were expecting Q4 EPS to come in at $1.36 on sales of $863.54 million for the quarter.

Consumables sales rose 9% to $562 million aided by strong sales of NovaSeq offset by lower sales from the HiSeq product line as customers transition to NovaSeq. It’s worth noting that Consumables brings in 65% revenue to the company’s top line.

Related: Illumina Q3 Earnings Call Transcript

Instruments revenue jumped 22% over last year with solid growth coming from both sequencing and microarray offerings. Services revenue increased 8% to $129 million aided by increased gene sequencing services from its clients.

Last quarter revenues rose 20% to $853 million while adjusted net income was $227 million or $1.52 per share, topping analyst estimates on both revenue and earnings front.

Research & development (R&D) expenses soared 28% and sales, general and administrative expenses increased 24% due to increased headcount to focus on new products and higher compensation expenses relating to performance.

Last November, Illumina acquired its peer Pacific Biosciences for $1.2 billion. With this deal, Illumina would expand its service offerings on genome sequencing on long reads which would be helpful in diagnosing diseases. This would complement its in-house short-read offering to its clients. The deal is expected to be closed by mid-2019 post the approvals and would be accretive to earnings in the second half of the year.

The company has played a key role in democratizing gene-sequencing to masses by bringing down the price point to $1,000 levels. DNA sequencing is yet to take off in a big way. It’s still early days for genomic sequencing to be embraced at a much broader level. With affordable price points and raising awareness with advanced technologies for sequencing genes, Illumina is going to benefit in the years to come.

Illumina is planning to focus on five key areas: oncology, population genomics, rare and undiagnosed diseases (RUGD), non-invasive prenatal testing (NIPT) and consumer. More products are launched by the firm catering to the needs of its clients focusing on these five areas.

For the fiscal year 2019, the company expects revenue to increase between 13% and 14% and adjusted earnings is expected to be in the range of $6.50 to $6.60 per share. The outlook doesn’t take into account the earnings contribution from Pacific Biosciences as the deal is expected to be closed only by mid-2019.

The company’s share price has increased by nearly 18% in the last 12 months hitting a new 52-week high level of $372 in September. In 2019, the share price has lost about 5%.

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