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Bio-Rad (BIO) Misses Q2 Earnings & Sales, Margin Declines


Bio-Rad Laboratories, Inc. BIO reported second-quarter 2017 earnings of 17 cents per share, a huge decline from the year-ago earnings of 61 cents. The quarter’s figure also missed the Zacks Consensus Estimate of 63 cents by a wide margin.

Notably, net income in the second quarter was hit by lower sales, weaker gross profit, increased acquisition-related expenditures for new products and technology plus higher expense for implementation of new systems and operations in Europe.

Net sales in the quarter came in at $504.7 million, down 2.3% year over year (down 1.6% at constant exchange rate or CER). Sales also missed the Zacks Consensus Estimate of $515 million by 1.9%. The year-over-year fall in sales was largely due to a slowdown in productivity related to the recent go-live of the company’s global ERP system in Western Europe as well as a shift in sales into the first quarter in anticipation of the ERP deployment.

Bio-Rad Laboratories, Inc. Price, Consensus and EPS Surprise

Bio-Rad Laboratories, Inc. Price, Consensus and EPS Surprise | Bio-Rad Laboratories, Inc. Quote

Quarter in Detail

On a segmental basis, the Life Science segment’s net sales came in at $179.4 million, down 0.3% year over year (up 0.3% at CER). At CER, sales rose on the back of strong sales of Droplet Digital PCR (ddPCR) instruments and reagents, offset by a decrease in process chromatography media sales, plus some of the ERP-related disruption.

Within Clinical Diagnostics, the company registered sales of $322.1 million, down 3.5% year over year (down 2.7% at CER). This decline resulted from a significant slowdown of European sales, especially in infectious disease and immunohematology products, directly related to the disruptions post go-live of the new ERP system.

Gross margin of 54.1% during the second quarter was down 7 basis points (bps) year over year on a 2.5% decline in gross profits. Adjusted operating loss in the reported quarter was $2.35 million compared with the operating profit of $24.9 million in the year-ago quarter.

The company exited the second quarter with cash and cash equivalents and short-term investments of 717.4 million compared with $844 million at the end of 2016. Year to date, net cash provided by operating activities was $6.2 million compared with $69.7 million in the year-ago period.

2017 Guidance

Despite a dismal second-quarter performance, Bio-Rad continues to expect organic sales growth of approximately 4% at CER for the full year. This growth rate assumes recovery of a substantial portion of the $15-$17 million of ERP-related sales disruption that took place in the second quarter.

With lower-than-anticipated operating profit in the first half of 2017 and including the addition of RainDance Technologies, the company has lowered its currency-neutral operating margin projection for the full year to a range of 6–6.5% from the earlier guidance of 7%.

Bottom Line

Bio-Rad posted a disappointing quarterly show with both earnings and sales significantly lagging the Zacks Consensus Estimate. Sales growth was majorly hampered by a slower productivity resulting from ERP deployment in Western Europe as well as lower-than-expected sales in the process media business. However, the company reiterated its organic growth expectation indicating chances of recovery.

Zacks Rank & Key Picks

Bio-Rad has a Zacks Rank #3 (Hold). A few better-ranked medical stocks worth considering are Edwards Lifesciences Corporation EW, INSYS Therapeutics, Inc. INSY and Align Technology, Inc. ALGN, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Edwards Lifesciences has a long-term expected earnings growth rate of 15.2%. The stock has gained around 5.9% over the last three months.

INSYS Therapeutics has a long-term expected earnings growth rate of 20%. The stock delivered a stellar four-quarter average earnings surprise of 60.7%.

Align Technology has expected long-term adjusted earnings growth of almost 26.6%. The stock has rallied roughly 25.9% over the last three months.

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