Illumina (ILMN) Q3 Earnings: Disappointment In The Cards?

Illumina Inc ILMN is scheduled to report third-quarter 2016 results on Nov 1, after the closing bell.

Last quarter, the company posted a negative earnings surprise of 17.81%. However, Illumina’s earnings beat the Zacks Consensus Estimate in two of the past four quarters, the average being 3.45%.

Let’s see how things are shaping up prior to this announcement.

ILLUMINA INC Price and EPS Surprise


ILLUMINA INC Price and EPS Surprise | ILLUMINA INC Quote

Factors at Play

Illumina posted mixed results in the second quarter of 2016. The top-line performance in Europe was sluggish. Instrument revenues declined 19% year over year, primarily due to a challenging HiSeq instrument comparison, given the launch of 3000 and 4000 last year. The company also expects another quarter of tougher instrument revenue comparison in the yet-to-be-reported quarter.

The company’s quarterly results in the EMEA region were below par due to execution challenges. The scenario hasn’t changed in the third quarter as well and the company expects a turnaround to take longer than estimated. Meanwhile, Illumina wants EMEA leadership to achieve its full potential in the forthcoming quarters.

On the brighter side, the company’s total revenue grew 11% year over year, courtesy of strength in sequencing consumable and array portfolios. In terms of regions, revenues in the Americas grew 13% from the prior year while Asia-Pacific revenues improved 29%, mainly driven by higher demand for HiSeq X instruments and arrays products in China. This trend is expected to boost the top line in the upcoming quarter.  

Management is presently focusing on clinical markets to deliver leading technologies that will allow customers to personalize patient care through genomics. In the oncology space, several collaborations were formed in order to develop solutions, including TruSight Tumor 15, which has been launched as a research use-only and investigational use-only product, and TruSight Tumor 170, which will be rolled out as a research use-only product later this year. Illumina has also collaborated with Amgen and developed a companion diagnostic test, currently awaiting FDA approval.

Coming to its product portfolio, management’s outlook for the HiSeq X instrument and array line of offerings raises optimism, given the strong demand. Microarrays contributed handsomely to second-quarter results as well. We believe that the company is poised to experience robust growth due to increasing adoption of these products in the coming quarter.

Illumina also announced that its expense re-planning efforts were completed during the second quarter which are expected to reap results in the days ahead. The company also managed to drive NIPT penetration in China as sample volumes are on track to double year over year. With the launch of its CE-IVD VeriSeq NIPT assay in Europe later this year, management expects to see further growth. Also, the launch of this product bodes well, given the Dutch Health Council's recent endorsement of NIPT for all cases of pregnancies.

Earnings Whispers

Our proven model does not conclusively show that Illumina is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP:  Illumina has an Earnings ESP of -1.14%. That is because the Most Accurate estimate is 87 cents while the Zacks Consensus Estimate is pegged higher at 88 cents.

Zacks Rank: Illumina has a Zacks Rank #5 (Strong Sell). Please note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are a few companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Penumbra, Inc. PEN has an earnings ESP of +45.45% and a Zacks Rank #2.

Glaukos Corporation GKOS) has an earnings ESP of +200% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Invuity, Inc. IVTY has an earnings ESP of +8.07% and a Zacks Rank #2.

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