Alere Q1 Earnings Rise, Revs Miss Ests - Analyst Blog

Alere Inc. ALR posted a 2.0% rise in 2014-first-quarter adjusted earnings per share to 52 cents from 51 cents in the same quarter of 2013. Since the earnings release, shares of the company rose 2.0% till yesterday.

Alere reported a net loss of $11.5 million or 14 cents per share for the first quarter of 2014, versus net earnings of $7.2 million or 9 cents per share in the same quarter last year.

Revenues

Net revenues came in at $716.6 million, down 3.1% from $739.2 million reported in the year-ago quarter. Revenues fell short of the Zacks Consensus Estimate of $740 million. Adjusted net revenues also declined by 3.1% to $717.0 million from $739.9 million in the year-earlier quarter.

Reduction in revenues was mainly led by weak U.S. influenza sales and larger-than-expected decline in U.S. healthcare utilization, which primarily impacted Alere's U.S. infectious disease revenues.

Margins

Adjusted gross profit dropped 4.1% to $369.2 million while adjusted gross margin went down 60 basis points (bps) to 51.5% in the quarter. The deterioration in gross margin reflects lower U.S. influenza sales and reduced mail-order diabetes reimbursement rates in the reported quarter.

Adjusted operating income declined 12.6% to $108.3 million while adjusted operating margin reduced 170 bps to 15.1% in the quarter under review.

Segment Results

Net revenues from Professional Diagnostics dipped 2.7% to $566.5 million while adjusted net revenues decreased 2.8% to $567.0 million. The company's recent professional diagnostics acquisitions contributed $21.5 million to overall revenues, partially offset by a $6.4 million reduction in revenues from the disposition of Spinreact in 2013. Adjusted operating income deteriorated 9.1% to $122.2 million while adjusted operating margin contracted 150 bps to 21.5% in the quarter.

Net revenues from Health Information Solutions fell 7.9% to $123.7 million due to the weak contracting season experienced by Alere in the second half of 2013. However, Alere posted narrower operating losses (on a reported basis) during the quarter as compared to the prior year quarter which can be accredited to lower operating expenses. Adjusted operating income soared 32.7% to $4.0 million while adjusted operating margin expanded 100 bps to 3.2%.

Net revenues from Consumer Diagnostics scaled up 17.1% to $26.4 million. However, reported operating earnings declined during the quarter which can be attributed to higher operating expenses in the segment. Adjusted operating income decreased 9.9% to $2.5 million while adjusted operating margin fell 290 bps to 9.6%.

Financial Position

Alere exited the 2014-first quarter with cash and cash equivalents of about $433.0 million, up 19.7% from $361.9 million as of Dec 31, 2013. Total long-term debt and capital lease obligations decreased slightly to $3,832.4 million from $3,843.2 million as of Dec 31, 2013. As a result, the long-term debt-to-capitalization ratio declined marginally by 10 bps to 64.8% from 64.9% as of Dec 31, 2013.

Operating cash flow increased 48.9% year over year to $105.9 million while capital expenditures declined 23.8% to 27.5 million. This resulted in a 124.0% rise in free cash flows to $78.4 million.

Our Take

We are disappointed with Alere's drop in revenues for the first quarter of 2014 mainly due to poor U.S. influenza sales and a large reduction in the U.S. Healthcare utilization. However, Alere managed to post modest earnings growth during the quarter which was partly achieved through cost reduction measures.  

Alere continues to face unexpected business challenges as well as macroeconomic headwinds that affect the industry in general. Nevertheless, given its focus on global market development in addition to its diverse product portfolio, Alere is positioned to perform well going forward.

Currently, Alere carries a Zacks Rank #3 (Hold). Some better-ranked medical product stocks include Cardica Inc. CRDC, Enzymotec Ltd. ENZY and Mead Johnson Nutrition Company MJN. All these stocks carry a Zacks Rank #2 (Buy).

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