DNA-sequencing leader Illumina eked out a first-quarter earnings beat, but ILMN stock toppled Wednesday on its cloudy future.
During the March quarter, sales declined 11% to $1.09 billion, but came in above forecasts for a steeper drop to $1.07 billion. Adjusted Illumina earnings also skidded to 8 cents per share from $1.07 per share in the year-earlier period. But analysts expected profits of just 1 cent per share, according to FactSet.
Evercore ISI analyst Vijay Kumar noted, for the most part, Illumina was plagued by year-over-year declines across its portfolio. But sequentially revenue increased.
"The sequential trends seem to hint at customer destocking potentially having bottomed — a positive sign," he said in a note to clients.
But Credit Suisse analyst Dan Leonard isn't ready to give Illumina that much credit. He retained his neutral rating on ILMN stock following the earnings report.
"Our neutral rating on Illumina reflects our positive view of the company's market position in next-gen sequencing, offset by concerns that forward Street estimates are too high," he said in a note. "Illumina's first-quarter beat has mixed implications."
ILMN Stock: NovaSeq X Orders Are In
Illumina's technology — next-generation sequencing — can read a person's entire genetic blueprint, known as the genome. The technology continues to be important as researchers look for the underlying causes of genetic diseases. And Illumina just launched its newest system, dubbed NovaSeq X. Illumina says the new system is twice as fast and three times as accurate as its previous products.
During the first quarter, Illumina shipped 67 NovaSeq systems, above the midpoint of the company's projection for 20 systems, Evercore's Kumar said. That likely contributed $20 million to sales. But total next-generation sequencing sales tumbled 27% year over year and revenue from consumables — one-time use items to perform sequencing — skidded 12%.
This year, Illumina expects to ship more than 330 NovaSeq X systems, Credit Suisse's Leonard said. That's up from the company's earlier forecast for about 300. The outlook assumes "significant pharma partnership sales," he said.
"Moreover, the guidance continues to assume a lessening of macro headwinds in the second half of 2023, headwinds which have pressured some of its diagnostics customers," he said. "All in, with the NovaSeq upside lever now pulled, we believe 2023 guidance risks skew to the downside."
Guidance Comes At A Tricky Time
The earnings report comes at a tricky time for ILMN stock. The company is facing regulatory scrutiny for its acquisition of Grail. Grail sells a cancer-screening test called Galleri.
Illumina is also battling it out with activist investor Carl Icahn, who expressed doubts about the abilities of Chief Executive Francis deSouza and Illumina's board in a recent letter to shareholders.
Overall, Illumina's core business generated almost $1.08 billion in sales, the company said. Grail, the cancer-detection company, added $20 million to that. While facing regulatory scrutiny, Illumina must hold Grail as a separate company.
In addition to boosting its NovaSeq X shipment expectations, Illumina reiterated its financial outlook for the year. The company predicted consolidated sales growth of 7%-10%. This includes 6%-9% growth from core Illumina operations. The company also says Grail could generate $90 million to $110 million in sales, nearly doubling from the $51 million Grail brought in last year.
Illumina also expects adjusted profit of $1.25 to $1.50 per share.
ILMN stock analysts forecast earnings of $1.37 per share and $4.94 billion in sales this year.
On the stock market today, ILMN stock tumbled 3.5% to end the regular session at 210.96. Shares are forming a cup base with a buy point at 248.97, according to MarketSmith.com.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
