Why Is Bio-Rad (BIO) Down 8.3% Since Last Earnings Report?

It has been about a month since the last earnings report for Bio-Rad Laboratories (BIO). Shares have lost about 8.3% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Bio-Rad due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Bio-Rad Q4 Earnings & Revenues Fall Short of Estimates

Bio-Rad posted fourth-quarter 2019 adjusted earnings per share of $2.32, which lagged the Zacks Consensus Estimate by 5.7%. However, the bottom line rose 11% from the prior-year quarter.

The quarter’s adjustments eliminate the impacts of certain non-recurring items like asset amortization costs, restructuring charges and acquisition-related one-time benefits.

On a GAAP (reported) basis, the company registered earnings of $18.31 per share in the quarter against a loss of $27.73 per share a year ago.

Full-year adjusted earnings per share were $7.06, reflecting a 21.5% rise from the year-ago period. However, the company lagged the Zacks Consensus Estimate of $7.20.

Revenues in Detail

Bio-Rad’s revenues of $624.4 million in the quarter missed the Zacks Consensus Estimate by 1.9%. However, revenues inched up 1.2% from the year-ago quarter (up 2.3% at constant exchange rate or CER).

Yearly revenues were $2.31 billion, reflecting a 0.9% increase from the year-ago period. However, revenues lagged the Zacks Consensus Estimate by 0.4%.

Solid demand for many of Bio-Rad’s key product lines, and growth in the Americas and Europe led to the uptick in revenues.

Segmental Analysis

Sales at the Life Sciences segment in the fourth quarter totaled $242 million, up 1% year over year and up 1.8% at CER. The quarter registered double-digit growth in Droplet Digital PCR and Food Safety products. The company witnessed strong demand within Process Media, Droplet Digital PCR and Food Safety product lines. Geographically, its growth was led by North America and Europe. However, sales were adversely affected by a cyber-attack in December, with the major effect witnessed in Asia. This brought down the company’s total quarterly revenues.

Net sales at the Clinical Diagnostics segment totaled $379 million, up 1.6% on a year-over-year basis and up 2.8% at CER. The upside was primarily driven by solid growth in Quality Controls, Diabetes, Autoimmune and Blood Typing products across Asia and the Americas.

Margins

In the quarter under review, Bio-Rad’s gross profit declined 0.6% to $330.4 million. Further, gross margin contracted 100 basis points (bps) to 52.9%.

Adjusted operating expenses were $271.2 million in the fourth quarter, up 1.5% year over year. Adjusted operating profit totaled $59.2 million, reflecting a 9.6% dip from the prior-year quarter. Moreover, adjusted operating margin in the fourth quarter dipped 113 bps to 9.5%.

However, the company’s adjusted gross margin was 54.1%, contracting 130 bps. Additionally, adjusted operating margin was flat year over year at 14.3%.

Financial Update

Bio-Rad exited the year with cash and cash equivalents (including short-term investments) of $1.12 billion compared with $850.4 million at the end of 2018.

At the end of 2019, cash flow from operating activities was $457.9 million compared with $285.5 million at the end of 2018.

2020 Guidance

For 2020, the company expects revenue growth of 4.5-5.25% (CER). The Zacks Consensus Estimate for revenues is pegged at $2.42 billion.

The company anticipates its Life Science and Clinical Diagnostics segments to register growth of 7-8% and 3-4% at CER, respectively.

Adjusted operating margin is estimated to be 13.8-14.3%.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -12.81% due to these changes.

VGM Scores

At this time, Bio-Rad has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Bio-Rad has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.