Cepheid (CPHD) reported an EPS of 2 cents during the fourth quarter of fiscal 2010, much better than the loss of 7 cents in the year-ago period and the Zacks Consensus Estimate of loss of 2 cents. However, after considering some adjustments, the company reported adjusted EPS of 9 cents which compares favorably with the year-ago quarter’s EPS of 1 penny.
For the full year, Cepheid reported loss per share of 10 cents compared to net loss of 39 cents per share. The earnings were better than the Zacks Consensus Estimate of loss of 15 cents per share.
Revenues during the quarter increased 19.3% to $58.7 million, beating the Zacks Consensus estimate of $56.0 million driven by a 17% growth in product sales of $56.2 million attributable to strong sales of reagents.
Based on strong revenue growth, Cepheid was able to improve its bottom line. The company reported $212.5 million in revenues for fiscal 2010, surpassing both the Zacks Consensus estimate of $209 million and the previous year’s $170.6 million.
Among the different markets, the Clinical segment consisting of Clinical Systems ($9.6 million) and Clinical Reagents ($36.8 million) contributed about 82.5% to total product sales during the quarter. Cepheid’s other markets – Industrial, Biothreat and Partner – recorded revenues of $4.1 million (down 33% year-over-year), $4.7 million (down 8%) and $1.0 million (down 29%), respectively. Sales from North America and the international market recorded a year-over-year increase of 21% and 3%, respectively.
Gross margin on product sales improved to 53% compared with 42% in the fourth quarter of 2009. While product sales improved 17%, cost of products sold increased by 4.5% leading to an improvement in margin.
Operating expenses amounted to $29.2 million, up 23.2% compared with the year-ago quarter, driven by higher research and development (18.2% annually to $11.7 million), sales and marketing (26.7% to $10.6 million), and general and administrative expenses (27.3% to $6.9 million).
During the quarter, Cepheid’s 130 GeneXpert systems and 793 modules were installed. At the end of December 2010, a cumulative total of 1,860 GeneXpert systems and 10,167 modules had been placed worldwide. At the end of the reported quarter, cash and cash equivalents were $79.5 million, up from $35.78 million at the end of December 2009.
Outlook
Cepheid provided its outlook for 2011 with revenue in the range of $245 million–$255 million. Moreover, the company expects to deliver bottom-line results within a loss of 1 cent to a profit of 4 cents. The Zacks Consensus Estimate of $254 million revenue stands at the upper end of the guidance.
Recommendation
Based on strong growth of Clinical reagents, Cepheid improved its bottom line during the reported quarter. With a broad portfolio of tests, the company is one of the leading players in the healthcare associated infections (HAI) market. Moreover, Cepheid has an attractive pipeline, the approval of which should boost revenues further. However, we remain concerned about a tight spending environment in the current recessionary situation, which is impacting the ability of healthcare providers to purchase capital equipment. Moreover, the company faces tough competition from several players.
We maintain our ‘Neutral’ recommendation on Cepheid.
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