We recently reiterated our Neutral recommendation on Celera Corporation (CRA).
Celera reported a net loss per share of $0.10 in the third quarter of fiscal 2010, compared to the year-ago quarter’s loss of $0.09. Excluding one-time items, net loss was $0.07, missing the Zacks Consensus Estimate by $0.02. In the third quarter of 2009, the company reported an adjusted net loss of $0.3 million or break-even on a per share basis.
The company reported a huge 21.3% year-over-year decline in revenue to $31.5 million, which missed the Zacks Consensus Estimate of $36 million. The primary reason for the huge decline in revenues was 22% lower sample volume and the associated decline in lab services revenue, Celera’s largest segment.
Celera operates through three segments: clinical lab testing services business conducted through Berkeley HeartLab (BHL), products, and corporate, which recorded revenues of $20.4 million (down 16% annually), $9.1 million (down 9%) and $2 million (down 66%), respectively.
Despite lower sample volume, the lab services business benefited from higher average price per sample as higher value genetic tests were ordered by physicians. Moreover, Celera witnessed reduced healthcare spending as patients were making fewer physician visits resulting in lower volume of laboratory testing.
Although Celera has posted a disappointing quarter based on revenues, we are encouraged by its various restructuring activities. The company plans to reduce its workforce by approximately 9% or 50 fulltime positions. The majority of this action includes the redeployment of resources at BHL in an effort to improve its financial profile and customer focus.
About $2.2 million of charges are expected during the fourth quarter in connection with these initiatives, in addition to $1 million recorded in the third quarter of 2010. Despite the Products business being profitable, the company has made some adjustments to this segment.
These initiatives and cost-saving measures are expected to conserve approximately $10 million in 2011. Celera plans to make the Corporate segment profitable primarily by cost saving initiatives such as expenses sharing in the various research programs and management of SG&A expenses.
Celera’s growth prospects have been hampered by the global economic downturn, which has led to fewer physician visits thereby, impacting discretionary testing. Moreover, volume of testing was also impacted by patient insurance plans, which have resulted in higher deductibles and co-pay requirements.
Consequently, the continuous decline in sample volumes has forced the company to lower its outlook for 2010. However, we are encouraged by the strong portfolio of its cardiovascular tests, which should strengthen further following the US approval of KIF6 test. Celera has a four-year distribution agreement with Abbott Laboratories (ABT) to market its KIF6 diagnostic test in Abbott’s m2000 instrument in Europe.
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