Third Quarter Financial Results

On October 20, 2010, Trinity Biotech (TRIB) reported financial results for the third quarter ending September 30, 2010. The company beat our estimates on both revenue and EPS. Revenue of $18.8 million was 2% ahead of our $18.2 million forecast while EPS (adjusted for a non-cash charge related to the coag divestiture) beat by $0.035 ($0.162 actual vs. $0.127 estimated) or 28%.

The % difference in revenue was fairly evenly split between clinical lab and POC with clinical lab turning in $14.6 million ($14.2 million was the estimate) and POC generating $4.2 million ($4.1 million E). Clinical lab performed relatively well despite a poor showing for Lyme disease sales and a ~$500k forex headwind.

The remainder of the infectious disease business as well as the diabetes business performed especially well in the U.S. and China — posting double-digit growth in both countries. Management made special mention on the call that growth China has been tremendous and above expectations. We expect China as well as Brazil to be strong catalysts for sales growth for the company over the next several years.

POC revenue increased 8% y-o-y with U.S. HIV sales up 4% while HIV sales in Africa grew 12%, despite no shipments to the problem customer with credit issues. Management continues to expect the African HIV business to experience significant growth as they expand their geographic reach over the continent.

EPS handily beat our estimate as a result of the slight beat on the top-line, significantly lower than anticipated net operating expenses, higher interest income and a lower tax rate. The bulk of the difference came from $651k (vs. $60k estimated) in other operating income, most of which is attributable to services that TRIB has been providing to Stago following the coag sale — we expect this income to significantly moderate in the coming quarters but for there to be some corresponding offset to operating expense.

Interest income also came in well ahead of our estimate ($445 A vs $264k) due to the company earning interest at about 1.2% better than we had forecast. Finally, Trinity has also benefited from unanticipated R&D tax credits in the quarter which had the effect of reducing the effective tax rate to just under 7% (vs. 12% E). Management noted that they expect to again benefit from these credits in Q4 but then the tax rate to approach the 12% – 14% range.

We are maintaining our Outperform rating on Trinity Biotech. We have adjusted our fourth quarter and full-year 2010 EPS estimates upwards. We now look for Q4 EPS of $0.148 versus our previous estimate of $0.139 – the difference mostly attributable to expected higher interest income and a lower tax rate. Our full-year EPS estimate has moved from $0.567 prior to Q3 earnings to $0.611 currently.  We are also raising our target price to $8.55 (from $7.94), which reflects 14x our revised 2010 EPS estimate. See below for access to our full 17-page report on TRIB.

Management gave a business update on the conference call. The proposed stock repurchase program was approved by shareholders at a special meeting on September 30, 2010. TRIB will now have to go in front of two Irish courts to gain approval — the first hearing is slated for November 10th, the second should take place a few weeks afterward. Management indicated that while there is no assurance of receiving approval from the courts, they believe it is likely.

If all goes well, a buyback program could commence early in 2011. We will update our model to include the effects of a reduced share count if and when the buyback program is instituted. Depending on the size and success of the program we believe this could conservatively add as much as 8% – 10% to our $0.662 2011 EPS estimate.

The PDX instrument is still slated to launch in Europe during the current quarter, at which time TRIB will also file with U.S., Chinese and Brazilian authorities. Trinity has yet to disclose which large European company will handle distribution, although apparently that will be announced when the product launches.

Relative to Tri-Stat, management had no update on the CLIA waiver but hopes to meet with the FDA in the coming weeks in order to gain more insight. The company expects to begin the registration process in the next few months for the instrument in Asia and Brazil where the TRIB already has distributors lined up. TRIB can launch Tri-Stat in Europe immediately upon signing a distribution agreement which is presumably in the works.
 
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