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UPDATE: PerkinElmer Q4 Revenues Down 1 Percent

This article has been updated to include comments from the firm's earnings conference call and from analyst notes.

NEW YORK (GenomeWeb) – PerkinElmer reported after the close of the market on Thursday that its fourth quarter revenues fell 1 percent year over year as the divestiture of its medical imaging business during Q4 reduced revenues to below previous guidance.

For the three months ended Jan. 1, the firm reported revenues of $566.8 million, down from $569.9 million a year ago and significantly short of the consensus Wall Street estimate of $609.7 million.

Revenues from the discovery and analytical solutions business fell 2 percent to $409.9 million from $418.2 million a year ago. This was offset by a 3 percent increase in revenues from the diagnostics business, which rose to $156.8 million from $151.7 million a year earlier.

On a conference call with analysts following the release of the earnings, PerkinElmer CEO Robert Friel said he's "very pleased" with the company's Q4 performance, and highlighted its recent acquisition of Indian diagnostics firm Tulip Diagnostics as an example of how the company is positioning itself as a leader in the diagnostics industry. The acquisition closed this week, he added.

Friel also noted that the divestiture of PerkinElmer's medical imaging business will help the company sharpen its focus on key businesses such as newborn screening and other diagnostics, and align its resources with growth priorities and to meet customer needs. The company also plans to amplify R&D efforts to advance specific strategic priorities, and it will pursue innovative collaborations with external partners, he added.

The company reported net income of $64.8 million, or $.59 per share, down from $68.3 million, or $.61 per share. On an adjusted basis, PerkinElmer reported EPS of $.83, missing analysts' average estimate for EPS of $.86.

Earnings from the divested medical imaging business, now reflected in discontinued operations, were approximately $.03 per share, the company added.  

PerkinElmer's R&D costs rose 25 percent to $32.9 million from $26.4 million in Q4 2015, and its SG&A costs rose 5 percent to $162.8 million from $155.3 million.

For full-year 2016, the firm's revenues rose approximately 1 percent to $2.12 billion from $2.10 billion in 2015, but missed the consensus Wall Street estimate of $2.27 billion.

Revenues from the discovery and analytical solutions business fell 1 percent to $1.51 billion from $1.53 billion in 2015. This was offset by a 5 percent increase in revenues from the diagnostics business, which rose to $602.5 million from $576.4 million a year earlier.

The company reported net income for the year of $234.3 million, or $2.12 per share, up from $212.4 million, or $1.87 per share. On an adjusted basis, PerkinElmer reported EPS of $2.60 for the year, missing analysts' average estimate of $2.76.

R&D costs for the year rose 10 percent to $124.3 million from $112.5 million in 2015, and its SG&A costs rose 2 percent to $600.9 million from $587.2 million.

PerkinElmer ended the year with $359.3 million in cash and cash equivalents.

For the full year 2017, the company is forecasting adjusted EPS of $2.75 to $2.85. Analysts expect earnings of $2.92 per share for the full year.

Friel noted that PerkinElmer anticipates more significant M&A activity in 2017 than in 2016. The company will also continue to "prune" certain product lines during the year, but does not expect to divest whole business units. Such divestitures may happen again in 2018 and 2019, depending on future M&A, he added.

In a note to investors, Evercore ISI analyst Ross Muken said that he had expected a "messy" quarter for PerkinElmer, given the divestiture and corporate realignment, but concluded that he was encouraged by management's cost controls and improved growth outlook for industrial and environmental end markets.

"All in, we believe all of the corporate actions will likely position PerkinElmer to be more growth-centric, but we wait to gain more clarity on the company realizing this improvement before we become more constructive on shares and, in turn, reiterate our Hold rating," Muken wrote.

Cantor Fitzgerald analyst Bryan Brokmeier maintained his Overweight rating on the company after what he called "mixed 4Q16 results and solid 2017 guidance."

Although overall revenue was down and industrial markets remain "sluggish," Brokmeier wrote, the company said that the industrial and environmental markets are stabilizing, its diagnostic revenues are growing organically, its health business in China and the Americas remain strong, and the academic market is improving. All together, PerkinElmer is "one of the best-positioned companies in our coverage."

Brokmeier further noted PerkinElmer's expanding diagnostic business in emerging markets, especially India, as well as opportunities with pharma customers with the company's OneSource service offering. He further said that increased regulations could drive demand for food safety.

The company also has the potential to drive growth through M&A, and its move to divest declining businesses makes it more stable and better positioned to grow, he said.

PerkinElmer's shares were down 4 percent to $51.90 in midday trading on the New York Stock Exchange.