Illumina Stock Tumbles As Sales, Profits Decline — Why The First-Quarter Beat Has 'Mixed Implications'

Illumina stock falls despite first-quarter beat due to cloudy future sales.

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Jun 8, 2023 • 3 min read

ILMN's stock fell Wednesday as investors worried about its uncertain future.

Sales fell 11% in the March quarter to $1.09 Billion, but were above expectations for a more dramatic drop to $1.07 Billion. Illumina's adjusted earnings fell to 8 cents a share, down from $1.07 a share during the previous period. FactSet analysts had predicted profits of only 1 cent per share.

Vijay Kumar, an analyst at Evercore ISI, noted that Illumina's portfolio was largely plagued with year-over-year decreases. Sequentially, revenue did increase.

In a client note, he stated that "the sequential trends appear to indicate that customer destocking may have bottomed out -- a good sign."

Dan Leonard, Credit Suisse analyst, isn't so sure about Illumina. After the earnings report, he maintained his neutral rating for ILMN.

In a note, he stated that "our neutral rating on Illumina" reflected our positive view of Illumina's position in the next-gen sequencing market. This was offset by our concerns about Street estimates being too high. "Illumina’s first-quarter beating has mixed implications."

Illumina's next-generation technology, also known as genome sequencing, can read an individual's complete genetic blueprint. Researchers continue to use the technology as they search for the causes of genetic disorders. Illumina has just released its newest product, dubbed NovaSeq X. Illumina claims that the system is three times faster and twice as accurate than its previous products.

Evercore's Kumar stated that Illumina shipped 67 NovaSeq system during the first quarter. This was above the midpoint in the company's forecast of 20 systems. This likely contributed $20 millions to sales. Total sales of next-generation sequencers fell 27% over the past year, and revenue from consumables (one-time-use items for sequencing) dropped 12%.

Leonard, a Credit Suisse analyst, said that Illumina expects this year to ship more than 300 NovaSeq-X systems. This is an increase from the earlier estimate of 300 systems. He said that the outlook assumes "significant sales from pharma partnerships".

He said that the guidance assumes a reduction in macro headwinds during the second half 2023. These headwinds have impacted some of the diagnostics customers. "With the NovaSeq uplift lever pulled, we think 2023 guidance could be skewed to the downside."

The earnings report is released at a difficult time for ILMN. The company faces regulatory scrutiny over its acquisition of Grail. Grail is a company that sells cancer screening tests called Galleri.

Illumina also has to contend with activist Carl Icahn who, in a letter sent recently to Illumina shareholders, expressed doubts over the capabilities of Illumina's Chief Executive Francis deSouza.

The company reported that the core business of Illumina generated sales of almost $1.08billion. Grail, a cancer detection company, contributed $20 million. Illumina, which is under regulatory scrutiny must keep Grail separate.

Illumina also reiterated its financial forecast for the year. The company forecast consolidated sales growth between 7% and 10%. Illumina's core operations are expected to grow 6%-9%. Grail, according to the company, could generate sales of $90 million up to $110 millions. This is almost double what Grail generated last year.

Illumina expects a profit adjusted of $1.25 - $1.50 per share.

Analysts at ILMN expect earnings per share of $1.37 and sales of $4.94 billion this year.

ILMN shares fell 3.5% on the stock exchange today to close the regular session at 210.9. According to MarketSmith.com, shares are forming a base cup with a purchase point of 248.97.

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