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Avantor (AVTR) Q1 Earnings Surpass Estimates, Margins Down

Avantor, Inc. AVTR reported first-quarter 2023 adjusted earnings per share (EPS) of 29 cents, down 23.7% year over year. However, the bottom line topped the Zacks Consensus Estimate by a penny.

We had projected the first-quarter adjusted EPS to be 28 cents, in line with the Zacks Consensus Estimate.

GAAP EPS for the quarter was 18 cents, down 35.7% year over year.

Revenue Details

Revenues grossed $1.78 billion in the reported quarter, down 8.7% year over year. However, the metric beat the Zacks Consensus Estimate by 0.9%.

The first-quarter revenue compares to our estimate of $1.76 billion.

Avantor's foreign currency translation reflected a 2.1% headwind in the reported quarter, resulting in an organic sales decline of 6.6%. Excluding COVID-19 headwinds, Avantor's core organic sales growth rate declined 1.8% during the reported period.

Per management, the year-over-year decline in the first quarter’s core organic sales reflected inventory destocking in lab consumables and single-use solutions for bioprocessing and expected softer demand for formulated solutions from Avantor's semiconductor customers.

Segmental Analysis

Avantor reports financial results in three geographic segments based on customer location — the Americas, Europe and AMEA (Asia, Middle-East and Africa).

The Americas segment’s net sales were $1.03 million, reflecting a reported decline of 9.7% year over year. Core organic sales fell 3.7% in the reported quarter, reflecting strong contributions from commercial excellence, process ingredients, biomaterials and services. However, this was offset by the impact of customer destocking and soft demand in semiconductors and biotech.

This compares to our projection of first-quarter segmental revenues of $1.05 billion.

Europe’s net sales were $630.2 million, reflecting a reported decrease of 7.4%, whereas core organic sales increased 1% year over year. Per management, the growth in core organic sales was driven by double-digit growth in bioproduction on a core organic basis in the region and strength in Applied Technologies and Advanced Materials end markets.

This compares to our projection of first-quarter segmental revenues of $590.9 million.

AMEA arm’s net sales were $118.1 million, indicating a reported fall of 6.7% year over year. However, core organic sales increased 1% year over year, driven by strength in bioproduction process ingredients and excipients. However, this was partially offset by a high single-digit decline in sales of proprietary materials to advanced technologies and applied materials customers, primarily in semiconductors.

This compares to our projection of first-quarter segmental revenues of $123.4 million.

Avantor, Inc. Price, Consensus and EPS Surprise

Avantor, Inc. Price, Consensus and EPS Surprise
Avantor, Inc. Price, Consensus and EPS Surprise

Avantor, Inc. price-consensus-eps-surprise-chart | Avantor, Inc. Quote

Margin Analysis

In the quarter under review, Avantor’s gross profit declined 9.4% to $624.8 million. The gross margin contracted 28 basis points (bps) to 35.1%.

Selling, general and administrative expenses rose 2.8% to $393.6 million year over year.

Operating profit totaled $231.2 million, down 24.7% from the prior-year quarter’s level. The operating margin in the quarter also contracted 275 bps to 12.9%.

Financial Position

Avantor exited first-quarter 2023 with cash and cash equivalents of $294.6 million compared with $372.9 million at the end of 2022. Total debt at the end of first-quarter 2023 was $6.06 billion compared with $6.29 billion at the end of 2022.

Net cash flow from operating activities at the end of first-quarter 2023 was $219.5 million compared with $152.2 million a year ago.

Guidance

Avantor provided its financial outlook for the second quarter and revised the same for 2023.

The company now expects to register reported revenue declines of 3-1% for the full year, against the earlier projection of growth of 0-2%. The Zacks Consensus Estimate for the same currently reflects growth of 0.4%.

Avantor now expects to register organic revenue declines of 3-1% for the full year against the earlier projection of growth of 0-2%.

Excluding COVID-19 headwinds, core organic revenue growth is now projected to lie within minus 0.5% to positive 1.5%, against growth of 2.5-4.5%.

Avantor expects its adjusted EPS to now lie within $1.28-$1.36 for the full year, down from the earlier projection of $1.35-$1.45. The Zacks Consensus Estimate for the same is pegged at $1.38.

For the second quarter, reported revenues are expected to lie within $1.785 billion-$1.825 billion. The Zacks Consensus Estimate for the same is pegged at $1.88 billion.

The organic revenue decline is expected within 6-4%. This includes a COVID-19 headwind of 2.6%, resulting in the core organic decline of 3.4-1.4%.

Our Take

Avantor exited the first quarter of 2023 with better-than-expected results. The company registered a year-over-year uptick in its Europe and AMEA core organic sales, which is impressive. Strength in Avantor’s end markets is encouraging. The company’s pipeline of new product launches and robust demand from its bioproduction customers also raise optimism about the stock. The continued demand for Avantor’s Ritter and Masterflex products also looks promising.

However, Avantor’s dismal top-line and bottom-line performances in the first quarter are disappointing. The decline in the overall organic sales and reported revenues in each segment are discouraging. Macroeconomic factors like tighter financial conditions, global supply-chain constraints and the ongoing geopolitical conflict also raised apprehensions about the company’s financial strength. The contraction of both margins also does not bode well.

Zacks Rank and Key Picks

Avantor currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Edwards Lifesciences Corporation EW, Intuitive Surgical, Inc. ISRG and Merit Medical Systems, Inc. MMSI.

Edwards Lifesciences, carrying a Zacks Rank #2 (Buy), reported first-quarter 2023 adjusted EPS of 62 cents, beating the Zacks Consensus Estimate by 1.6%. Revenues of $1.46 billion outpaced the consensus mark by 4.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Edwards Lifesciences has a long-term estimated growth rate of 6.9%. EW’s earnings surpassed estimates in two of the trailing four quarters, missed the same in one and broke even in the other, the average being 1.2%.

Intuitive Surgical, having a Zacks Rank #2, reported first-quarter 2023 adjusted EPS of $1.23, which beat the Zacks Consensus Estimate by 3.4%. Revenues of $1.70 billion outpaced the consensus mark by 6.9%.

Intuitive Surgical has a long-term estimated growth rate of 13%. ISRG’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, the average being 1.9%.

Merit Medical reported first-quarter 2023 adjusted EPS of 64 cents, beating the Zacks Consensus Estimate by 16.4%. Revenues of $297.6 million surpassed the Zacks Consensus Estimate by 5.9%. It currently carries a Zacks Rank #2.

Merit Medical has a long-term estimated growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 20.2%.

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Avantor, Inc. (AVTR) : Free Stock Analysis Report

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