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Avantor (AVTR) Q4 Earnings Surpass Estimates, Margins Up

Avantor, Inc. AVTR reported fourth-quarter 2022 adjusted earnings per share (EPS) of 32 cents, down 11.1% year over year. However, the bottom line topped the Zacks Consensus Estimate by 6.7%.

We had projected the fourth-quarter adjusted EPS to be 29 cents.

GAAP EPS for the quarter was 21 cents, up 61.5% year over year.

Full-year adjusted EPS was $1.41, flat compared to the end of 2021. We had projected the full-year adjusted EPS to be $1.38.

Revenue Details

Revenues grossed $1.79 billion in the reported quarter, down 5.9% year over year. The metric beat the Zacks Consensus Estimate by 0.3%.

The fourth-quarter revenue compares to our estimate of $1.78 billion.

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Avantor's foreign currency translation reflected a 4.5% headwind in the reported quarter, whereas M&A had a positive impact of 0.7%, resulting in an organic sales decline of 2.1%. Excluding COVID-19 headwinds, Avantor's core organic sales growth rate was 2.7% during the reported period.

Per management, the year-over-year uptick in the fourth quarter’s core organic sales reflected ongoing strength in Avantor's core business. However, this was partially offset by inventory destocking in liquid handling and single-use tubing, a weaker-than-expected year-end budget flush and headwinds resulting from fewer selling days in the fourth quarter of 2022.

Full-year revenues were $7.51 billion, reflecting a 1.7% improvement from the comparable 2021 period. The full-year revenue compares to our estimate of $7.49 billion.

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 $1.05 million, reflecting a reported decline of 3.6% year over year. Core organic sales, however, inched up 0.1% in the reported quarter. The region witnessed strong growth in serum, process ingredients and excipients for bioprocessing and custom formulations for the semiconductor space, offset by destocking headwinds in liquid handling consumables and single-use tubing.

This compares to our projection of fourth-quarter segmental revenues of $1.05 billion, in line with the company-reported number.

Europe’s net sales were $617.2 million, reflecting a reported decrease of 10.1%, whereas core organic sales increased 6.3% year over year. Per management, the growth in core organic sales was driven by strength in bioproduction and biomaterials.

This compares to our projection of fourth-quarter segmental revenues of $603.4 million.

AMEA arm’s net sales were $129.8 million, indicating a reported fall of 3.1% year over year. Core organic sales increased 5.7% year over year, driven by sales of proprietary materials to advanced technologies and applied materials customers and bioproduction strength in process ingredients and excipients.

This compares to our projection of fourth-quarter segmental revenues of $123.6 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 5.1% to $614.5 million. The gross margin, however, expanded 29 basis points (bps) to 34.2%.

We had projected 34.6% of gross margin for the fourth quarter.

Selling, general and administrative expenses fell 16.3% to $362.7 million year over year.

Operating profit totaled $251.8 million, up 17.7% from the prior-year quarter’s level. The operating margin in the quarter also expanded 281 bps to 14%.

We had projected 13.1% of the operating margin for the fourth quarter.

Financial Position

Avantor exited full-year 2022 with cash and cash equivalents of $372.9 million compared with $301.7 million at the end of 2021. Total debt at the end of 2022 was $6.29 billion compared with $7.02 billion at the end of 2021.

Cumulative net cash flow from operating activities at the end of 2022 was $843.6 million compared with $953.6 million a year ago.

Guidance

Avantor has initiated its financial outlook for the full-year 2023.

The company expects to register reported growth of 0-2% for the full year. The Zacks Consensus Estimate for the same currently reflects a decline of 0.8%.

Avantor expects to register organic revenue growth of 0-2% for the full year.
COVID-19 headwinds are expected to be 2.5% for the full year. Excluding COVID-19 headwinds, core organic revenue growth is projected to lie within 2.5-4.5%.

Avantor expects its adjusted EPS to lie within $1.35-$1.45 for the full year. The Zacks Consensus Estimate for the same is pegged at $1.39.

Our Take

The decline in Avantor’s adjusted EPS and the overall reported revenues in the fourth quarter of 2022 is 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.

On the positive side, Avantor exited the fourth quarter with better-than-expected results. The company registered a robust year-over-year uptick in its overall and segmental 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 for its end-to-end fluid management solution also raise optimism about the stock. The continued demand for Avantor’s Ritter and Masterflex products also looks promising. The expansion of both margins also bodes well.

Zacks Rank and Stocks to Consider

Avantor currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Cardinal Health, Inc. CAH, McKesson Corporation MCK and Hologic, Inc. HOLX.

Cardinal Health, carrying a Zacks Rank #2 (Buy), reported second-quarter fiscal 2023 adjusted EPS of $1.32, beating the Zacks Consensus Estimate by 16.8%. Revenues of $51.47 billion outpaced the consensus mark by 2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cardinal Health has a long-term estimated growth rate of 11.6%. CAH’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, the average being 6.4%.

McKesson, having a Zacks Rank #2, reported third-quarter fiscal 2023 adjusted EPS of $6.90, which beat the Zacks Consensus Estimate by 8.8%. Revenues of $70.49 billion outpaced the consensus mark by 0.02%.

McKesson has a long-term estimated growth rate of 10.4%. MCK’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, the average being 3.4%.

Hologic reported first-quarter fiscal 2023 adjusted earnings of $1.07 per share, beating the Zacks Consensus Estimate by 18.9%. Revenues of $1.07 billion surpassed the Zacks Consensus Estimate by 9.5%. It currently sports a Zacks Rank #1.

Hologic has a long-term estimated growth rate of 15.2%. HOLX’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 30.6%.

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