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Why Illumina, Inc. Is Plunging Today

By Brian Feroldi – Oct 11, 2016 at 12:54PM

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Shares drop in response to preliminary third-quarter results that came in well short of management's guidance.

Image source: Getty Images.

What happened

Shares of Illumina (ILMN -4.75%), a leading provider of genetic testing equipment, fell more than 24% as of 12:22 p.m. EDT on Tuesday, after the company announced preliminary results for the third quarter.

So what

Illumina issued a press release after the market closed on Monday, stating that its third-quarter revenue will be approximately $607 million. While that figure represents a 10% increase over the same quarter last year, it is well below management's guidance range of $625 million to $630 million.

Francis deSouza, Illumina's CEO, held a special investor call on Monday evening where he shared some details about the revenue shortfall, stating: 

The primary driver of this miss was high-throughput instrument sales compared to our expectations. HiSeq 2500 and 4000 orders in the Americas were lower than expected, and we closed one less HiSeq X system deal than anticipated, resulting in a shipment figure of 26 X units during the quarter. As a result, total sequencing instrument revenue declined 26% year over year, a larger decrease than that anticipated at the beginning of Q3.

CEO deSouza went on to say that the company expects its revenue in the fourth quarter to be "flat to slightly up sequentially."

There's no doubt that this update took the market by surprise. Analysts were expecting that revenue in the fourth quarter would come in around $684 million, so this guidance represents another significant shortfall.

Pacific Biosciences of California (PACB -3.50%), one of Illumina's direct competitors, is also being impacted by this announcement. Traders have knocked down shares by more than 5% on Tuesday morning over worries that demand for genetic sequencing machines may not be as strong as previously projected. If true, that could be a big problem for Pacific Biosciences; the company is still losing money and is counting on strong sales growth for its newly launched Sequel system to help get it to profitability.

Now what

Prior to Monday's announcement Illumina's stock was trading for more than 60 times trailing earnings. Given the disappointing quarterly results and downbeat outlook, it is no wonder shares are tanking today.

We currently do not have enough information to tell if this update is just a one-time hiccup or if it represents slowing demand for the company's products. Shareholders will likely have to wait until Illumina reports earnings on Nov. 1 before they have enough information to answer that question for themselves.

Brian Feroldi has no position in any stocks mentioned. Like this article? Follow him on Twitter where he goes by the handle @Longtermmindset or connect with him on LinkedIn to see more articles like this.

The Motley Fool owns shares of and recommends Illumina. The Motley Fool recommends Pacific Biosciences of California. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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