Diabetes Stock Insulet Drops 8.5% on Earnings Miss and Softer-Than-Expected Outlook

Insulet (PODD 1.73%) reported fourth quarter and full year 2019 results after the market closed on Tuesday, Feb. 25. The tubeless insulin pump specialist's revenue grew 27%, and its earnings per share declined 50% year over year. 

Shares of the Massachusetts-based healthcare company fell 8.5% on Wednesday. We can attribute the market's reaction to earnings missing Wall Street's consensus estimate, along with guidance for both the first quarter and full year 2020 coming in lower than analysts had been projecting. Over the last year, Insulet stock has doubled, while the S&P 500 has returned 13.7%.

Image source: Insulet.

Insulet's key numbers

Data source: Insulet. 

Revenue easily beat Insulet's guidance range of $193 million to $201 million. For context, in the first, second, and third quarters, year over year revenue growth was 43%, 29%, and 27%, respectively.

Wall Street was looking for EPS of $0.11 on revenue of $195.5 million. So the company fell short on the bottom line, but surpassed the top line expectation.

What happened with Insulet? 

• In the fourth quarter, global Omnipod revenue surged 30% year over year to $192.5 million.
• U.S. Omnipod revenue jumped 36% to $126.7 million.
• International Omnipod revenue rose 20% to $65.8 million. 
• Drug delivery revenue edged up 1% to $16.9 million.
• Fourth quarter gross margin was 64%, down from 66.9% in the year-ago period, and slightly lower than last quarter's 64.1%. As with last quarter, the year over year decline was due to the ramp-up of the company's manufacturing capabilities at its new U.S. facility, located in Massachusetts. 
• The company installed a second U.S. manufacturing line, with commercial production on this line expected by mid-year 2020.
• It "entered pivotal trial for the Omnipod Horizon automated insulin delivery system, including 240 participants ages 6 to 70 years old," according to the earnings release. This system, expected to launch late this year, uses a DexCom continuous glucose monitor (CGM) to dose insulin. 
• The company "broadened collaboration with DexCom to integrate its G6 and future G7 continuous glucose monitoring systems into the Omnipod Horizon system."
• It "expanded partnership with Abbott [Laboratories] to integrate its next-generation Libre glucose sensing technology into the next-generation Omnipod Horizon system." 

What management had to say

Here's what CEO Shacey Petrovic had to say in the press release:

2019 was a remarkable year for Insulet, marked by disciplined execution of our strategy that allowed us to deliver consistent financial outperformance and strong operational results. With a solid foundation, pipeline of innovative technologies and proven strategy firmly in place, we made progress investing across our global organization to drive sustainable, long-term growth.

As we look ahead to 2020, Insulet has a clear trajectory to strengthen our leadership position and make even greater treatment options a reality for the large and underserved global diabetes market. We are well on track to meet our 2021 financial targets of $1 billion in revenue, 70% gross margin and mid-teens operating margin, and remain focused on advancing our mission to ease the burden of people living with diabetes.

Looking ahead

Insulet ended a great year with a solid quarter. Management issued first quarter and full year revenue guidance:

• Q1: Revenue growth 17% to 20% year over year. 
• 2020: Revenue growth of 14% to 18% over 2019.  

Going into earnings, Wall Street had been modeling for year over year revenue growth of 27.4% in the first quarter and 20.8% for 2020. So, Insulet's outlook for both periods came in lighter than analysts expected. This was surely a big factor in the stock's decline on Wednesday. 

Insulet has a great track record of beating its quarterly revenue guidance and increasing its annual guidance several times each year. So, the revenue growth outlooks for the first quarter and 2021 are probably quite conservative.