Yes, it was a bloody good showing for blood-testing company Immucor
The raw data is here in this Fool by Numbers article, but that doesn't begin to show just how good the results were. Sure, revenues came in 24% higher and profits were at record levels, up 75% to more than $14 million. But how does one calculate the sway this company holds in the marketplace? The majority of those results was based on the company's ability to command the prices it wants to charge.
Immucor sells instruments and supplies to hospitals, clinical labs, and blood banks to test human blood prior to transfusion. For example, its Galileo instrument allows those facilities to conduct all the basic blood bank tests -- such as grouping, screening, crossmatching, antibody identification, and more -- using a proprietary reagent. Thus, sales of one lead to sales of the other. Because of Immucor's leadership position, it's been able to hike prices on both instruments and reagents, which more than offsets any increased costs associated with their manufacture.
Gross margins on reagents, for example, increased to 74.9%, up from the 68.4% recorded last year, while margins similarly improved on instrument sales, improving to 9.1% from 0.2% last year.
Yet part of the good news contained in Immucor's earnings release was based upon the fact that it had strong sales in previous quarters. A large portion of instrument-sales revenue is deferred over the life of the underlying reagent contract, which typically is about five years. An increase in the number of instruments subject to deferred revenue would help Immucor's cash position, while a decrease would lower its cash position. Similarly, Immucor's working capital needs would rise or fall in an inverse relationship to the volume of sales with deferred revenue.
It's important to remember this, because in the first quarter, Immucor sold 15 such instruments, while in the second quarter it sold only eight. Although that might constitute a problem for some companies, Immucor also reported that it signed a sales agreement with Quest Diagnostics
For that reason, Immucor was able to boost guidance again. It now expects revenues to come in a range of $214 million to $218 million, up from the previous forecast of $204 million to $212 million, with net earnings expected to rise to $53 million to $55.5 million, which is slightly above the $48.5 million to $52 million previously guided to. On a per-share basis, that would equal somewhere between $0.75 to $0.78 per share.
But as good as it's been, Immucor's forward P/E of 43 is quite lofty in my view. The market has responded well to the diagnostic equipment maker's results, but like the price it's charging for its instruments, investors ought to be mindful that they're paying a premium for the stock as well.
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