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Cerner (CERN) Q4 Earnings Meet Estimates, Revenues Miss

Zacks Equity Research

Cerner Corporation CERN reported fourth-quarter 2018 adjusted earnings of 63 cents per share, in line with the Zacks Consensus Estimate. The bottom line increased from the prior-year quarter’s figure by 8.6%.

Revenues totaled $1.37 billion, which improved 3.9% year over year but fell short of the Zacks Consensus Estimate of $1.39 billion.

The stock currently has a Zacks Rank #4 (Sell).

2018 at a Glance

In 2018, adjusted earnings came in at $2.45 per share, up 2.9% year over year. However, the metric missed the Zacks Consensus Estimate of $2.46.

Revenues amounted to $5.37 billion, which increased 4% year over year but lagged the Zacks Consensus Estimate of $5.39 billion.

The Licensed software segment contributed 11.4% to full-year revenues.

Meanwhile, the Technology resale segment had 4.6% contribution in the top line.

Contribution from Subscriptions was 6.1%.

Professional services contributed 33.8% to revenues in 2018.

Managed services had a contribution of 21.5%.

Support and maintenance, and Reimbursed travel contributed 20.8% and 1.8%, respectively, to 2018 revenues.

Cerner Corporation Price and Consensus

Cerner Corporation Price and Consensus | Cerner Corporation Quote

Revenues by Geography

Per management, U.S. revenues grossed $1.21 billion, up 4% year over year.

Non-U.S. revenues surged by $1 million from the year-ago quarter figure to $161 million. The uptick was mainly driven by strong results in the United Kingdom and Sweden.

Bookings Detail

In the reported quarter, Cerner’s bookings totaled $1.96 billion, down from $2.33 billion in the same quarter last year.

However, this is the second-highest bookings quarter in Cerner’s history.

Per management, Cerner registered bookings from long-term contracts (including 6 contracts that were more than $75 million) and multiple transactions.

Segmental Performance

Licensed software revenues fell 1.8% to $166.5 million. Per management, the small scale of the EHR replacement market reduces Cerner’s opportunity in the traditional software sector. However, the company expects SaaS to continue growing.

Technology resale revenues came in at $46.1 million, down 42% on a year-over-year basis. The metric also came below management’s expectations.

Revenues from Subscriptions grossed $87 million, down 24.1% year over year.

Professional services revenues totaled $466.2 million, up 13.9% from the prior-year quarter number. Per management, this upside was mainly driven by Cerner’s Works business.

Revenues at the Managed services unit summed $299.1 million, up 14.1% from the prior-year quarter. Per management, the improvement was driven by solid year-to-date bookings.

Support and maintenance revenues came in at $276.8 million, up 5.8% year over year.

Reimbursed travel revenues amounted to $24.1 million, mirroring a 14.5% decline year over year.

Margins

In the quarter under review, gross profit summed $1.13 billion, up 4.1% year over year. Gross margin was 82.6%, flat on a year-over-year basis.

General and administrative expenses rose 7.4% to $98.9 million. Further, Software development expenses increased 11.7% to $181.5 million.

Adjusted operating margin contracted 180 basis points (bps) to 18.7% during the quarter.

Guidance

For the first quarter of 2019, Cerner expects revenues between $1.37 billion and $1.42 billion. The midpoint of this range is in line with the Zacks Consensus Estimate of $1.39 billion. Adjusted earnings per share is expected to be 60-62 cents. The range is significantly below the Zacks Consensus Estimate of 64 cents. Business bookings are expected in the range of $1.10-$1.30 billion. The midpoint of this range reflects a 14% decrease year over year.

For 2019, revenues are expected between $5.65 billion and $5.85 billion. The midpoint of this range is $5.75 billion, which misses the Zacks Consensus Estimate of $5.80 billion. Adjusted earnings per share is expected between $2.57 and $2.67. The range is significantly below the Zacks Consensus Estimate of $2.70.

Wrapping Up

Cerner exited the fourth quarter on a mixed note. While earnings met the consensus mark, revenues lagged the same. However, Cerner continues to witness strong contributions from key areas like, Population Health, Revenue Cycle and IT Works. Strong international performance in the quarter is an added positive. Also, gains in Professional and Managed Services units buoy optimism.

Cerner is likely to benefit from its electronic health record (EHR), electronic patient record (EPR) or electronic medical record (EMR) platforms that provide patient care in both acute inpatient and outpatient settings.

On the flip side, Cerner’s Licensed Software and Subscriptions revenues saw a year-over-year decline in the quarter under review. In fact, management expects low software bookings to negatively impact total bookings in the first quarter as well. Contraction in operating margins too adds to the woes. Furthermore, high long-term debt and competition in the global MedTech space are worrisome.

Earnings of MedTech Majors at a Glance

Some better-ranked MedTech stocks that delivered solid performance in their respective quarters are Varian Medical Systems VAR, AngioDynamics ANGO and CONMED Corporation CNMD.

Varian reported fiscal first-quarter adjusted earnings per share (EPS) of $1.06, in line with the Zacks Consensus Estimate. Revenues totaled $741 million, which outpaced the consensus mark of $717.9 million. The stock has a Zacks Rank #2 (Buy).

AngioDynamics’ fiscal second-quarter adjusted EPS of 22 cents exceeded the Zacks Consensus Estimate by a penny. Revenues amounted to $91.5 million, which surpassed the consensus estimate by 2.9%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here .

CONMED delivered fourth-quarter adjusted EPS of 73 cents, in line with the Zacks Consensus Estimate. Revenues of $242.4 million outshined the Zacks Consensus Estimate of $229.2 million. The stock carries a Zacks Rank of 2.

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