Q2 2024 Earnings Summary
- Revvity demonstrated strong margin performance and cash flow generation, exceeding expectations with adjusted operating margins of approximately 29% in the quarter. The company effectively managed expenses and realized additional synergies, contributing to adjusted EPS of $1.22, which was $0.10 above expectations.
- Management plans to aggressively deploy capital through share repurchases, given the current undervaluation of the stock. They have approximately $330 million remaining on their existing buyback authorization and believe this will drive meaningful value creation for shareholders.
- Positive signs from recent customer conversations, particularly in the pharma/biotech sector, suggest that the worst is behind them, and they are optimistic about returning to a more normalized environment. They are seeing better funding in the biopharma market, which is expected to contribute to future growth.
- Pricing pressures in China, particularly in the immunodiagnostics portfolio, are causing challenges for the company.
- Management expects no meaningful change in volume assumptions between the first and second half of the year due to sporadic market softness from site closures and consolidations, indicating ongoing demand weakness.
- The recovery in pharma and biotech customer spending remains uncertain, with management acknowledging that they have not returned to full normalization and it may take a quarter or two before improvements materialize.
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Second Half Revenue Outlook
Q: How is revenue expected to ramp in the second half?
A: Revenue is expected to ramp with positive low single-digit organic growth in the third quarter and high single to low double-digit growth in the fourth quarter. The fourth-quarter step-up is driven half by instrumentation due to normal seasonality, 2% by software business renewals with good pipeline visibility, and the remaining by China Diagnostics, including an easier comp for immunodiagnostics and a step-up in the NEO business. -
Margin Expansion and Cost Actions
Q: What is driving margin performance and outlook?
A: Margin performance is driven by continued progress on integrations and synergies from recent acquisitions, combined with restructuring actions taken at the end of last year. The long-range plan calls for 75 basis points of operating margin expansion per year in a normal market environment, giving confidence in reaching the company's margin goals. -
Capital Allocation and Share Buybacks
Q: What are the plans for share buybacks and capital deployment?
A: With $330 million remaining in the share repurchase authorization, the company plans to be more opportunistically aggressive in buying back stock, given the current valuation disconnect. Elevated valuations for M&A candidates make share repurchases a more attractive capital deployment option in the near term. -
China Market Outlook
Q: What is the outlook for China, particularly in diagnostics and instruments?
A: In China, immunodiagnostics was flat in the quarter and is expected to see positive mid-single-digit growth in the second half. The instrumentation business faced headwinds, down 30% due to delays in government stimulus funding, and is expected to be down mid-single digits in the second half. Improvement is anticipated with stimulus funding expected by the end of the year or early next year. -
Applied Genomics Recovery
Q: How is the Applied Genomics segment performing and expected to recover?
A: The Applied Genomics segment faced headwinds due to subdued pharma demand but is expected to improve in the second half. The RNA/DNA extraction business is returning to growth, while challenges remain in liquid handling. The segment is expected to start returning to growth due to favorable comp dynamics, having previously grown close to 50% for two consecutive years. -
Reagents Business and BioLegend Performance
Q: What are the trends in the reagent business and BioLegend's performance?
A: The reagent business experienced sporadic volatility due to site consolidations and headcount reductions in pharma and biotech. BioLegend, representing more than 50% of the reagents portfolio, is the best-performing piece of the business. The company anticipates similar levels of absolute dollars in the third quarter versus the second quarter, with normal seasonal improvements in the fourth quarter. -
Pharma/Biotech Funding and Recovery
Q: What is the impact of pharma layoffs and the outlook for biopharma recovery?
A: Headcount reductions and site consolidations have caused volatility, but the worst is believed to be behind. Programs are not shutting down but are transitioning to other sites, providing visibility into recovery timing. Pre-revenue biotech funding, less than 5% of revenue, showed sequential improvement in the second quarter, indicating early signs of recovery. -
Pricing Trends and Challenges
Q: How are pricing trends affecting the business?
A: Pricing remains more challenged than in a normal year due to the market environment. The company achieved approximately 100 basis points of price in the second quarter, similar to the first quarter, with similar assumptions for the second half. In China, pricing challenges are evident in the immunodiagnostics portfolio, though it has not been impacted by value-based pricing programs. -
Outlook for 2025
Q: How does exiting the year at high single to low double-digit growth set up next year?
A: While signs are encouraging, full normalization is not yet expected. More details on expectations for 2025 will be provided at the Analyst Day in late November, offering deeper insights into future growth prospects. -
IRA Impact on Pharma and Planning
Q: How is the Inflation Reduction Act impacting the company and pharma clients?
A: The impact of the IRA has already been planned for by pharma and biotech companies, which adjusted their P&L and strategic plans for 2025 and beyond two to three quarters ago. The company has incorporated these considerations into its own planning.