Illumina (ILMN), a major player in genomic analysis, is trading down sharply today after guiding Q2 revenue well below expectations and lowering full year guidance. The company supplies genetic sequencing arrays and consumables as well as analysis tools. It lists its customers as genomic research centers, academic institutions, government labs, hospitals, as well as pharma and biotech firms.
The weakness came from several areas. Most notably, ILMN says revenue from population genomics initiatives came up about $30 mln short. This included "a sizeable sequencing systems and consumables purchase that did not close as expected in the second half of June, which is now expected to close later in 2019," according to the press release.
Also, while most of its customers are large organizations, it also has a direct-to-consumer (DTC) segment, which seems to have struggled in Q2. This segment came up around $10 mln short of expectations with particular weakness in array services. Finally, ILMN says it came up $10 mln short on its non-high-throughput sequencing systems and consumables (its NextSeq platform).
CEO Francis deSouza says, "We are obviously disappointed...[however] these challenges are transitory and do not reflect a macro change to the fundamentals of our business...Despite our shortfall this quarter, we remain as enthusiastic about the long-term growth prospects for our markets as we have ever been."
We think the weakness in the stock today is mainly caused by the fact that ILMN reported softness in several areas, as mentioned above. It was not just one segment that struggled. The pushout of that large sequencing order is also a bit of a concern. While it sounds like this order will close later in the year, it makes us wonder why this happened and ask if other customers are considering a similar move.
Illumina is seen by investors as a high-quality company in the genomics space. A guide down, and especially such a large one, is pretty rare for them. While ILMN did report a Q4 EPS miss, it usually reports big upside each quarter. For example, in seven of the past eight quarters, it has beaten EPS by double digit margins. This guide down also seems to have caught investors off guard as the stock had been rallying over the past month or so heading into its Q2 report, so expectations seem to have been running pretty high.
In sum, this guide down was troubling because of how large it was and because it's rare and a surprise for a company like Illumina to encounter. Illumina is held in high regard within the investment community but this guidance may make investors nervous as we head into 2H19. The stock is now back down to where it was before the recent run. In terms of other companies that may get impacted by this, ILMN lists the following as publicly-traded competitors in its 10-K: Agilent Technologies (A), QIAGEN (QGEN), Roche Holding (RHHBY), and Thermo Fisher (TMO).