Syneos Health (SYNH) Q2 Earnings Top Estimates, Margins Down

Syneos Health Inc. SYNH reported second-quarter 2020 adjusted earnings per share (EPS) of 58 cents, which beat the Zacks Consensus Estimate by 20.8%. However, the metric dropped 21.6% from the year-ago figure.

Reported EPS was 4 cents, marking a huge decline from the year-ago net earnings of 11 cents per share.

The year-over-year decline in adjusted earnings was the result of the impacts of COVID-19 on both Clinical Solutions and Commercial Solutions businesses, partially offset by benefit from cost management strategies, lower reimbursable out-of-pocket expenses, and lower interest expense.

Revenues in Detail

Revenues in the quarter totaled $1.01 billion. The top line declined 13.1% year over year on a reported basis (down 13.3% on an adjusted basis and 12.8% on a constant currency adjusted basis). However, it exceeded the Zacks Consensus Estimate by 0.9%. Adjusted revenues include revenues eliminated as a result of purchase accounting.

Segmental Details

The Clinical Solutions segment recorded revenues of $747.2 million in the second quarter; down 12.3% year over year on a reported basis (down 11.6% at CER). The downside resulted from reduced physical site monitoring visits and out-of-scope work related to COVID-19, the associated decline in reimbursable expenses, and the divestiture of the company’s lower-margin contingent staffing business as part of its portfolio rationalization.

Syneos Health, Inc. Price, Consensus and EPS Surprise

Syneos Health, Inc. price-consensus-eps-surprise-chart | Syneos Health, Inc. Quote

Commercial Solutions revenues were $266.2 million in the reported quarter, down 16% year over year (adjusted revenues moved down 15.8% at CER). The decline was caused by the impact of COVID-19, including a decline in reimbursable expenses associated with reduced field team travel and lower investigator meeting expenses, as well as Deployment Solutions project start-up delays.

Margin Details

Direct cost (excluding depreciation and amortization) declined 12.2% to $805.9 million in the quarter. Despite that, gross margin contracted 89 basis points (bps) to 20.5%.

Selling, general and administrative expenses were down 5.3% year over year to $104.9 million.

Adjusted operating margin (excluding depreciation, amortization, transaction and integration-related, and restructuring and other expenses) contracted 174 bps from the year-ago quarter to 10.1%.

Financial Details

Syneos Health exited the second quarter of 2020 with cash and cash equivalents, and restricted cash of $343 million, compared with $335.9 million at the end of the first quarter. At the end of the second quarter, cumulative operating cash outflow was $155.2 million compared with $83.5 million a year ago.

Guidance

Following the withdrawal of its 2020 guidance in April, the company issued a fresh guidance this time around.

Full-year revenues are expected in the range of $4,470 million to $4,570 million while adjusted EPS is expected in the band of $3.16 to $3.38.

The current Zacks Consensus Estimate for 2020 revenues is pegged at $4.48 billion while the same for adjusted EPS stands at $2.97 billion

Our Take

Syneos Health exited the second quarter of 2020 with better-than-expected numbers. However, the year-over-year decline in both revenues and earnings was a dampener. The company registered significant sales decline in both of its business segments. Margin pressure continued to weigh on the bottom line.

On a positive note, Syneos Health won 35 COVID-19 related projects through the second quarter and still has a substantial pipeline of additional COVID-related opportunities.

Zacks Rank & Other Stocks to Consider

Currently, Syneos Health carries a Zacks Rank #2 (Buy).

A few other top-ranked stocks in the broader medical space are West Pharmaceutical Services, Inc. WST, Thermo Fisher Scientific Inc. TMO and Hologic, Inc. HOLX.

West Pharmaceutical reported second-quarter 2020 adjusted EPS of $1.25, beating the Zacks Consensus Estimate by 37.4%. Net revenues of $527.2 million outpaced the consensus estimate by 6.9%. It currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher, a Zacks Rank #2 company, reported second-quarter 2020 adjusted EPS of $3.89, beating the Zacks Consensus Estimate by 45.7%. Revenues of $6.92 billion outpaced the consensus mark by 0.1%.

Hologic reported third-quarter fiscal 2020 adjusted EPS of 75 cents, surpassing the Zacks Consensus Estimate by a stupendous 108.3%. Net revenues of $822.9 million exceeded the Zacks Consensus Estimate by 37.1%. It currently sports a Zacks Rank #1.

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