Summary
Revenue declined by 1.4% YoY, with flat performance in consumables and instruments
The company faces challenges from US funding cuts, tariffs, and China's regulatory restrictions on its sequencing devices.
Management has lowered its full-year guidance due to these obstacles but continues to implement mitigating strategies.
Illumina has released its 1Q25 earnings. Doing an update on their latest performance. If you want to know in-depth about their business, click here.
📊Financial Highlights
Most of its revenue segments are either flat or down. Its free cash flows are down by 35% when compared against 4Q24 free cash flows (at $322 mil).
There are 3 main issues that cause Illumina’s poor results:
#1: US Funding Cuts💵
In my previous post, I highlighted that Illumina’s target customers can be broken down into 2 segments:
Research & Applied
Clinical
The Clinical segment is more resilient, as it is directly integrated into healthcare applications such as oncology testing. In contrast, the Research & Applied segment is cyclical because its customers are research institutes. Their spending on Illumina’s products depends on government funding.
The Trump administration has been cutting the National Institutes of Health (NIH)’s budget. To date, they terminated $1.81 bil of grants. To make matter worse, Trump’s new budget proposal is calling for an overall reduction in NIH funding to $27 bil which is approx. $18 bil cut.
This funding cuts have forced research institutions to cut down their sequencing activities. Thus, lower sequencing instruments & consumables demand.
#2: Tariffs👮
The baseline import tariffs of 10% are increasing costs for Illumina. The management is estimating an increase of $85 million in operating costs for FY2025.
#3: China’s Regulatory Restrictions🚫
In retaliation against US’s 145% import tariffs against China, the Chinese government has banned Illumina from importing its sequencing devices into the country. It is safe to assume that this market is gone completely.
Mitigating Actions📋
Below are the on-going actions undertaken by the management:
🎯Future Guidance Lowered
Due to the above 3 issues, the management has lowered their full year and next quarter’s guidance:
⚖️Valuation
As mentioned in my previous post, this remains a waiting game. I still believe that the challenges Illumina is currently facing are temporary. How long until resolution? My best estimate would be until Trump is replaced with a new president – in 4 years’ time? Hahaha…
Despite the above uncertainties, I am not adjusting my valuation of Illumina. This is because my previous assumptions are already conservative (at the worst case scenario). The intrinsic value remains in the range of $156.98 to $180.75.
Disclaimer:
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Additionally, please note that the author holds a position in the discussed stock, and his view may be biased as a result.