Cerner Falls Short on Revenue; Guides Lower
Healthcare information technology provider Cerner Corp. (NASDAQ: CERN – $ 53.35) said it missed its own expectations for revenue and bookings of new business during the third quarter when compared to a strong performance in the same months a year ago. The North Kansas City-based company said its misses were essentially a matter of timing and that its business remains brisk with a record amount of potential business still in the pipeline. In the third quarter, revenues were up 5% at $1.185 billion, but that was just below the expected range it had set ahead of the earning’s report. Bookings of new business, which is a strong sign of future operations, fell by 10% to $1.434 billion in the three months that ended Oct. 1, and slightly below the range the company had said investors should expect. Despite the decline, Cerner’s bookings in the quarter were the second largest in its history. For the quarter the company reported adjusted earnings of $0.59 per share, up from $0.54 a year earlier but a penny below the consensus. For the next quarter, Cerner expects adjusted earnings of $0.60 to $0.62 per share on revenues of $1.23 billion to $1.30 billion, below the consensus for $0.65 on earnings and $1.32 billion on revenues.
The company remains well positioned to target the large hospital market, and notes that it is having success in winning business from its large competitors, including replacing them in some instances. My sense is contracting activity will stay healthy, though high single-digit progress seems more likely than the previous low double-digit advance, given the increasing service orientation of its offerings. With the high price-earnings ratio afforded to CERN shares, there is little room for disappointment, and the shares took a hit in today’s trading. However, patient investors willing to accept some risk may find this equity of interest for the longer-term.