Why is Align Technology (ALGN) down 18.7% since its last earnings report?

It’s been about a month since Align Technology (ALGN) last reported earnings. Shares have lost about 18.7% in that time, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Align Technology waiting for a breakout? Before we dive into the recent reaction from investors and analysts, let’s take a quick look at the company’s most recent earnings report in order to get a better handle on the important factors influencing the situation.

Align technology with top Q1 earnings, gross margin contracts

Align Technology posted first-quarter fiscal 2024 adjusted earnings per share of $2.14, up 17.6% from year-ago earnings. The reported number beat the Zacks Consensus Estimate by 8.1%.

GAAP earnings per share for the quarter were $1.39, compared to $1.14 in the same period last year.

Revenue

Revenues increased 5.8% year-over-year to $997.4 million in the quarter and surpassed the Zacks Consensus Estimate by 2.6%. Moreover, revenues were positively impacted by foreign exchange rates, which were sequentially around USD 10 million.

Segments in detail

The company consists of two reportable segments – Clear Aligner and Imaging Systems and CAD/CAM Services (Systems and Services)

Revenues in the Clear Aligner segment increased 3.5% year over year to $817.3 million. The advantage is revenue growth across all regions driven by strong year-on-year volume growth in APAC and EMEA.

Revenues were adversely impacted by foreign exchange rates of approximately USD 3.9 million (or 0.5%) year-over-year.

Revenue from imaging systems and CAD/CAM services increased 2.4% to $180.2 million in the quarter. Revenues experienced an unfavorable currency impact of 0.5% year-over-year.

Margins

Gross profit in the first quarter was $697.8 million, up 5.6% year over year. Gross margin in the quarter decreased by 9 basis points (bps) year-over-year to 70.0%, with net cost of revenue increasing by 6.1%.

For the quarter, selling, general and administrative expenses increased 2.8% to $451.8 million, while research and development expenses increased 5% to $91.9 million.

Operating income for the quarter was $154.1 million, an increase of 15.4%. Operating margin increased 130 bps to 15.5%.

Financial details

Align Technology ended the first quarter of 2024 with cash and cash equivalents of $865.8 million, compared to $937.4 million reported at the end of the fourth quarter.

Cumulative net cash from operating activities at the end of the first quarter was $28.7 million, compared to $199.9 million in the same period last year.

The story continues

Share repurchase

In January 2024, Align Technology repurchased a total of approximately 1.1 million shares at an average price per share of $230.13 under the ASR contract for the fourth quarter of 2023. An additional 650 shares are available under the January 2023 repurchase program, $0 million for common stock repurchases.

During the second quarter of 2024, the company expects to repurchase up to $150.0 million of common stock through a combination of open market repurchases or an accelerated share repurchase agreement.

Conductivity

Align Technology updated its full-year 2024 financial outlook and provided second-quarter 2024 guidance.

ALGN expects full-year revenue to grow 6-8% year-over-year (vs. previous guidance for mid-single-digit growth in 2023). The Zacks Consensus Estimate estimates the company’s 2024 revenues at $4.04 billion.

Both full-year GAAP and adjusted operating margins are expected to be slightly higher than 2023 GAAP and adjusted operating margins, respectively.

To support continued growth, the company plans to invest approximately $100 million in capital expenditures, primarily related to construction and improvements to buildings and manufacturing capacity.

ALGN projects global revenues of $1.03 billion to $1.05 billion in the second quarter of 2024. The Zacks Consensus Estimate is $1.03 billion.

How have estimates changed since then?

It turns out that estimate revisions have been on a downward trend over the past month.

VGM results

Right now, Align Technology has an average Growth Score of C, a rating with the same Momentum Score. Following exactly the same trajectory, the stock is rated C for Value, ranking in the middle 20% for this investment strategy.

Overall, the stock has a Total VGM Score of C. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, Align Technology carries a Zacks Rank #2 (Buy). We expect an above-average rate of return on shares in the coming months.

Want the latest recommendations from Zacks Investment Research? Today you can download the top 7 stocks for the next 30 days. Click to get this free report

Align Technology, Inc. (ALGN): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research