Evotec shares drop 17% after disappointing Q3 results and slow profit recovery

Investing.com -- Evotec (ETR:EVTG ) shares plunged more than 17% following the company’s third-quarter results, which showed sales and profits falling short of analyst expectations. 

The group's third-quarter revenue came in 3% below consensus, driven by weak performance in its Shared R&D and Just Evotec segments. 

The results flagged slower-than-expected progress in gross margin improvement, mainly due to lingering high fixed costs in Shared R&D and ramp-up costs at Just Evotec. 

For the period, Adjusted EBITDA was reported at a loss of €5.5 million, much higher than analysts' expectations of €2.1 million.

The disappointing results were further compounded by Evotec’s acknowledgment that profitability improvement in the fourth quarter would be essential to meet full-year forecasts. 

Analysts had already flagged that these weak third-quarter results might weigh on the company’s ability to achieve consensus expectations, particularly given the slow recovery in key profit areas.

While Evotec’s management has maintained its 2024 guidance, reaffirming its revenue target range of €790 million to €820 million, it cautioned that it was more likely to come in at the lower end of the range for adjusted EBITDA. 

The company’s outlook on EBITDA of €15 million to €35 million is seen as conservative, with analysts pointing to high fixed costs and slower savings from its Priority Reset strategy as factors holding back improvements.

“Importantly, debt covenant overhang should lift following granting of additional 12-month waiver, with major focus now 2025+ profit recovery trajectory given need to rebuild long term belief in the story under new CEO,” said analysts at Jefferies.

Cash flow also turned positive in the third quarter, helped by multiple payments from its partner Bristol-Myers Squibb (NYSE:BMY ), and the company reduced capital expenditure due to the completion of construction on its second J.POD facility. 

A potential cash inflow in the fourth quarter from R&D tax credits—exceeding €50 million—was also noted.

Source: Investing.com