Eurofins Posts Flat Full-Year Revenue Growth

Narrow-moat Eurofins ERF reported decent full-year results, given global macroeconomic headwinds, the war in Ukraine, and a steep decline in COVID-19-related sales. Organic revenue was flat year over year while the company felt the pressures of the mentioned headwinds on an EBITDA and net profit basis, both down 23% year over year. Management provided solid 2023 guidance and its long-term outlook through 2027. The company’s guidance is roughly in line with our projections, and we are maintaining our EUR 80 fair value estimate. Shares appear undervalued, especially given the market’s likely overreaction to the headwinds in the fourth-quarter and full-year results.

By operating segment, Europe (making up 52% of Eurofins’ total revenue) saw revenue decline 12% as North America and the rest of the world experienced revenue growth of 16% and 24%, respectively, year over year. In Europe, the company faced a tough comparison with strong sales related to COVID-19 reagents in 2021, hurting the results of its BioPharma business for 2022. Inflationary pressure and supply chain issues experienced by clients posed a challenge for Eurofins’ food and feed testing business; Eurofins has responded to food producers in Europe reducing their offerings and investments in product development with new cost and pricing policies while consolidating its regional footprint. As we award this segment a narrow moat based on intangible assets and switching costs, we are more confident in the company’s pricing power and ability to mitigate these challenges moving forward. The environment testing business delivered strong growth due to operational performance, while the diagnostic segment gained momentum through geographical expansion from completed acquisitions through Europe.