Why Cerner Corporation (NASDAQ: CERN) stock is falling

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Cerner Corporation (NASDAQ: CERN) stock fell over 1.9% on October 25th trading session (as of  after the company posted mixed results for the third quarter of FY 19. The bookings were up 3% to $1.651 billion in the third quarter 2019 compared to Q3 of 2018 and the high end of the company’s guidance range. The company has ended the third quarter with a revenue backlog of $13.31 billion, which had fallen 9% from a year ago, mainly due to the termination of a large outsourcing contract.

CERN in the third quarter of FY 19 has reportedthe adjusted earnings per share of 66 cents, beating the analysts’ estimates for the adjusted earnings per share of 65 cents, as per Zacks Investment Research. The company had reported the adjusted revenue growth of 7 percent to $1.43 billion in the third quarter of FY 19, missing the analysts’ estimates. The gross margin of the company for the third quarter was 81%, down from 81.2% in the second quarter of ’19 and 82.8% year-over-year, on the back of higher third-party services mainly related to the federal business and a lower margin mix within technology resale. The adjusted operating margin for the third quarter 2019 was 18.1%, down from 19.2% in third quarter of 2018 but up from 18% last quarter.

Moreover, Licensed software revenue in the third quarter grew 10% to $155 million over third quarter of 2018, mainly due to the strong growth in the SaaS offerings. Technology resale had risen 16% to $70 million compared to both third quarter of 2018 and last quarter. Subscriptions revenue grew 16% to $92 million in the third quarter. Professional services revenue grew 11% to $507 million, mainly due to the strong growth in implementation services. Managed services was flat at $302 million, with the lack of growth mainly related to the phase out of revenue from Health Services clients that made the decision to leave in past years and are just now getting transitioned out of the data centers.

For the fourth quarter ending in December, Cerner expects its per-share earnings to be in the range of 73 cents to 75 cents. The company expects revenue to be in the range of $1.41 billion to $1.46 billion for the fiscal fourth quarter, while the analysts surveyed by Zacks had expected revenue of $1.47 billion. The company expects Fourth quarter 2019 new business bookings to be in the range of $1.450 billion and $1.650 billion.

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