) reported earnings per share (EPS) of 4 cents in the third
quarter of fiscal 2012.The results were in-line with the Zacks
Consensus Estimate, but lagged the year-ago quarter's EPS by a
penny. Revenues for the quarter climbed up 9% year over year (up
12% at constant exchange rate or CER) to $93.7 million, but
missed the Zacks Consensus Estimate of $95 million.
Revenues in the Medical segment increased 9% (12% increase at
CER) during the quarter to $90.7 million with a 13% increase in
disposable revenues at CER, on the back of a robust 54% growth in
FFR (Fractional Flow Reserve) disposable business along with
growth across all the key operating regions. The Industrial
segment recorded a 5% year over year increase in Industrial
revenues to $3.0 million in the third quarter.
Over the past few quarters, the company has been benefiting
from a growing volume of data depicting improved patient outcomes
and economic benefits from the use of functional percutaneous
interventional ("PCI") as well as the use of intravascular
guidance to optimize and confirm the therapy during the
The European market recorded a decline of 23% in Intravascular
Ultrasound (IVUS) disposable sales, with the U.S. recording
growth rates of 5% and Japan declining 2%. However, in spite of
this disappointing performance in this quarter, Volcano is
optimistic about new Visions PV .035 Digital IVUS (Intravascular
Imaging) catheter, which recently received market approvals in
both the U.S. and Europe. The company expects these clearances to
act as major boosters in improving the company's IVUS disposable
performance and will match its strategy to increase the market
adoption of IVUS.
Volcano Corporation recorded a 106 basis points (bps)
contraction in gross margin to 64.5% in the quarter. However,
with selling, general and administrative increasing by 12.9% to
$40.7 million and a 6.4% decline in research and development
(R&D) expenses to $13.0 million, the company recorded a drop
of 18 basis points in operating margin to 7.1% (excluding
amortization of intangibles).
Volcano exited the quarter with cash, cash equivalents and
short-term investments of $241.8 million compared with $219.3
million at the end of fiscal 2011. Year-to-date operating cash
flow remained at $37.3 million compared with $20.5 million for
the same period, last year.
Volcano Corporation lowered its outlook for fiscal 2012 to
reflect the several headwinds currently under play. Due to the
continued softness in domestic PCI market and the transition to a
direct sales model in Spain, the company now expects to report
revenues of $380-$384 million (previous expectation $384-$390).
However, it reiterated its EPS at 18-21 cents and gross margin
guidance at 65-66%. Moreover, the outlook for operating expenses
has been raised to 59−60% (58−59%) of revenues.
Volcano Corporation continues to face challenges in the form
of tough macroeconomic environment, especially in Europe.
Moreover, unfavorable currency movement during the quarter played
as a major headwind for the company. We are also disappointed
with the decline in margins that have adversely affected the
company's bottom line. We believe that the rise in expenses is
primarily to support the various pipeline developmental programs
and is related to the transition to a direct sales force in
Spain. Besides, economic uncertainties in Europe remain an
overhang for the company. Moreover, the company witnesses stiff
competition from players such as
St Jude Medical
Boston Scientific Corporation
). However, the company is executing strategies to drive sales in
the IVUS/FFR markets backed by new product launches and product
enhancements. We are encouraged with a number of positive data on
FFR, published in the quarter including FAME II data, which
portrays FFR as an important contributor in achieving improved
patient outcomes in a cost-effective way.
The stock carries a Zacks #3 Rank ("Hold") in the short term.
Over the long term, we maintain our 'Neutral' recommendation on
BOSTON SCIENTIF (BSX): Free Stock Analysis
ST JUDE MEDICAL (STJ): Free Stock Analysis
VOLCANO CORP (VOLC): Free Stock Analysis
To read this article on Zacks.com click here.