CR Bard Inc.
) third-quarter 2013 adjusted earnings of $1.50 per share
surpassed the Zacks Consensus Estimate of $1.39 by an impressive
margin of 7.9%. Although adjusted earnings declined 9% year over
year, it exceeded the company's previously announced guidance of
$1.37-$1.41 a share.
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Management asserted that the robust performance came on the back
of strong top-line growth coupled with efficient cost control
measures. Adjusted net income was $122.3 million, down 14% from
$141.4 million in the third quarter of 2012.
In the quarter under review, net income (including one-time
items) was $93.2 million or $1.15 a share, down from $129.3
million or $1.50 a share reported in the year-ago period. This is
quite a turnaround from the net loss of $161.6 million or $2.03 a
share reported in the prior quarter.
Revenues increased 5% (4% at constant exchange rate or CER) to
$758.0 million and comfortably outpaced the Zacks Consensus
Estimate of $740 million. On a geographic basis, revenues in the
U.S. grew 3% to $500.3 million, beating the company's
expectations. International revenues rose 8% (up 6% at CER) to
$257.7 million, with Europe growing 3% and Japan 4%, while other
international business revenues grew 11%. The emerging markets
contributed to 8% of total sales in the quarter.
On an adjusted basis, gross margin was 61.5%, down 80 basis
points (bps) from the prior-year quarter but up 40 bps
sequentially. Adjusted marketing, selling, and administrative
expenses were 29.1% of net sales, 210 bps higher than the
year-ago quarter. This was driven by the company's increased
investment in emerging markets, as well as the newly imposed
medical device excise tax. Adjusted research and development
expenses increased 180 bps to 8.7% of sales, driven by
investments in emerging markets.
Revenues from the core
segment increased 4% (2% at CER) to $209.9 million. We note that
revenues improved significantly compared with the 4% decline
reported in the second quarter of 2013.
Within Vascular, Electrophysiology ("EP") revenues grew 7%, led
by easy year-over-year comparisons for EP LabSystems sales.
Disposable EP sales decreased 3%. Management asserts that plans
for the sale of this underperforming unit to
) are on track. The divestment will be carried out in November.
Surgical graft sales were down 4% due to sustained softness in
OEM orders. Endovascular sales improved 2%, with Biopsy product
sales growing 10% in the quarter, reflecting competitive gains
overseas. Revenues from peripheral PTA line increased 11%, driven
by solid sales of the Lutonix drug-coated balloon in Europe. Vena
Cava Filter sales were up impressively by 13% compared to a fall
in the preceding quarter. However, revenues from the stent
franchise dropped 23% year over year, as a Japanese competitor,
which had pulled back its product line last year, re-entered the
Revenues from the
division increased 3% to $193.7 million, both in terms of
reported and constant currency. The company's targeted
temperature management offerings once again experienced solid
double-digit growth, both in the U.S. and international markets.
Within Urology, revenues from the basic drainage division were up
3% globally and 2% in the U.S. I.C. Foley sales inched up 1%
internationally, but dropped 4% in the U.S, owing to continued
pricing pressure. Continence segment's sales were down 9% in the
reported quarter, reflecting sluggish women health procedures in
the U.S. Urological specialties sales were up 1% with flat sales
from the brachytherapy business. Revenues from the StatLock
catheter stabilization line inched up 1% in the quarter.
segment reported revenue growth of 6% to $215.5 million. Sales of
peripherally inserted central catheters (PICC) climbed 7%, and
revenues from the Port franchise increased 4%. Revenues from the
Vascular Access ultrasound products and dialysis catheter
products line increased 3% and 10%, respectively.
business were up 10% (9% in terms of constant currency) to $118.1
million, led by strong sales of surgical sealant offerings
acquired from Neomend. Soft tissue repair business improved 5% in
the quarter. Revenues from the hernia fixation business were down
3%, while the performance irrigation business fell 14% in the
Sales from Other segment remained flat year over year at $20.8
million in the reported quarter.
CR Bard ended the third quarter of 2013 with cash, restricted
cash and short-term investments of $800.7 million, down from
$868.3 million as of Jun 30, 2013. Total debt was $1.5 billion as
of Sep 30, unchanged from the same as of Jun 30. Debt to total
capital ratio was about 50% at the end of the third quarter.
Total shareholder investment was $1.5 billion as of Sep 30, 2013.
Capital expenditures totaled $16.7 million in the quarter.
Moving ahead, C.R. Bard expects revenue growth at CER in the
range of 1% to 3% in the fourth quarter of 2013. This includes
the impact of the acquisitions and the divestiture of the EP
business, which essentially offset each other in the quarter.
Benefits from the Gore litigation are expected to realize in
2014. Management expects tough year-over-year comparisons in the
fourth quarter, specifically in biopsy and soft tissue repair.
On the earnings front, the company expects adjusted earnings in
the range of $1.34 to $1.39 a share. We note that the current
Zacks Consensus Estimate for the quarter is $1.67, which is
higher than the predicted range.
On the back of better-than-anticipated third-quarter results, BCR
raised its full year-2013 adjusted EPS guidance to the range of
$5.70 to $5.75 a share, from the earlier guided range of $5.55 to
$5.60. Management projects that the divestment of the EP business
will dilute 2013 earnings by 10 cents. The current Zacks
Consensus Estimate for the year is pegged at $5.92.
Although CR Bard managed to beat estimates this quarter, we
remain concerned about the stringent sales environment facing the
company, particularly in the U.S. Moreover, some of Bard's
businesses are experiencing significant pricing and competitive
pressures and low-single digit growth in international markets.
We thus remain on the sidelines at present till the time its
recent investment strategies help to increase profitability.
However, we believe its recent announcement to divest the EP
business along with initiatives to expand into emerging markets
should boost growth in the long term.
Further, the company's claim that the Gore litigation is moving
in a positive direction and is about to be complete instills
confidence. However, there is always a degree of uncertainty
related to legal matters.
BCR currently carries a Zacks Rank #3 (Hold). While we remain
neutral regarding the company, other companies like
Align Technology Inc.
Cardinal Health, Inc.
) are expected to do well in the medical/dental supply industry.
Both stocks carry a Zacks Rank #1 (Strong Buy).