CR Bard Inc.
) second-quarter 2013 adjusted earnings of $1.42 per share beat
the Zacks Consensus Estimate by 4 cents. Adjusted earnings
exclude one-time items such as acquisition-related expenses ($1.9
million), asset impairment charges ($3.2 million), restructuring
costs ($25.8 million) and litigation expenses ($292.4 million).
Although adjusted earnings declined 12%, it exceeded the
company's previously announced guidance of $1.35-$1.39 a share.
In the quarter, net loss was $161.6 million (or a loss of $2.03 a
share) compared with a net income of $133.9 million (or $1.54 per
share). The decline was mainly due to the aforementioned legal
charges related to product liability.
Revenues increased 2% (3% at constant exchange rate or CER) on a
year-over-year basis to $759.9 million. Revenues surpassed the
Zacks Consensus Estimate of $751 million.
On a geographic basis, revenues in the U.S. were $497.6 million,
up 2% year over year. International sales rose 4% both on a
reported and CER basis to $262.3 million, led by healthy sales in
Revenues from the core Vascular segment decreased 4% year over
year to $212.2 million. The business remains challenged by
pricing pressure and increased competition.
Within Vascular, Electrophysiology ("EP") revenues dropped 1%. EP
Lab system sales increased 2%, while disposable EP sales declined
1%. Surgical graft sales were down 4% due to sustained
softness in OEM orders. Endovascular sales fell 5%, but
surprisingly Biopsy product sales grew 5% in the quarter,
reflecting competitive gains overseas. Revenues from the
peripheral PTA line increased 8%. Vena Cava Filter sales were up
3% in the reported quarter. Revenues from the stent franchise
dropped 23% year over year, as the Japanese competitor, which
pulled back its product line last year, returned to the market.
Sales from the Urology division increased 2% to $191.7 million,
on the back of double-digit growth in international markets. The
company's targeted temperature management offerings experienced a
solid 20% increase, both in the U.S. as well as outside.
Within Urology, revenues from the basic drainage division were up
3% globally and 1% in the U.S. I.C. Foley sales dropped 4% and 1%
in the U.S and international markets, respectively, as these
segments faced continued pricing pressure. Sales for the
Continence segment were down 17% in the reported quarter,
reflecting sluggish women health procedures in the U.S. On an
encouraging note, urological specialties sales were up 9% due to
strong sales from the brachytherapy business. Revenues from the
StatLock catheter stabilization line declined 8% in the quarter.
The company's Oncology segment reported revenue growth of 8% year
over year to $214.1 million. Sales of peripherally inserted
central catheters (PICC) climbed 10%, and revenues from the Port
franchise increased 4%. Revenues from the Vascular Access
ultrasound products and dialysis catheter products line increased
12% and 5%, respectively, in the reported quarter.
Sales from the Surgical Specialties business were up 8% at $120.0
million, led by strong sales of surgical sealant offerings
acquired from Neomend. Soft tissue repair business improved 4% in
the quarter and natural tissue products were up 8% year over
year. Revenues from the hernia fixation business were down 9% and
that from the performance irrigation business fell 10%.
Sales from Other segment were flat year over year at $21.9
million in the reported quarter.
On an adjusted basis, gross margin was 61.1%, down 40 basis
points (bps) from the prior-year quarter but up 70 bps
sequentially. Adjusted marketing, selling, and administrative
expenses increased 9.8% to $225.5 million. This was driven partly
by the medical device excise tax, new deals and the rest because
of increased spending on investment plans focused on emerging
Adjusted research and development expenses increased 31.2% to
$65.2 million, driven by investments in the emerging markets.
Adjusted operating margin was 22.5%, down a massive 490 bps from
the year-ago quarter.
CR Bard ended the second quarter of 2013 with cash, restricted
cash and short-term investments of $868.3 million, down 4.1% on a
sequential basis. Total debt sequentially increased 7.1% on a
sequential basis to $1.5 billion. The company repurchased 1.7
million shares in the quarter.
Moving ahead, C.R. Bard expects revenue growth at CER in the
range of 1%-3%, excluding any royalties from the Gore litigation
in the third quarter of 2013. On the earnings front, the company
expects adjusted earnings in the range of $1.37 to $1.41 a share.
The current Zacks Consensus Estimate of $1.62 per share lies
beyond the guided range.
For 2013, sales growth remains pegged at nil to 3%. However, the
company did not provide any bottom-line guidance due to the
impending benefits from the Gore litigation. Management projects
that the divestment of the EP business will dilute 2013 earnings
by 5 cents.
Although CR Bard managed to beat Zacks Consensus Estimates this
quarter, we remain concerned over the company's increased
expenses and declining margins. Moreover, significant pressure in
some of Bard's businesses, competition and low-single digit
growth in international markets are matters of concern. We remain
on the sidelines unless its recent investment strategies to
increase profitability pay off. However, 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
toward a positive direction and is about to complete, instills
confidence. However, there is always a degree of uncertainty
related to legal matters.
The stock carries a Zacks Rank #3 (Hold). Other medical stocks
The Cooper Companies Inc.
) are expected to do well. All these stocks carry a Zacks Rank #2
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