) posted a robust 43.6% rise adjusted earnings per share to 79
cents for the fourth quarter of fiscal 2014 ended Jun 30 from 55
cents in the year-ago quarter. With this, earnings per share
steered past the Zacks Consensus Estimate by 6 cents. Adjusted net
earnings upped 35.5% to $164 million from $121 million in the
fourth quarter of fiscal 2013.
For full year 2014, CareFusion's adjusted earnings per share rose
11.3% to $2.36 from $2.12 a year ago and beat the Zacks Consensus
Estimate by 5 cents. Adjusted net earnings escalated 5.9% to $503
million from $475 million in fiscal 2013.
Carefusion Corporation - Earnings Surprise |
Expenses and Margins
Revenues in the quarter rose 24.3% (both in reported and constant
currency) to $1,122 million, exceeding the Zacks Consensus Estimate
of $1,043 million, thanks to the double-digit growth in revenues in
both the company's reportable segments. Revenues for the fiscal
year rose 8.2% to $3,842 million.
Adjusted gross profit swelled 17.8% to $550 million but adjusted
gross margin fell 270 basis points (bps) to 49.0% in the quarter
from 51.7% in the fiscal 2013-fourth quarter. The fall in gross
margin is attributable to lower margin acquisitions of Vital Signs
and Sendal, additional resources deployed for installing the Pyxis
ES platform and product mix due to higher than expected Infusion
Adjusted operating expenses rose 16.9% to $325 million due to
higher selling, general and administrative (SG&A) expenses on
the back of acquired SG&A related to Vital Signs and incentive
Adjusted operating earnings went up 20.1% to $227 million from $189
million but adjusted operating margin decreased 70 bps to 20.2% due
to Infusion capital revenue mix, additional installation resources
for product line transition in dispensing and the incentive
For the full fiscal year, adjusted gross profit inched up 3.8% to
$1,921 million while adjusted gross margin went down 210 bps to
50.0%. Adjusted operating earnings rose marginally by about 1% to
$746 million but adjusted operating margin fell 140 bps to 19.4%.
Revenues from Medical Systems escalated 20.3% to $712 million due
to solid Infusion business sales (up 40% growth over the prior
year) and strong sales Dispensing and Respiratory businesses (up 7%
and 6% percent, respectively). Adjusted segment earnings rose 16.2%
to $158 million driven by record quarter for Infusion business and
increased installations from Dispensing.
For the fiscal year, revenues from the segment edged up 2.8% to
$2,394 million. Adjusted segment earnings fell 6.0% to $490 million
due to longer than expected installation cycles in the Dispensing
business during the first half of the year and product revenue mix.
Revenues from Procedural Solutions rose 31.8% $410 million, driven
by contributions from the Vital Signs and Sendal acquisitions, as
well as continued growth from clinically differentiated products in
specialty disposables, and PleurX drainage products and the
ChloraPrep and MaxPlus brands within Infection Prevention business
line. Adjusted segment earnings grew 30.2% to $69 million driven by
organic growth across all product lines and strong performance from
the acquired Vital Signs and Sendal businesses.
Revenues from the segment grew 18.6% to $1,448 million for the year
led by growth across all business lines and contributions from the
Vital Signs acquisition. Adjusted segment earnings grew 17.4% to
CareFusion's board of directors approved a new two-year, $750
million share repurchase program on top of its previous $750
million program announced in the fiscal third quarter. The new
program will be initiated when the previous repurchase
authorization is completed. In fiscal 2014, CareFusion repurchased
14.6 million shares for roughly $577 million.
CareFusion had cash and cash equivalents of $2,303 million as of
Jun 30, 2014, up 28.1% from $1,798 million as of Jun 30, 2013.
Total debt increased 69.0% to $2,444 million as of Jun 30, 2014
compared with $1,446 million as of Jun 30, 2013.
Debt-to-capitalization ratio increased 10 percentage points to
31.2% from 21.2% as of Jun 30, 2013.
In fiscal 2014, cash flow from operating activities rose 11.7% to
$685 million from $613 million in fiscal 2013. Capital expenditure
(net) inched up 4.8% to $88 million from $84 million in fiscal
Fiscal 2015 and 3-Year Guidance
For fiscal 2015, CareFusion expects revenues to grow between 5 and
7% over fiscal 2014 on a constant currency basis. The company also
expects adjusted earnings in the range of $2.60 to $2.75 per share.
The current Zacks Consensus Estimate of $2.69 lies within the
CareFusion also provided three-year guidance till fiscal 2017. The
company expects mid-single-digit revenue growth, adjusted operating
margins of greater than 23%, and a compound annual growth rate of
10-12% for adjusted earnings per share for the period. CareFusion
also plans to invest at least 50% of its free cash flow through
tuck-in acquisitions and share repurchases during the period.
We appreciate CareFusion's impressive rise in fiscal fourth quarter
earnings and the estimate beats at both the earnings and revenue
fronts. We also praise the company's capability to provide a
long-term outlook, which clearly indicates its confidence in the
However, we note that CareFusion sees margin compression due to the
unfavorable product mix, lower margin acquisitions of Vital Signs
and Sendal and the transition of product line to the Pyxis ES
Currently, CareFusion retains a Zacks Rank #3 (Hold). Some
better-ranked stocks in the medical products industry include
OraSure Technologies, Inc. (
), Medtronic, Inc. (
), and Symmetry Medical, Inc. (
). OraSure Technologies sports a Zacks Rank #1 (Strong Buy), while
both Medtronic and Symmetry Medical retain a Zacks Rank #2 (Buy).
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