CareFusion's Flat Earnings Miss Estimates - Analyst Blog

By Zacks Equity Research,

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CareFusion Corporation ( CFN ) posted almost flat adjusted earnings per share of 60 cents for the third quarter of fiscal 2014 compared with 59 cents in the same quarter a year ago but missed the Zacks Consensus Estimate by 3 cents. However, adjusted net earnings fell 5.2% to $127 million from $134 million a year ago.

On a reported basis, earnings per share rose 29.7% to 48 cents from 37 cents and net earnings upped 21.4% to $102 million from $84 million in the third quarter of fiscal 2013.

Revenues in the quarter rose 7.4% (both in reported and constant currency) to $968 million, lagging the Zacks Consensus Estimate of $979 million. The increase was driven by rise in Procedural Solutions revenues.

Adjusted operating expenses inched up 3.3% to $284 million from $275 million a year ago, due to recent acquisitions of Vital Signs, a manufacturer of single-patient-use consumables for respiratory care and anesthesiology, and Sendal, an infusion specialty disposable manufacturer in Spain.

Consequently, adjusted operating income fell 2.5% to $196 million from $201 million a year ago while adjusted operating margin ebbed 210 basis points (bps) to 20.2% from 22.3% a year ago.

Segment Results

Revenues from Medical Systems slid 2.2% to $571 million due to stronger Infusion Systems and Respiratory Technologies business lines in the prior-year quarter. Adjusted segment profit ebbed 15.1% to $118 million due to unfavorable revenue mix.

Revenues from Procedural Solutions rose 25.2% $397 million, driven by the segment's clinically differentiated portfolio and contributions from recent acquisitions. Adjusted segment profit grew 25.8% to $78 million.

Share Repurchase

CareFusion's board of directors approved a two-year $750 million share repurchase program, after completing their previous $500 million authorization in June last year. Under the present authorization, the company repurchased 2.5 million shares for $103 million in the fiscal third quarter, bringing total repurchase of 11.5 million for $444 million for the first nine months of fiscal 2014.

Financial Position

CareFusion had cash and cash equivalents of $1.3 billion as of Mar 31, 2014, down 29.4% from $1.8 billion as of Jun 30, 2013. Total debt was almost flat at $1.46 billion as of Mar 31, 2014 compared with $1.45 million as of Jun 30, 2013.

In the first nine months of fiscal 2014, cash flow from operating activities rose 7.1% to $455.0 million from $425.0 million in the same period of fiscal 2013. Capital expenditure declined 3.2% to $61 million from $63 million in the same period of fiscal 2013.

Fiscal 2014 Guidance Upgraded

CareFusion upgraded its revenues and earnings guidance for fiscal 2014. The company now expects revenues to grow between 5 and 7%, up from the prior range of 4 to 7% and organic revenues to grow between 2 and 4%, up from the prior outlook of 1 to 4%, both on a constant currency basis, for the year.

Adjusted earnings are also expected to lie in the previously guided range of $2.30 to $2.40 per share. The current Zacks Consensus Estimate of $2.34 lies within the guided range.

Cash flow guidance has been raised to $550 to $600 million from the previous range of $500 to $550 million.

Our Take

CareFusion is a global corporation serving the health care industry with products and services that help hospitals measurably improve the safety and quality of care. Its products are considered among top-spending priorities of healthcare providers given the pressing need for implementing infusion or dispensing technologies.

However, the transition of product line to Pyxis ES platform is hampering CareFusions' Medical Systems businesses. The company continues to see margin compression due to the medical device tax and unfavorable revenue mix.

Currently, CareFusion retains a Zacks Rank #3 (Hold). Some better-ranked stocks in the medical products industry include Enzymotec Ltd. ( ENZY ), INSYS Therapeutics, Inc. ( INSY ), and Mead Johnson Nutrition Co. ( MJN ). All of them carry a Zacks Rank #2 (Buy).

CAREFUSION CORP (CFN): Free Stock Analysis Report

ENZYMOTEC LTD (ENZY): Free Stock Analysis Report

INSYS THERAP (INSY): Free Stock Analysis Report

MEAD JOHNSON NU (MJN): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Stocks: CFN , ENZY , INSY , MJN

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