Cyberonics Misses on Q1 Earnings & Revenues, Reaffirms View - Analyst Blog

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Texas-based medical device manufacturer Cyberonics Inc. ( CYBX ) reported first-quarter fiscal 2015 adjusted earnings per share (EPS) of 53 cents, reflecting an increase of 17.8% from the year-ago number. However, adjusted results missed the Zacks Consensus Estimate by 3 cents.

The year-over-year improvement in earnings was primarily driven by strong revenue growth and a positive outcome on the operating margin front. 

However, without taking into consideration the one-time items, Cyberonics' net income was $13.5 million or 50 cents per share, a massive jump of 55.6% or 61.3% from the respective year-ago equivalent numbers.

Cyberonics, Inc - Earnings Surprise | FindTheBest

Quarter in Detail

Revenues increased 4.5% year over year to $72.0 million in the quarter, but missed the Zacks Consensus Estimate by 2.7%. The year-over-year growth was aided by strong U.S. net product sales and unit sales. 

In the first quarter, worldwide unit sales increased 5% year over year to 3,524 units. On a geographic basis, Cyberonics recorded 4.4% growth in U.S. net product revenues to $58.8 million and unit sales growth of 2%. International product revenues grew 14.5% at constant exchange rate to $13.2 million with unit growth of 13.9% amounting to 1,024 units. Foreign exchange movements favorably impacted international sales for the quarter by $500,000 on a year-over-year basis.

The company witnessed impressive sales growth in Europe and Latin America. The expanded launch of Cyberonics' AspireSR generator in the U.K. and Germany was on par with the company's expectations. The company also experienced an estimated 20% growth in sale of its VNS Therapy implants in Japan during the reported quarter. 

Gross profit rose 5.2% to $65.6 million in the quarter. Consequently, gross margin expanded 60 basis points (bps) to 91.1% from the year-ago quarter. 

In the reported quarter, a 12.7% increase in selling, general and administrative expenses to $33.0 million and an 11.8% decline in research and development expenses to $10.6 million led to a rise of 4.5% in adjusted operating income of $22.0 million. However, adjusted operating margin remained flat at 30.6% on a year-over-year basis.

The company exited the quarter with cash and cash equivalents and short-term investments of $132.7 million, compared with $128.3 million as of Apr 25, 2014. Cyberonics has no interest-bearing debt on its balance sheet. The company repurchased 189,000 shares in the first quarter of fiscal 2015. It is now left with 551,000 shares under its current buyback program. This program is expected to be completed by the end of fiscal 2015.

Guidance

Cyberonics reiterated its fiscal 2015 guidance. The company continues to envisage revenues in the range of $300¬-$307 million, reflecting annualized growth of approximately 10% (adjusting for the single country order of $4.7 million and license revenues of $1.5 million for fiscal 2014). The current Zacks Consensus Estimate of $304 million falls within the company's guidance. Cyberonics expects global unit growth of roughly 7%.

Fiscal 2015 EPS continues to be expected in the range of $2.33 to $2.39. The current Zacks Consensus Estimate of $2.37 lies near the upper end of the guidance range. 

The company also expects gross margin in the range of 90-91% and income from operations in the band of $96-$99 million in fiscal 2015.

Our Take

Cyberonics reported a disappointing first-quarter fiscal 2015 results, with both the top and the bottom line missing the Zacks Consensus Estimate. However, the company's year-over-year outcome was impressive on both the earnings and revenue front. 

We remain encouraged by Cyberonics' solid foothold in the drug-epilepsy market, wherein the company achieved notable success, especially in the European countries and Latin America. Meanwhile, the company continues to reward shareholders with attractive share repurchases. However, the company is currently facing headwinds like fall in new patient activity and constant insurance related challenges. 

Zacks Rank

Currently, Cyberonics carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the medical instruments include Alphatec Holdings, Inc. ( ATEC ), RTI Surgical Inc. ( RTIX ) and Bacterin International Holdings, Inc. ( BONE ). While Alphatec and RTI Surgical sport a Zacks Rank #1 (Strong Buy), Bacterin holds a Zacks Rank #2 (Buy).


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




This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: EPS , CYBX , ATEC , BONE , RTIX

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