) first-quarter fiscal 2014 adjusted earnings per share (EPS)
rose 26.3% to 48 cents, surpassing the Zacks Consensus Estimate
by two cents. This marks the ninth successive earnings beat for
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The reported net income improved 7.4% on a year-over-year basis
to $8.7 million (or 31 cents per share) in the first quarter of
Revenues shot up 14.2% year over year to $68.9 million in the
quarter, beating the Zacks Consensus Estimate of $68 million.
Growth was aided by solid international sales. The top line in
the reported quarter included $1.5 million of license revenues
against $0.4 million in the year-ago quarter.
Quarter in Detail
In the first quarter, worldwide unit sales increased 9.8% year
over year to 3,354 units. On a geographic basis, Cyberonics
recorded 10.8% growth in U.S. product revenues to $56.4 million
and 6.2% unit growth in the quarter. According to the company,
domestic product revenues reached a record high in the quarter on
the back of new patients and higher replacement activity.
Domestic growth was in line with Cyberonics' expectations.
International product revenues, representing roughly 16% of the
company's revenues, grew 22% on a reported basis (same at
constant exchange rate) to about $11 million, with unit growth of
21%. Growth in the overseas market was mainly led by healthy
sales in Europe, especially Eastern Europe, along with higher
revenues from U.K. and Germany.
In the reported quarter, the company witnessed higher utilization
and adoption for its VNS Therapy generators, as reflected in the
strong quarterly sales. Further, average selling price for
generators improved 4% from the prior-year quarter for the
company. AspireHC - Cyberonics' newest VNS Therapy generator -
gained further momentum, representing 26% of total generator
sales in the domestic market.
Gross profit climbed 12.7% to $62.3 million in the quarter.
However, gross margin contracted 120 basis points (bps) to 90.5%
impacted by the medical device tax and associated costs since Jan
Despite a 3.5% increase in selling, general and administrative
expenses to $29.3 million and a 23.2% rise in research and
development expenses to almost $12 million, adjusted operating
margin expanded a significant 200 bps to 30.6% in the reported
quarter. Although Cyberonics' recorded higher expenditure due to
product development activities, its focus on operating leverage
led the margin expansion.
The company exited the quarter with cash and cash equivalents and
short-term investments of $131.7 million, compared with $135.8
million as of Apr 26, 2013. Cyberonics has no interest-bearing
debt on its balance sheet. The company repurchased almost 0.21
million shares for $13 million during the quarter and is left
with 0.74 million shares under its current buyback program for
the ongoing fiscal.
Cyberonics envisages revenues in the range of $279−$283 million.
The current Zacks Consensus Estimate of $282 million hovers
around the high end of the company's guidance. Cyberonics expects
global unit growth of roughly 10%.
Adjusted income from operations is expected in the range of
$85−$88 million resulting in net income of $53−$56 million and
adjusted EPS of $1.93−$2.01 for fiscal 2014. The current Zacks
Consensus Estimate of $1.99 for fiscal 2014 lies within the
Cyberonics reported strong first-quarter results as having beaten
the Zacks Consensus Estimates. However, the quarterly results
failed to boost market sentiments as shares tanked 3.11% (or
$1.72) after the earnings release on Thursday, Aug 22. A possible
explanation might be that considering the robust growth trend
over the past several quarters, the reiterated guidance reflects
management's conservatism for the ongoing fiscal.
Nonetheless, we are encouraged by Cyberonics' solid foothold in
the epilepsy market and international business trends. Even amid
a tough macroeconomic backdrop, the company posted strong growth
in Europe. Meanwhile, Cyberonics continues to reward shareholders
with attractive share repurchases.
Currently, the stock carries a Zacks Rank #2 (Buy). Other Zacks
Rank #2 stocks such as
Given Imaging Ltd.
) are also worth considering.