Haemonetics' Q3 Earnings in Line, Revs Lag - Analyst Blog

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Haemonetics Corporation ( HAE ) reported adjusted earnings of 61 cents per share in the third quarter of fiscal 2014, which increased 5.2% from the year-ago level but were in line with the Zacks Consensus Estimate. Adjustments include certain one-time items such as transformation, integration, and deal amortization expenses, totaling $24.9 million. On a reported basis, HAE' net earnings per share were 31 cents, up 63.2% from the year-ago earnings of 19 cents.

Revenues decreased 2.1% year over year (down 0.40% at constant exchange rate or CER) to $242.1 million and lagged the Zacks Consensus Estimate of $245 million. After taking into account the whole blood business from Pall Corporation ( PLL ), the quarterly organic revenues increased 1% year over year (up 4% at CER).

Revenues from the U.S. increased 1.1% to $126.8 million. However, revenues from international markets declined 5.5% to $115.4 million. Barring Europe and Japan, where organic revenues declined 7% and 16% year over year, respectively, growth was recorded across other regions, namely Asia (12%) and North America (1%).

Revenues by Product Categories

Under Disposables product category (86.4% of revenues), comprising of Plasma, Blood center and Hospital Disposables, Haemonetics reported revenues of $209.1 million, down 1.7% from the year ago quarter. This decline is attributable to the weak performance of Blood center disposables and the Hospital Disposables. However, Russia and China were the major revenue drivers in the Disposables category.

Revenues from Blood center disposables went down 10% while revenues from Hospital Disposables declined 3% from the prior year. The weakness in the U.S. blood collection market and loss of a European tender were the major reasons for lower-than-expected revenues in the Blood center disposables business.

The weak Hospital Disposables revenues is mainly attributable to the 11.1% fall in Surgical disposables revenues, due to the return of a competitor whose production operations were limited by a natural disaster in the prior year. Moreover, OrthoPAT (orthopedic perioperative autotransfusion system) revenues were also down 9.8% year over year. The continuing market shift toward lower transfusion triggers was a major headwind. Another reason behind this decline was increased use of tranexamic acid for treatment and prevention of post-operative blood loss.

Software Solutions (7.3% of revenues) revenues were $17.6 million for the quarter, up 10% year over year. Moreover, with BloodTrack and other blood management software in the pipeline, the company seems to be prepared to exploit the market opportunities in the future.

Equipment and Other (6.4% of revenues) revenues were $15.4 million for the quarter, down 17.9% year over year. The timing of tenders and tight capital budgets are responsible for this decline in revenues.

Margins

HAE reported a 0.32% decline in adjusted gross profit to $124.2 million accompanied by a 90 basis points (bps) expansion in adjusted gross margin to 51.3% during the quarter. The improvement in gross margin can be attributed to cost efficiencies developed through implementation of certain productivity programs.

Adjusted operating expenses were up 5.3% to $81.7 million. This escalation in cost was due to increase in promotional investments in emerging markets and planned research & development expenses. Consequently, adjusted operating profit declined 9.38% to $42.5 million and adjusted operating margin declined 150 bps to 17.5%.

Financial Position

Haemonetics exited the fiscal third quarter with cash and cash equivalents of $177.8 million compared with $159.1 million as of Sep 28, 2013 and with $179.1 million as of Mar 30, 2013. The long term debt of the company declined 11.05% to $406.4 million.

HAE generated $45.3 million in cash flow from operations, reflecting strong underlying earnings and effective working capital management. After making net investments of $16 million in capital expenditures and before funding $30 million of cash, restructuring and transformation costs, and $4 million of VCC capital expenditures, Haemonetics generated $47 million of free cash flow before transformation costs in the third quarter of fiscal 2014.

Outlook

HAE provided an update on its fiscal 2014 outlook. The company now expects adjusted EPS for the fiscal year to meet the lower end of its range given in the prior guidance. Previously, Haemonetics had expected adjusted EPS in the range of $2.30-$2.40, implying annualized growth of 15-20%. In addition, total revenue for the year is expected to increase in the previously stated range of 7-10% on a year-over-year basis. For fiscal 2014, organic revenues are expected to grow in the range of 2-4% at CER (earlier 3-5%). 

HAE expects its plasma business revenues to grow in the range of 8-10% in fiscal 2014 (earlier 7-9%). Blood center revenues are likely to decline 5-8% on an organic basis (earlier 3-5%). Hospital products are expected to decline 0-4% (earlier grow 0-3%) while Software Solutions are likely to grow 2-5% (earlier 5-7%).

Haemonetics expects adjusted gross margin of 51% (earlier 52%) with adjusted operating income of $168−$172 million (earlier $176−$183 million). In addition, free cash flow is expected at $120 million (earlier $125 million).

Our Take

HAE reported a disappointing quarter with earnings just on par with the Zacks Consensus Estimate and revenues missing the benchmark. Hospital disposable business remains a cause of concern for the company. The global downturn and a tough competitive landscape continue to pose threats for Haemonetics going forward.

On a brighter side, the products of the company are steadily gaining momentum. With a strong cash balance and potential opportunities evolving from emerging markets, the company has good growth prospects.

HAE completed multi-year extensions of its comprehensive equipment and disposables supply agreements with certain plasma collection customers. We believe that low global penetration and positive demand dynamics provide an encouraging long-term thesis for investing in the blood processing and supply chain management industry.

Haemonetics holds a Zacks Rank #4 (Sell). However, some better-ranked companies like NuVasive, Inc. ( NUVA ) and Mead Johnson Nutrition Company ( MJN ) are expected to do well in the health care industry. While NuVasive sports a Zacks Rank #1 (Strong Buy), Mead Johnson carries a Zacks Rank #2 (Buy).



HAEMONETICS CP (HAE): Free Stock Analysis Report

MEAD JOHNSON NU (MJN): Free Stock Analysis Report

NUVASIVE INC (NUVA): Free Stock Analysis Report

PALL CORP (PLL): Free Stock Analysis Report

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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: HAE , MJN , NUVA , PLL

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