Varian Medical Systems
(
VAR
) posted fourth-quarter fiscal 2012 net earnings of $1.08 per
share, beating the Zacks Consensus Estimate of $1.03 per share
and surpassing the year-ago earnings of 95 cents a share.
Net earnings surged 19.4% year over year to $120.2 million in the
fourth quarter.
For fiscal 2012, Varian reported net earnings of $3.76 per share,
edging past the Zacks Consensus Estimate of $3.73 and exceeding
the year-ago earnings of $3.44 a share.
Revenues & Orders
Revenues in the fourth quarter increased 5% year over year to
$756.1 million, well ahead of the Zacks Consensus Estimate of
$747 million. Sales were boosted by healthy growth across the
company's Oncology and X-Ray franchise on the back of higher
demand for newer offerings.
For fiscal 2012, revenues improved 8% year over year to $2807
million, also sailing past the Zacks Consensus Estimate of $2801
million.
Order backlog rose 12% year over year to $2,844.3 million at the
end of fiscal 2012. Net orders declined marginally 0.4% year over
year to $963.6 million in the fourth quarter. However, net orders
increased 6.4% year over year to $3,121.9 million at the end of
fiscal 2012.
Segment Review
Revenues from Oncology Systems increased 7% year over year to
$590.1 million in the fourth quarter. Net orders for the segment
climbed 10% (up 12% in terms of constant currency) to $788.6
million in the quarter. Healthy demand for Varian's latest
radiotherapy and radiosurgery offerings and services coupled with
robust double-digit growth in the international market were the
growth drivers.
Revenues for X-Ray Products segment in the fourth quarter came in
at $130.1 million, up 9% year over year. Net orders for the
products spurted 15% to $145.3 million. The segment offset the
sluggishness in the worldwide X-ray equipment market and
witnessed solid growth in orders, contributions from newer
products and share gain for panel products.
Revenues from the Other category declined 29.5% from the
comparable year-ago quarter to $35.9 million in the reported
quarter. Net orders for the category also dipped about 76% year
over year to $30 million.
Margins
Gross margin in the quarter was 42.8%, up 100 basis points year
over year. Operating margin remained flat on a year-over-year
basis at 22.2%.
Selling, general and administrative expenses increased 13.2% year
over year to $109.5 million in the quarter while research and
development expenditure rose 4.6% to $45.9 million.
Balance Sheet
Varian exited fiscal 2012 with cash and cash equivalents of
$704.6 million, up 24.8% year over year. Long-term debt
(including current maturities) stood at $6.3 million, flat on a
year-over-year basis.
Outlook
Moving ahead, Varian expects revenues to grow by 8%-9% for fiscal
2013. Net earnings for fiscal 2013 have been projected in the
band of $4.06 and $4.16 versus the current Zacks Consensus
Estimate of $4.09 per share. Varian's projection includes an
impact of 6 cents to 8 cents per share from the pending medical
device excise tax.
For first-quarter fiscal 2013, the company envisions sales to
grow roughly 8% to 9% year over year. Varian expects net earnings
in the range of 83 cents to 88 cents per share, including a
restructuring charge of 2 cents to 3 cents for the first quarter.
The Zacks Consensus Estimate for the first-quarter fiscal 2013 is
88 cents.
Varian is a leading manufacturer of integrated radiotherapy
systems for cancer treatment, and a premier supplier of X-ray
tubes for diagnostic imaging applications. The company operates
in a technology-driven environment where success depends on the
use of new technology, product development and upgrades. In the
radiation oncology market, Varian competes with
Accuray
(
ARAY
).
Varian is poised to increase its market share in radiation
oncology. It is currently enjoying a healthy demand for its
coveted TrueBeam technology, which has meaningfully contributed
to its net order oncology growth.
Moreover, Varian posted strong financial results for fiscal 2012
despite the contagion of global economic problems and sustained
softness in certain end markets. It enjoys a strong balance sheet
marked by low debt and sizeable cash. The company also deploys
capital to boost investor confidence via share repurchases.
However, Varian competes with larger players in a
technology-intensive industry. Further, uncertainties stemming
from health care reform and a still weak hospital capital
spending environment across many developed countries, especially
in Europe, are significant challenges.
We are currently 'Neutral' on Varian. The stock carries a Zacks
#3 Rank, which translates into a short-term Hold rating.
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