Varian Beats on Q1 Fiscal Earnings by a Penny - Analyst Blog

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Varian Medical Systems ( VAR ) posted a 5.8% rise in net earnings per share to 91 cents for the first quarter of fiscal 2014 from 86 cents in the prior fiscal quarter, and edged past the Zacks Consensus Estimate by a penny. With this, VAR also met its own guidance of a 6-7% rise in earnings per share to 87-91 cents for the quarter.

Revenues in the quarter escalated nearly 5.0% to $711.5 million during the quarter, but lagged the Zacks Consensus Estimate of $718 million. The growth was attributable to the continued strong demand for Oncology services and X-ray imaging components during the quarter.  

VAR had backlog of $2.8 billion at the end of the first quarter, down roughly 1% from the comparable quarter a year ago.  

Operating earnings rose 3.3% to $142.0 million despite a significant 23.1% rise in research and development expenses. However, operating margin dipped 30 basis points to 20.0% from 20.3% a year ago.

Segment Results

Revenues from Oncology Systems segment inched up 3.3% to $541.4 million in the quarter, driven by strong demand for new equipment. Oncology Systems gross orders inched up 4.8% to $533.3 million while net orders rose 2.7% to $489.6 million.  

Gross orders rose 13% in North America due to strong demand for radio-surgery products and conversion of competitors' software and hardware. However, gross orders declined 2% outside North America. Markets outside North America represented 52% of Oncology gross orders in the quarter.

Revenues from X-Ray Products segment went up 9.1% to $145.0 million in the quarter, driven by market traction for its new mammography and cone beam imaging products. However, gross orders slid 19.1% to $108.2 million in the quarter and net orders fell 19.3% to $107.5 million in the quarter, mainly due to the timing of order placements.

Revenues from the Other segment (comprising Security and Inspection Products, and Varian Particle Therapy businesses, and the Ginzton Technology Center) rose 18.4% to $25.1 million. Gross orders surged 52.7% to $13.9 million for the quarter while net orders soared 30.8% to $11.9 million for the quarter.

Financial Position

Varian Medical exited the quarter with cash and cash equivalents and short term investments of $1,045 million as of Dec 27, 2013 compared with $1,181 million as of Sep 27, 2013. Long-term debt (including current maturities) was $481.25 million compared with $506.25 million as of Sep 27, 2013. With this, long-term debt-to-capitalization ratio remained almost flat at 22.1% compared with 22.8% as of Sep 27, 2013.

Cash flow from operations was $43 million for the quarter.  During the quarter, Varian Medical spent $156 million to repurchase about 2.0 million shares of common stock.

Guidance

For fiscal 2014, Varian Medical expects revenues to grow by 6-8% compared with the earlier guidance of 6-7%. However, the company reiterated its earnings per share guidance between $4.22 and $4.34 for the year. The current Zacks Consensus Estimate of $4.28 lies within the guided range.

For the second quarter of fiscal 2014, VAR expects revenues to be flat on a year-over-year basis. However, it expects earnings per share for the quarter in the range of $1.00 to $1.04. The current Zacks Consensus Estimate of $1.10 lies above the guided range.

Our Take

Currently, Varian Medical carries a Zacks Rank #3 (Hold). Some better-ranked medical instrument stocks that are currently worth a look include Natus Medical Inc. ( BABY ) with a Zacks Rank #1 (Strong Buy), and AngioDynamics Inc. ( ANGO ) and Fresenius Medical Care AG & Co. KGAA ( FMS ), both with a Zacks Rank #2 (Buy).



ANGIODYNAMICS (ANGO): Free Stock Analysis Report

NATUS MEDICAL (BABY): Free Stock Analysis Report

FRESENIUS MED (FMS): Free Stock Analysis Report

VARIAN MEDICAL (VAR): 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: ANGO , BABY , FMS , VAR

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