Varian Medical Systems
) posted net earnings of $1.08 per share for the fourth quarter
of fiscal 2013, which was flat compared with the prior-year
quarter and missed the Zacks Consensus Estimate by 4 cents. In
fact, net earnings declined 2.4% to $117.3 million from $120.2
million in the year-ago quarter.
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However, net earnings for fiscal 2013 rose 2.6% to $438.2 million
from $427.0 million a year ago, while it increased 5.9% to $3.98
from $3.76 on per share basis, missing Varian's own expectations
of $4.00-$4.04 per share.
Revenues edged up 1.8% year over year to $769.9 million during
the quarter, falling short of the Zacks Consensus Estimate of
$780 million and missing the company's growth projection of 5%
for the quarter. Revenues for fiscal 2013 grew 4.8% to $2.9
VAR had backlog of $2.9 billion at the end of the fiscal year, up
slightly from $2.8 billion at the end of fiscal 2012. Due
to uncertainty in the U.S. healthcare environment and higher
level of cancellations in the quarter relating to orders from
small clinic developers whose projects did not move forward, the
company adjusted its backlog downward by $156 million.
Revenues from Oncology Systems inched down 1% to $585.3 million
in the quarter, but the same rose 3% to $2.3 billion in fiscal
2013. Oncology Systems gross orders inched up 3% to $841.2
million while net orders dipped 13% to $685.0 million including
the backlog adjustment. For fiscal 2013, gross orders
scaled up 2% to $2.6 billion while net orders slid 4% to $2.3
Gross orders in international markets rose 12% in the quarter,
more than offsetting a 6% fall in North America. On a
constant currency basis, gross orders in international markets
rose 15%, driven by strong growth in Asia and the Rest of the
World. Net orders increased 6% in international markets but
plunged 35% in North America, including the backlog adjustment.
Revenues from X-Ray Products segment went up 6% to $137.8 million
in the quarter while it rose 11% to $546 million in fiscal 2013.
Gross orders escalated 26% to $182.9 million in the quarter and
15% to $584.7 million in the fiscal year.
Revenues from the Other segment (comprising Security and
Inspection Products, and Varian Particle Therapy businesses, and
the Ginzton Technology Center) rose 30.4% to $46.8 million in the
quarter while it rose 15.1% to $143.8 million in the fiscal year.
The increase was attributable to ongoing proton projects in San
Diego, Saudi Arabia and Russia. Gross orders slid 38.7% to $18.2
million for the quarter and plunged 60.2% to $86.1 million for
Varian exited the quarter with cash and cash equivalents and
short term investments of $1.2 billion as of Sep 27, 2013
compared with $754.3 million as of Sep 28, 2012. Long-term debt
(including current maturities) was $506.3 million compared with
$6.3 million as of Sep 28, 2012.
Cash flow from operations was $155 million for the quarter and
$455 million for fiscal 2013. During the quarter, Varian
spent $135 million to repurchase 1.9 million shares of common
Varian expects revenues to grow by 6-7% and earnings per share
between 87 cents and 91 cents for the first quarter of fiscal
2014. For fiscal 2014, VAR anticipates revenues to grow in the
range of 6-8% and earnings per share between $4.22 and $4.34.
We are disappointed both earnings and revenue misses in the
fourth quarter. Varian's Oncology Systems franchise continued to
struggle in the North American market on account of uncertainty
emanating from health care reform and anticipated changes in
reimbursement. Until the overall scenario stabilizes, we prefer
to avoid the stock as VAR carries a Zacks Rank #4 (Sell).
Other medical instrument stocks that are currently worth a look
Mindray Medical International Limited
) with a Zacks Rank #1 (Strong Buy), and
MAKO Surgical Corp.
), both with a Zacks Rank #2 (Buy).