Varian Medical Systems
) recorded third quarter fiscal 2012 net earnings of 96 cents a
share, beating the Zacks Consensus Estimate of 93 cents a share and
surpassing the year-ago earnings of 83 cents a share.
Net earnings improved 10.3% year over year to $108.8 million in
the reported quarter.
Revenues & Orders
Revenues for the third quarter moved up almost 9% year over year
to $705.3 million. Revenues missed the Zacks Consensus Estimate of
$712 million. Order backlog increased roughly 16% year over year to
$2.6 billion at the end of the quarter.
Net orders declined marginally 0.3% year over year to $689.4
million. The contagion of global economic problems and volatile
fluctuations in European currency affected the net orders in the
Oncology Systems segment revenues increased 7% year over year to
$546.4 million. Net orders for the segment edged up 2% to $562
million. It reflected a 1% decrease in overseas markets and 4%
growth in the North American business.
Revenues for X-Ray Products segment came in at $126.7 million,
up 5% year over year. Net orders for the products declined almost
1% to $120.1 million. The segment was negatively impacted by a
sluggish economy and lower product demand.
Revenues from the Other category doubled from the year-ago
period to $32.2 million in the quarter. Revenues were driven by
Security and Inspection Products. Net orders for the category
declined about 58% year over year to $7.3 million.
Gross margin in the quarter was 43.6%, up 50 basis points year
over year. Gross margin was helped by higher sales of X-Ray
Products and Oncology Systems. Operating margin edged up 20 basis
points year over year to 21.8%.
Varian ended the third quarter with cash and cash equivalents of
$633.4 million, up 11.5% year over year. Long-term debt (including
current maturities) stood at $6.3 million, flat on a year-over-year
Varian revised its expected revenues to grow by 8% (10% earlier)
for fiscal 2012. It was based on the fluctuations in currency
exchange rates, especially the Euro. Net earnings per share for the
fiscal have been projected to rise roughly 8% to 9% (9% to 12%
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
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 enjoys a strong balance sheet marked by low
debt and sizeable cash. The company uses a part of its healthy cash
flows for 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 retains a Zacks
#3 Rank, which translates into a short-term Hold rating.
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