Varian Medical Systems
(
VAR
) 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
quarter.
Segment Review
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.
Margins
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%.
Balance Sheet
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
basis.
Outlook
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%
earlier).
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 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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