) reported adjusted earnings per share (EPS) of 2 cents in the
first quarter of 2013. The result betters the year-ago break-even
level as well as the Zacks Consensus Estimate of a loss of a
On a reported basis, the company recorded loss of 6 cents per
share in the first quarter of 2013, a downfall from the
break-even level in the prior-year quarter.
Quarter in Detail
Revenues in the quarter improved 3% year over year (up 8% at
constant exchange rate or CER) to $93.2 million. However, the top
line trailed the Zacks Consensus Estimate of $97 million.
Revenues in the Medical segment increased 4% (up 9% at CER) in
the first quarter to $91.7 million, based on a robust 33% hike in
FFR (Fractional Flow Reserve) single-procedure disposable
business along with 10% rise in total consoles sales.
On a geographic basis, FFR disposable sales rose 17% in the U.S.,
27% in Europe and 150% in Japan on a reported basis. On the other
hand, console placement improved in the U.S. and Japan while
placements in the European market declined compared with the
Nonetheless, intravascular ultrasound (IVUS) single-procedure
disposables franchise revenues declined 10% on a year-over-year
basis. The Industrial segment recorded revenues of $1.5 million
in the quarter, down 25% year over year.
As per management, the first-quarter results reflect the softness
in percutaneous interventional (PCI) volumes in the U.S. and
weakening of the yen. Despite strong market trends across the
globe, sluggish PCI volumes in the U.S. is a cause of concern as
reflected in the management forecast of PCI volume decline in the
range of 5%-7% in 2013. Moreover, the volume decline is expected
to persist through 2014. Nonetheless, Volcano did not witness
softness in PCI volume outside the U.S. market.
Volcano Corporation recorded a 270 basis points (bps) contraction
in gross margin to 64.5% in the quarter on account of adverse
product mix, currency headwinds and costs related to
manufacturing transition to Costa Rica facility.
Selling, general and administrative (SG&A) expenses decreased
1.2% to $43.8 million while research and development (R&D)
expenditure shot up 15.4% to $14.9 million. The company recorded
a 240 bps drop in adjusted operating margin to 0.7% (excluding
amortization of intangibles and acquisition-related expenses).
Volcano exited first quarter with cash, cash equivalents and
short-term investments of $408.6 million compared with $471.6
million at the end of 2012.
Volcano revised its outlook for 2013. On a reported basis, it
expects revenues in the range of $394.0-$400.0 million compared
with prior outlook of $406.0-$412.0 million. The Zacks Consensus
Estimate of $403 million remains outside the new guided range.
The updated guidance is based on current foreign exchange rates
and lower volume growth of PCI for Volcano. At CER, the company
expects revenues in the band of $418.0-$424.0 million
In addition, the company expects adjusted EPS in the range of 3-5
cents for 2013 (excluding a one-time tax benefit of 20 cents. The
Zacks Consensus Estimate of 6 cents is above the expected range.
Moreover, gross margin is expected to remain in the range of
64.5%-65% (65%-66% earlier) and operating expenses in the band of
65%-66% (61%-62% earlier) of revenues.
Volcano reported a mixed quarter in a challenging scenario. The
weakness in yen and slowdown in PCI volumes were major headwinds
in the reported quarter. Moreover, the company expects the
challenges to persist through 2013 as reflected in the
conservative guidance for the ongoing year.
However, favorable industry trends should lend positive momentum
to Volcano. While we are impressed with the company's pipeline
development program, margins still remain under pressure due to
the duplicity of operations in its new facility with the existing
As a result, we prefer to remain on the sidelines for Volcano.
Accordingly, the stock carries a Zacks Rank #3 (Hold).
Nonetheless, other medical stocks such as
Intuitive Surgical Inc.
Mindray Medical International Limited
), carrying a Zacks Rank #2 (Buy) are expected to do well.
ACCURAY INC (ARAY): Free Stock Analysis
INTUITIVE SURG (ISRG): Free Stock Analysis
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VOLCANO CORP (VOLC): Free Stock Analysis
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