) reported break-even earnings in the first quarter of fiscal 2012,
lagging behind the Zacks Consensus Estimate by a penny and the
year-ago quarter's EPS of 2 cents. Revenues for the quarter climbed
12% year over year to $90.4 million, nominally missing the Zacks
Consensus Estimate of $91 million.
Revenues in the Medical segment increased 15% during the quarter
to $88.4 million on the back of a 37% growth in FFR (Fractional
Flow Reserve) disposable business and a 12% rise in IVUS
(intravascular ultrasound) disposables business. However,
performance of the Industrial segment remained challenging due to
softness in telecom infrastructure spending in key geographies.
This resulted in a 48% year-over-year decline in Industrial
revenues to $2 million in the first quarter.
Management is impressed with the overall performance in US and
Japan. Over the past few quarters, the company has been benefiting
from a growing volume of data depicting improved patient outcomes
and economic benefits from the use of functional percutaneous
interventional ("PCI") and the use of intravascular guidance to
optimize and confirm the therapy during the procedure.
The European market recorded a decline of 2% in IVUS disposable
sales, with US and Japan recording growth rates of 8% and 20%,
respectively. The robust growth in Japan, the largest IVUS market
in the world, is gratifying as Volcano Corporation has been trying
to increase its penetration in the country through direct sales
program and/or introduction of new products. The decline in Europe
was due to a slowing economy and earlier-than-expected decision to
go direct in Spain.
Volcano Corporation recorded gross margin of 67.3% in the
quarter compared with 65.6% in the first quarter of 2011. However,
with both selling, general and administrative, and research and
development (R&D) expenses increasing by 25% to $44.3 million
and 4.3% to $13.6 million, respectively, the company recorded a 250
basis point drop in operating margin to 3.1% (excluding
amortization of intangibles).
Volcano Corporation reiterated its outlook for fiscal 2012. The
company still expects to report revenues of $392-$399 million
(growth of 14-16% or 15-17% at constant currency) and EPS of 21-24
cents. The current Zacks Consensus Estimate of $395 million in
revenues and EPS of 22 cents is within the company's guidance.
Gross margin is expected around 64--65% with operating expenses
coming in at 57−58% of revenues.
Volcano Corporation continues to execute strategies to drive
sales in the IVUS/FM markets backed by new product launches and
product enhancements. The company has been expanding its presence
in Japan through a direct sales program and introduction of new
products. The company is also benefiting from the transition of its
distribution agreement with
Johnson & Johnson
) that has enabled it to address 100% of the business on a direct
basis. Over the long term, the company should benefit from this
move as Japan has the largest IVUS market in the world.
However, we are disappointed with the decline in operating
margin that has adversely affected the company's bottom line. We
believe the rise in expenses is primarily to support the various
pipeline developmental programs and related to the transition to a
direct sales force in Spain.
Capital spending by hospitals has been affected by the weak
economy. Moreover, the company witnesses stiff competition from
players such as
St Jude Medical
Boston Scientific Corporation
The stock carries a Zacks #3 Rank ("Hold") in the short term.
Over the long term, we maintain our Neutral recommendation on
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