) reported earnings per share ("EPS") of 4 cents in the fourth
quarter of fiscal 2012. The reported result missed the Zacks
Consensus Estimate by 5 cents as well as the year-ago EPS of 54
cents. However, if we adjust a portion of the company's deferred
tax valuation allowance from both the periods, Volcano would
incur a loss of 5 cents per share in the reported quarter
compared with an adjusted EPS of 14 cents in the year-ago
quarter. For the full year, EPS came in at 15 cents, missing the
Zacks Consensus Estimate of 19 cents and down 78.6% year over
year. The fiscal results included benefits from the company's
deferred tax valuation allowance.
As per the company's declaration in the J P Morgan Healthcare
conference last month, revenues for the quarter climbed 10% year
over year (up 12% at constant exchange rate or CER) to $102.5
million, almost in line with the Zacks Consensus Estimate. This
resulted in total revenue of $381.9 million for the fiscal 2012,
up 11% year over year (up 12% at CER), in line with the Zacks
Consensus Estimate and within the company's guided range of
Revenues in the Medical segment increased 10% (12% increase at
CER) during the fourth quarter to $100 million with an 11%
increase in disposable revenues at CER, based on a robust 45%
hike in FFR (Fractional Flow Reserve) disposable business along
with growth across all the key operating regions. The Industrial
segment recorded revenues of $2.5 million in the fourth quarter,
up 63% year over year.
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") as well as the use of
intravascular guidance to optimize and confirm the therapy during
The European market recorded a decline of 13% in intravascular
ultrasound (IVUS) disposable sales, with the U.S. growing 2% and
Japan declining 4%. However, in spite of this disappointing
performance, Volcano believes that the recent acquisitions of
Sync-RX and Crux Biomedical would boost growth. Sync-RX provides
an advanced imaging technology, which will be incorporated into a
multi-modality platform, whereas Crux offers a novel inferior
vena cava (IVC) filter and related offerings. These acquisitions
remain in line with the company's strategy to move beyond
intravascular imaging to a wide variety of diagnostic and
therapeutic solutions for both coronary and peripheral
The company is confident about the potential of the IVUS and
FM (functional measurement) markets based on some favorable
trends in the industry in the form of greater clinical and
economic pressure to prove the benefits of PCI procedures. By the
middle of the decade, the penetration rate of integrated consoles
in cath labs is expected to reach 80% or more from the current
level of just over 30%. Banking on its ability to continuously
upgrade technology and reduce cost, the company is confident of
reaping maximum advantage from this lucrative market. Volcano
expects its core IVUS and FM businesses to grow over 20% annually
coupled with additional revenues from its product pipeline.
Volcano Corporation recorded a 56 basis points (bps)
contraction in gross margin to 66.7% in the quarter. However,
with selling, general and administrative expenses increasing
14.2% to $45.8 million and a 16.8% increase in research and
development (R&D) expenses to $14.9 million, the company
recorded a drop of 280 basis points in operating margin to 7.5%
(excluding amortization of intangibles).
Volcano exited the fiscal with cash, cash equivalents and
short-term investments of $471.5 million compared with $219.3
million at the end of fiscal 2011. Full-year operating cash flow
came at $49.8 million compared with $43.6 million for last
Volcano Corporation provided its outlook for fiscal 2013. It
expects revenues in the range of $422.0-$428.0 million (at CER).
The Zacks Consensus Estimate of $427 million remains at the upper
end of the guided range. In addition, the company expects
adjusted EPS in the range of 16-20 cents in 2013. The Zacks
Consensus Estimate of 35 cents is way above the expected range.
Moreover, gross margin is expected to remain in the range of
65%-66% and operating expenses in the band of 61%-62% of
Volcano Corporation has a strong portfolio, which should
ensure growth over the long term. Pipeline development is also
progressing. Based on its direct sales program, the company is
growing rapidly in Japan to capture 50% market share in the
region. Given the termination of several distribution agreements
over the past few years, the company is now well placed to
address 100% of the business in Japan on a direct basis. Japan
continues to be an important IVUS growth opportunity for the
company, despite the high penetration level of nearly 80%.
However, capital spending by hospitals has been affected by
the weak economy. This has affected PCI volumes in the U.S.,
Europe and Japan resulting in slower growth of the IVUS
disposable business in the recent past. Moreover, unfavorable
currency movement continues to be a major headwind for the
company. Volcano faces tough competition from
Boston Scientific Corporation
) for the IVUS range of products.
The stock retains a Zacks Rank #3 (Hold). Other medical device
stocks worth a look are
Medical Action Industries Inc.
Given Imaging Ltd.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
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VOLCANO CORP (VOLC): Free Stock Analysis
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