) reported EPS of 6 cents in the second quarter of fiscal 2012,
ahead of the Zacks Consensus Estimate by 2 cents, but lagging the
year-ago quarter's EPS of 9 cents. Revenues for the quarter he to
climbed 13.6% year over year to $95.4 million, just missing the
Zacks Consensus Estimate of $96 million.
Revenues in the Medical segment increased 13% during the quarter
to $92.1 million on the back of a 38% growth in FFR (Fractional
Flow Reserve) disposable business and a 3% rise in IVUS
(intravascular ultrasound) disposables business. After a
disappointing performance in the last few quarters, the Industrial
segment recorded an 18% year-over-year increase in Industrial
revenues to $3.3 million in the second quarter.
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 11% in IVUS disposable
sales, with US and Japan recording growth rates of 4% and 6%,
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. Economic uncertainties
in southern Europe adversely impacted the company.
Volcano Corporation recorded a 170 basis points (bps)
contraction in gross margin to 66.5% in the quarter. However, with
both selling, general and administrative, and research and
development (R&D) expenses increasing by 18% to $41.9 million
and 4.2% to $13.8 million, respectively, the company recorded a 220
basis point drop in operating margin to 7.9% (excluding
amortization of intangibles).
Volcano Corporation lowered its outlook for fiscal 2012 to
reflect the several headwinds currently under play. The company now
expects to report revenues of $384-$390 million (previous
expectation $392-$399 million) and lowered the previous EPS
guidance by 3 cents at both ends to 18-21 cents. The revenue
outlook has been lowered to include adverse currency movements ($2
million), slowdown in certain Southern European countries ($2
million) and lower Industrial revenues due to continued softness in
the telecom sector ($4 million).
The revised outlook missed the current Zacks Consensus Estimates
of $393 million in revenues and EPS of 22 cents. On a positive
note, gross margin is now expected to be around 65-66% (64-65%).
The outlook for operating expenses has been raised to 58−59%
(57−58%) of revenues.
Volcano Corporation continues to execute strategies to drive
sales in the IVUS/FFR 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. 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 margins that
have 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. Besides, economic uncertainties in Europe
remain an overhang for the company. 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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VOLCANO CORP (VOLC): Free Stock Analysis Report
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