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CareFusion (CFN)

Q4 2011 Earnings Call

August 08, 2011 5:00 pm ET


Kieran Gallahue - Chairman and Chief Executive Officer

Carol Cox - SVP, IR

James Hinrichs - Chief Financial Officer


Matthew Taylor - Barclays Capital

David Roman - Goldman Sachs Group Inc.

Michael Weinstein - JP Morgan Chase & Co

Kristen Stewart - Deutsche Bank AG

Joshua Zable - WJB Capital Group, Inc.

Ben Andrew - William Blair & Company L.L.C.

David Lewis - Morgan Stanley

Lennox Ketner - BofA Merrill Lynch

Amit Bhalla - Citigroup Inc



Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 CareFusion Corp. Earnings Conference Call. My name is Caris, and I will be your coordinator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And I would now like to turn the call over to your host for today, Ms. Carol Cox, Vice President of Investor Relations. Please proceed.

Carol Cox

Thank you, Caris. Good afternoon, everyone, and thank you for joining us on today's call, as we provide an overview of CareFusion's results for the quarter and the fiscal year ended June 30, 2011, and provide guidance for our fiscal 2012. Our press release, with details of the fourth quarter results, was issued at 4 p.m. Pacific time and posted on our website at and filed on Form 8-K with the Securities and Exchange Commission. We also filed and posted several slides to accompany today's webcast, which may be found on the Investors home page with our earnings material. While we will not review each slide on today's call, these slides should be used as a reference guide by investors.

The slides include comparisons of the results for the quarter and the fiscal year ended June 30, 2011, to the prior year period, a financial outlook for full year fiscal '12, information on our ongoing initiatives to drive shareholder value and definition of our non-GAAP items and reconciliations to GAAP. Joining me on today's call are Kieran Gallahue, our Chairman and CEO; and Jim Hinrichs, our Chief Financial Officer.

Before I turn the call over, I would just like to make a few remarks. In today's call, we will discuss some non-GAAP financial measures, including financial results on an adjusted basis, the reconciliation to GAAP measures can be found in our today's release, our slide deck and on the Investors section of our website. We believe that these adjusted financial measures can facilitate a more complete analysis and greater transparency into the company's ongoing results of operations, particularly in comparing underlying results from period to period.

I would also like to remind investors that during today's call, we will be making statements that are forward-looking, including statements about our FY '12 guidance. Our results may differ materially from those expressed in our forward-looking statements due to risks and uncertainties, including the risk factors set forth in today's release and our filings with the SEC. We ask that you please refer to these materials for a more detailed explanation of the inherent limitations of such forward-looking statements. With that, I will turn the call over to Kieran.

Kieran Gallahue

Thanks, Carol. Welcome, everybody, and thanks for joining the call today. On what no doubt, was a rather hectic day for many of you. I'll start today with an overview of Q4 and our fiscal 2011 results, guidance for fiscal year 2012 and some commentary about our work underway to simplify and drive greater efficiency in the business.

We finished fiscal year '11 with a strong Q4, led by our Dispensing and Infusion businesses and solid year-over-year growth from Infection Prevention and Medical Specialties. Consolidated revenue in Q4 increased 4% year-over-year to $964 million and adjusted income from continuing ops grew 48% to $118 million. Adjusted EPS for the quarter was $0.52, an increase of 44% from last year.

For the full year, revenue increased 2% to just over $3.5 billion. We continued to demonstrate leverage down the income statement, with adjusted income from continuing operations of $371 million, a 23% increase from fiscal year '10. Adjusted earnings per share were $1.65 for the year, a 22% increase over fiscal year '10 and at the top end of the guidance range we provided last quarter.

I feel good about the progress that we made in fiscal year '11 and where we exited the year. In the Critical Care Technologies segment, both the Dispensing and Infusion teams had a great year, taking share and contributing meaningfully to our results. In Dispensing, we demonstrated our ability to both grow organically and via acquisition. We secured a record number of committed contracts and closed the Vestara acquisition, which is a technology and IP platform for our new Pyxis EcoStation. And shortly after the close of the quarter, we also announced and have now closed the Rowa acquisition.

Rowa is a pharmacy automation leader outside the U.S. and will serve as a platform for dispensing growth in geographies, where Pyxis is only a modest presence today. Both Vestara and Rowa are good examples of our strategy to make acquisitions that complement our core technology, expand into new geographies or move us into close adjacencies.

In the Infusion business, we set another record this quarter in committed contracts. You'll recall during Q3, that we secured 30,000 new channels, 18,000 of which were Baxter replacements. In Q4, we secured 33,000 new channels, 29,000 of which were Baxter replacements. The majority of these channels will be installed during fiscal year '12, and should provide years of ongoing annuity streams from the dedicated disposable products used with each new Alaris system we install. For the quarter and year, we did well against the aggressive goals the team set for itself around the unique Baxter recall event, we now secured approximately 90,000 channels through this transition.

Turning to the Medical Technologies and Services segment, our Q4 revenue declined, primarily due to revenue from our Research Services and OnSite businesses, being included in the prior year period. Excluding the Research Services and OnSite results from the prior period, MT&S revenue would have grown 5% in the quarter and 7% for the year.

Strong expense management and a favorable mix combined to drive good growth on segment profit volume. In particular, we continue to see strong growth of ChloraPrep in the U.S. and U.K, and we continue to build demand in several new markets.

In summary, we had a good finish to the year. The majority of our businesses are healthy and performing, as we'd expect into the start of our Q1 of fiscal year '12 and we continue to have clear visibility to the enhancements we are driving in our operating margins, which as you've heard me say before, is one of our key opportunities during the next several years.

Alright, now, I want to transition to our outlook for fiscal year '12 and over the longer term. Consistent with my prior comments, our businesses primarily operate in segments of the market growing in the low single digits. In the near term, we expect revenue to grow in that range or slightly better. For fiscal year '12, this means we expect revenue growth of 3% to 5%, with a more favorable product mix in our portfolio and the benefit of other efficiency work, we expect adjusted EPS to be $1.80 to $1.90 per share, an increase of 9% to 15% over fiscal year '11.

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