The Cooper Companies, Inc. (COO)
F3Q09 Earnings Call
September 3, 2009 5:00 pm ET
Kim Duncan – Director of Investor Relations
Robert S. Weiss – President and Chief Executive Officer
Eugene Midlock – Chief Financial Officer
Albert G. White, III – Vice President of Investor Relations and Treasurer
Peter Bye - Jefferies & Co.
Matt for Joanne Wuensch
Larry Biegelsen - Wells Fargo Securities
Jeff Johnson - Robert W. Baird & Co., Inc.
Steve Willoughby - Cleveland Research Company
[Jared Holt] – Thomas Weisel Partners
Chris Cooley - FTN Equity Capital Markets
Michael Weinstein - J.P. Morgan
Amit Bhalla - Citi
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I’d now like to turn this presentation over to your host for today’s call, Miss Kim Duncan, Director of Investor Relations. Please proceed ma’am.
Good afternoon and welcome to The Cooper Companies third quarter 2009 earnings conference call. I’m Kim Duncan, Director of Investor Relations, and joining me on today’s call are Bob Weiss, President and Chief Executive Officer; Gene Midlock, Chief Financial Officer; and Al White, Vice President, Investor Relations and Treasurer.
Before we get started I’d like to remind you that this conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 including all revenue and earnings per share guidance and other statements regarding anticipated results of operations, market conditions and manufacturing restructuring plans. Forward-looking statements necessarily depend on assumptions, data or methods that may be incorrect or imprecise and are subject to risks and uncertainties. Events that could cause our actual results and future actions of the company to differ materially from those described in the forward-looking statements are set forth under the caption Forward Looking Statements in today’s earnings release and are described in our SEC filings including the business section of Cooper’s annual report on Form 10-K. These are publicly available and on request from the company’s Investor Relations department.
Now, before I turn the call over to Bob Weiss, let me comment on the agenda for the call. Bob will begin by providing some highlights on the quarter then get into specific details including new products, the market and guidance. Following Bob’s remarks, Gene Midlock will comment on the third quarter financial results and provide some additional guidance. We will then open up the call for questions.
We will keep the formal presentation to roughly 30 minutes of prepared remarks followed by 30 minutes of Q&A, so the call will last a total of one hour. We request that anyone asking questions please limit yourself to only one question so that we may get to as many callers as possible. Should you have any additional questions following the call, please call our Investor line at 925-460-3663. That’s 925-460-3663 and we’ll get back to you as soon as possible.
As a reminder, this call is being recorded and a copy of the press release is available on our website at coopercos.com under Investor Relations.
And with that I’ll turn the call over to Bob for his opening remarks.
Robert S. Weiss
Thank you, Kim and welcome everyone to our third quarter earnings call. Let’s get right into it.
Here’s what I’m happy about. First of all, sales. CooperVision and CooperSurgical both posted solid revenues and we remain one of the rare companies these days with positive growth. Operating expenses, we continue to deliver cost containment without cutting into the muscle of the organization. As far as free cash flow, a wild factor. $56 million in free cash flow this quarter was extremely strong and our trailing four quarter number is $89 million, shows that we are capable of generating some solid cash flow.
Silicone hydrogel, our silicone hydrogel sales were almost $32 million this quarter, equating to $127 million of annualized sale run rate. This puts us well on our way to exceeding our guidance of $100 million for the fiscal year.
Now, what needs to be explained? Well, that’s obvious. Gross margins. I know all of you were expecting a better earnings per share number and this misses entirely in our gross margins. We had several items which we expected including $4.1 million that was the manufacturing restructuring as a result of Norfolk decision, $2.3 million which was idle equipment as a result of our decision to cut back on inventory levels, a net $7.9 million of currency which is reflected in our hedging numbers. These total $14.3 million and reduce gross margins around 500 basis points.
But we also had $4.1 million in inventory and equipment write-offs and this was a disappointment and was a surprise. This reduced gross margins around 150 basis points and impacted our earnings per share around $0.09. Although I didn’t expect it, it’s part of doing business. We expect a little more in our fourth fiscal quarter but we already have built that into our guidance.
These numbers obviously show the downside, but I will say we’re working through all the operational items and the gross margins will improve as we complete the Norfolk integration into the UK and Puerto Rico plants.
With respect to currency, I won’t get into the details but I will say our hedging program allows us to see what’s coming and unlike a lot of companies, we have who have already seen their upside, ours relates to a weaker pound which we will have yet to see in our cost of goods. This will be seen over the next year. In spite of all this activity, I feel comfortable with a 60% gross margin in the coming years and I believe this quarter will mark the low point.
Now let me get into more details on the business before I turn it over to Gene who will cover the financial highlights.