Cooper Cos Up on Q2 Earnings Beat - Analyst Blog

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Shares of The Cooper Companies Inc. ( COO ) climbed 1.7% following its fiscal 2014-second-quarter (ended Apr 30, 2014) earnings release. Adjusted earnings per share scaled up 9.3% to $1.64 from the year-ago level of $1.50 and beat the Zacks Consensus Estimate by 3 cents.

Revenues came in at $412.3 million, reflecting a rise of 7.4% from the year-ago quarter and were in line with the Zacks Consensus Estimate of $412 million. Revenues went up 9% in constant currency, excluding the divestiture of Aime (CooperVision's rigid gas permeable contact lens and solutions business in Japan).

Margins & Expenses

Gross profit increased 5.6% to $268.5 million in the quarter. However, gross margin slid 110 basis points (bps) to 65.1% compared with 66.2% in the last year's quarter. Gross margin was impacted by the product mix and start-up costs associated with MyDay.

Selling, general and administrative (SG&A) expenses went up 3.4% to $155.8 million while research and development (R&D) expenses increased 12.5% to $16.3 million.

Adjusted operating earnings augmented 10.4% to $89.9 million, while adjusted operating margin improved 60 bps to 21.8% compared with 21.2% in the second quarter of the prior fiscal year. The improvement in margins was driven by operating expenses leverage.

Segment Results

Revenues in the CooperVision (CVI) segment rose 7% (9% in constant currency and excluding the divestiture of Aime) to $331.1 million. The segment continued to gain share across all geographies driven by COO's silicone hydrogel products, especially Biofinity and MyDay. Gross margin contracted 200 bps to 65% owing to planned costs associated with MyDay.

Revenues in the CooperSurgical (CSI) segment spiked 8.7% to $81.2 million, led by growth in its fertility business. However, gross margin remained flat year over year at 65% as the positive impact of the higher margin base business was offset by the lower margin fertility business which continues to become a larger part of the product mix.

Financial Position

COO exited the second quarter with cash and cash equivalents of $82.7 million as of Apr 30, 2014, up 6.8% from $77.4 million as of Oct 31, 2013. Total debt decreased 2.7% to $335.4 million as of Apr 30, 2014 from $344.7 million as of Oct 31, 2013. Consequently, the debt-to-capitalization ratio declined 90 bps to 11.6% from 12.5% as of Oct 31, 2013.

In the quarter, COO's cash flow from operations totaled $126.3 million, up 9.9% from $114.9 million in the year-ago quarter. Capital expenditures surged 60.2% to $61.2 million from $38.2 million in the previous year quarter. As a result, free cash flow dropped 15.9% to $65.1 million from $77.4 million a year ago.

2014 Guidance

For fiscal 2014, earnings are expected in the band of $6.78 to $7.00 compared with the earlier range of $6.75 to $7.00, while adjusted earnings are projected in the $6.80-$7.00 range compared with the prior range of $6.75 to $7.00. The current Zacks Consensus Estimate of $6.89 lies within the guided range.

COO continues to expect total revenue between $ 1,685 and $1,725 million for the year, including CVI and CSI revenues of $1,365-$1,395 million and $320-$330 million, respectively. The current Zacks Consensus Estimate of $1,712 million lies within the guided range.

Our Take

We are impressed with COO's second-quarter results that beat earnings estimates. COO also upgraded the lower-end of its earnings outlook for fiscal 2014. COO continues to gain market share driven by consistent progress with MyDay and growth at the Biofinity and Avaira product families.

However, COO faces formidable competition in each of its major product lines. Competition emanates from well-established global contact lens makers.

Currently, COO retains a Zacks Rank #2 (Buy). Other well-performing stocks in the medical/dental supply industry that warrant a look are Steris Corp. ( STE ), Milestone Scientific Inc. ( MLSS ) and West Pharmaceutical Services, Inc. ( WST ). All these stocks carry the same Zacks Rank as COO.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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