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Haemonetics (HAE) Lags Q1 Earnings, Tops Sales Estimates

Haemonetics CorporationHAE reported adjusted earnings per share (EPS) of 25 cents in the first quarter of fiscal 2017, missing the Zacks Consensus Estimate by 10.7%. Moreover, adjusted EPS dropped 29% from the year-ago quarter.

Per management, two factors primarily affected the year-over-year adjusted earnings figure. First was the company's cost base plan, which management began implementing from midway of the first quarter and thus could only realize partial benefits. Secondly, expenses in relation to the leukoreduction filter recall that Haemonetics issued in Jun 2016, affected the quarter's earnings by $3 million or 6 cents per share.

On a reported basis, Haemonetics posted net loss of $10.3 million or 20 cents per share, considerably wider than the year-ago quarter's net loss of $0.3 million or a penny per share.

Total Revenue

Revenues dropped 1.6% year over year (flat at constant exchange rate or CER) to 210 million in the reported quarter, but exceeded the Zacks Consensus Estimate of $208 million.

The year-over-year top-line deterioration primarily came on the back of the declines in the Blood Center business franchise and partly by the Cell Processing business franchise. However, these declines were partially offset by strong performance delivered by Haemonetics' Plasma and Hemostasis Management franchises, which together provided $10 million of revenue growth in the first quarter.

Geographically, Haemonetics witnessed 4% (up 4% at CER) revenue growth in North America and less than 1% (up 5% at CER) in Asia Pacific. However, the company's revenue slumped 12% (down 5% at CER) in EMEA and 16% (down 17% at CER) in Japan.

HAEMONETICS CP Price, Consensus and EPS Surprise

HAEMONETICS CP Price, Consensus and EPS Surprise | HAEMONETICS CP Quote

Revenues by Product Categories

Starting from fiscal 2017, Haemonetics is reporting its operating results in 4 business franchises: Plasma, Haemostasis Management, Cell Processing and Blood Center.

In the Plasmafranchise, Haemonetics reported revenues of $97.6 million (46.5% of total revenues), up 10% year over year (up 12% at CER). The company observed Plasma growth across all of its geographic regions, with North America Plasma disposables revenue generating 15% growth in particular. Moreover, shipments of saline and sodium citrate contributed 6% of Plasma growth in the first quarter.

Revenues from Blood Center franchise declined 15% (down 13% at CER) to $70.9 million (33.7% of total revenue). Within this franchise, revenues from Platelet disposables dropped 13% (down 11% at CER) to $27 million, from Red cell disposables declined 26% (down 25% at CER) to $8 million and from Whole blood revenue dropped 18% (down 16% at CER) to $27 million.

Hemostasis Management franchise revenue improved 9% (up 12% at CER) to $15.3 million (7.3% of total revenue). Within this franchise, TEG disposable revenues rose 14% (up 17% at CER), owing to continued growth in the U.S. and China. Revenues from Cell Processing franchise dropped 6% (down 3% at CER) to $26.1 million (12.4% of total revenue), on the back of continued orthoPAT disposables volume decline.

Margins

Haemonetics' first-quarter adjusted gross margin was 43.9%, a 460 basis-point contraction. Factors like currency headwinds, recall expenses, reduced pricing in U.S. red cells and unfavorable product mix primarily contributed to this adjusted gross margin decline. These declines were only partially offset by the $2 million savings Haemonetics realized from cost reduction initiatives.

Adjusted operating income was $19million in the first quarter, down $7 million, including a $3 million headwind attributable to currency and a $3 million impact of the filter recall. Adjusted operating margin was 9% in the quarter, a contraction of 290 basis points. This slump in operating margin was caused by increased restructuring and related charges, unfavorable currency and product mix, along with the filter recall; which were only partially mitigated by the operating cost reductions that the company recognized in the first quarter.

Financial Position

Haemonetics exited the first quarter with cash and cash equivalents of $118.2 million, higher than $115.1 million at the end of fiscal 2016. Capital expenditure was $10.7 million for the quarter, down from $15.5 million in the comparable year-ago period.

Haemonetics generated operating cash flow of $30.7 million at the end of first quarter compared to the year-ago figure of $9.3 million. At the end of the quarter, Haemonetics reported free cash flow (before transformation, restructuring costs and VCC capital expenditures) of $15.9 million, compared to $1.3 million in the comparable year-ago period.

Fiscal 2017 Guidance

Haemonetics maintained its 2017 guidance, as has been announced by management on its investor day on May 10, 2016. The company expects to generate revenues of $850-$870 million, reflecting year over year decline of 4-7% on a reported basis and 2-4% at CER. The current Zacks Consensus Estimate stands at $865.5 million for fiscal 2017.

In terms of bottom-line, management expects to deliver adjusted EPS of $1.40-$1.50 in fiscal 2017. The current Zacks Consensus Estimate for adjusted EPS stands at $1.43.

Our Take

Haemonetics started off fiscal 2017 on a mixed note, with its fiscal first quarter earnings figure missing the Zacks Consensus Estimate, while the top line figure beating the same. However, on a year-over-year comparable basis, the company's outcome was depressing on both fronts. Despite Plasma and Haemonetics Management franchises continuing to exhibit encouraging growth trajectory, the underperformance that the other two franchises displayed were quite disappointing and eventually led to the overall revenue decline.

Nonetheless, to improve its future performance in these two franchises, management is currently focused on simplification of the blood center product offering and business footprint. The company is also keen on launching key product enhancements in cell salvage and transfusion management. We expect these initiatives to bring about a recovery in the top line growth of these two franchises and eventually drive them into a positive growth trajectory.

Zacks Rank

Haemonetics currently holds a Zacks Rank #3 (Hold). Some other medical stocks worth a look are Cepheid CPHD , Masimo Corp. MASI and Natus Medical Inc. BABY . All these stocks sport a Zacks Rank #1 (Strong Buy).

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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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