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Masimo Corporation Q2 Earnings Decline and Miss Estimates - Analyst Blog

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Masimo Corporation ( MASI ) posted a 10% decline in adjusted net earnings per share to 27 cents for the second quarter of 2014 from 30 cents in the same quarter of 2013 and lagged the Zacks Consensus Estimate of 29 cents. Meanwhile, adjusted net earnings fell 4.3% to $16.3 million from $17.0 million in the second quarter of 2013.

On a reported basis, net earnings decreased 19.0% to $13.8 million from $17.0 million a year ago. Reported net earnings per share came in at 24 cents, down 20.0% from 30 cents in the second quarter of 2013.

Revenue Details

Revenues in the quarter (including royalties) scaled up 2.5% to $140.9 million, missing the Zacks Consensus Estimate of $146.0 million. Product revenues grew 3% to $133.5 million while revenues from Royalty dipped 5.4% to $7.4 million in the quarter.

MASI's global direct product revenues rose 5%, representing 85% of total product revenues. OEM sales, which accounted for 15% of product revenues, declined 6% in the quarter. Revenues from sales of MASI rainbow products edged up 0.9% to $11.6 million.

MASI shipped about 43,400 SET pulse oximetry and rainbow Pulse CO-Oximetry units in the quarter (excluding handheld units), up 2% year over year. The company anticipates its worldwide installed base to be 1,260,000 units as of Jun 28, 2014, up 10% from 1,148,000 units as of Jun 29, 2013.

Margins and Expenses

Gross profit improved 2% to $93.1 million from $91.2 million in the second quarter of 2013. However, gross margin contracted 30 basis points (bps) to 66.1% from 66.4% a year ago.

The decline in gross margin can be attributed to lower product gross margin resulting from the pricing impact of the contract renewal activity in 2013 and the postponement of various large second-quarter OEM orders to the third quarter.

Adjusted selling, general and administrative expenses rose 8.6% to $58.8 million in the quarter under review. However, research and development expenses declined 3.9% to $13.3 million due to lower year-over-year engineering equipment, supplies and clinical study expenses.

Adjusted operating earnings dipped 9.8% to $20.9 million from $23.2 million in the year-ago quarter while adjusted operating margin decreased 210 bps to 14.8% from 16.9% a year ago.

Financial Position

MASI had cash and cash equivalents of $97.1 million as of Jun 28, 2014, up 1.7% from $95.5 million as of Dec 28, 2013. As of Jun 28, 2014, capital lease obligations amounted to $75.2 million, including $75.0 million borrowed on its line of credit, up significantly from $336 thousand as of Dec 28, 2013.

For the first six months ended Jun 28, 2014, cash flow from operating activities upped 19.7% to $38.8 million from $32.4 million in the same period a year ago. Capital expenditure increased manifold to $62.1 million from $3.9 million in the first half of 2013.

The $75.0 million borrowed on the company's line of credit along with net cash from operations was used to repurchase approximately 2 million shares for $49.2 million and to acquire a new worldwide headquarters building valued approximately $56.0 million.

2014 Guidance

MASI updated its 2014 financial guidance for reported earnings and revenues. It expects reported earnings in the range of $1.24 to $1.30 for 2014, narrower than the earlier range of $1.24 to $1.33. The current Zacks Consensus Estimate for the year stands at $1.30.

MASI expects revenues of $588-$593 million for the year, as compared to the prior range of $588 to $598 million. This includes Product revenues of $560 to $565 million as against the prior expectation of $560 to $570 million, and Royalty revenues of $28 million. The current Zacks Consensus Estimate of $591 million lies within the guided range.

Zacks Rank

Currently, MASI carries a Zacks Rank #3 (Hold). Better-ranked stocks in the medical instruments sector include Accuray Inc. ( ARAY ), Alphatec Holdings, Inc. ( ATEC ) and RTI Surgical Inc. ( RTIX ). 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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