The Cooper Companies Inc. (COO) reported adjusted earnings of $1.47 per share for the first quarter of its fiscal year ended on Jan 31, 2014, exceeding the year-ago level of $1.23 by 19.5% as well as the Zacks Consensus Estimate by 2 cents per share.
Revenues in the quarter grew 7% to $405.0 million, surpassing the Zacks Consensus Estimate of $400 million. Revenues went up 11% in constant currency and excluding the divestiture of Aime.
Gross margin increased 200 basis points to 65% compared with 63% in the last year’s quarter. Gross margin was favorable affected by a lower royalty payment on silicone hydrogel lens sales and favorable product mix, partially offset by lower revenues due to currency, primarily the yen.
Operating margin improved 200 bps to 20% compared with 18% in the first quarter of prior fiscal year. The increase was driven by higher gross margin and SG&A leverage.
Revenues in the CooperVision (CVI) segment rose 8% (14% in constant currency and excluding the divestiture of Aime) to $326.3 million. Gross margin rose 200 bps to 65% due to the same reasons affecting the overall gross margin of the company. The segment continued to gain share in all geographies and modalities with silicone hydrogel products depicting strong growth led by Biofinity lens.
Revenues in the CooperSurgical (CSI) segment inched up 0.3% to $78.7 million. Gross went down 100 bps to 63% from 64% in the last year’s quarter.
COO exited fiscal first quarter with cash and cash equivalents of $28.8 million as of Jan 31, 2014, down from $77.4 million as of Oct 31, 2013. Total debt increased 0.3% to $345.7 million as of Jan 31, 2014 from $344.7 million as of Oct 31, 2013. Consequently, debt-to-capitalization ratio increased 10 basis points to 12.5% from 12.4% as of Oct 31, 2013.
In the quarter, COO’s cash flow from operations was $68.6 million, capital expenditures were $61.0 million and insurance recovery was $1.4 million, resulting in a free cash flow of $9.0 million. The company has repurchased 396 thousand shares for $50.0 million during the quarter.
For fiscal 2014, COO now expects total revenues between $ 1,685 and $1,725 million compared with the prior guidance of $1,675 and $1,735 million, including CVI and CSI revenues of $1,365–$1,395 million (previously $1,355–$1,395 million) and $320–$330 million (previously $320–$340 million), respectively. The current Zacks Consensus Estimate of $1,836 million lies above the guided range.
Both reported and adjusted earnings are expected in the range of $6.75 to $7.00 compared with the earlier range of $6.70 to $7.00 for the year. The current Zacks Consensus Estimate of $6.82 lies within the guided range.
COO is a leader in the high-margin toric lens market. It offers multiple designs of toric lenses across a wide range of parameters, unlike some of its competitors, who offer toric lenses in a limited number of designs.
However, COO faces formidable competition in each of its major product lines. Competition comes from well established global contact lens makers. Depressed levels of consumer spending have heightened the company’s competitive pressures.
Currently, Cooper Companies carries a Zacks Rank #4 (Sell). While we avoid COO, some better-ranked medical/dental supplies stocks include Align Technology Inc. (ALGN), CR Bard Inc. (BCR), and Becton, Dickinson and Co. (BDX). All of them carry a Zacks Rank #2 (Buy).