Haemonetics Corporation (HAE) reported net income of $6.5 million or earnings of 25 cents per share in the second quarter of fiscal 2013, down 53% year over year. After taking into account certain one-time items, adjusted earnings came in at 90 cents per share, surpassing both the Zacks Consensus Estimate of 77 cents and the year-ago quarter’s adjusted earnings of 72 cents per share.
Revenues increased 22% year over year to $218.2 million, missing the Zacks Consensus Estimate of $224 million. After taking into account the recently acquired whole blood business from Pall Corporation (PLL), the company recorded organic net revenue of $189.6 million, up 6%.
Revenues from the US and the international market increased 30.9% to $113 million and 12.9% to $105.2 million, respectively. Barring Europe where organic revenues declined 2% year over year, growth was recorded across the other regions – North America (8%), Asia (10%) and Japan (6%).
Haemonetics earns about 85% of its revenues from the sale of disposables – plasma, blood center, and hospital disposables. Revenues from these segments stood at $68.7, (up 6.6% year over year), $83.7 million (up 55.5%) and $33.4 million (up 14.5%), respectively.
The rest of the revenue was derived from software solutions and equipment, which recorded respective sales of $18.0 million (up 4.9% year over year) and $14.3 million (down 3.4%).
Plasma growth in the North American market was 10% during the reported quarter, an improvement from the mid-single digit growth over the past two quarters. Haemonetics still expects 4−6% growth in plasma revenues in fiscal 2013, consistent with end-market growth rates for plasma derived biopharmaceuticals, despite lower business in Japan in the first quarter.
Within blood center disposables, revenues from platelets and red cell disposables inched up 2.4% to $43.2 million and 2.3% to $11.9 million, respectively. Subsequent to the completion of the acquisition, whole blood was inducted in the company’s portfolio and recorded $28.6 million of sales in the quarter. This business is expected to gross $135−$145 million in fiscal 2013.
Platelet revenues continued to benefit from strong sales in emerging markets. Despite clinical demand for blood remaining flat, the growth in red cell disposables was a result of the company’s focus on penetration of the Impact accounts to advance blood management solutions. The company still expects its blood center business to grow 0−2% in fiscal 2013, with continued growth in both platelet and red cell disposables as the year progresses.
OrthoPAT recorded a 4.8% increase in revenues in the reported quarter to $7.6 million, an improvement from the 3% decline in the last quarter. We are impressed to note that the impact of the voluntary recall of the pre-2002 devices has ended and the company is back on the growth path as expected.
Revenues from Surgical disposables and Diagnostics increased 16% to $18.8 million and 22.6% to $6.9 million, respectively. While the former benefited from the successful launch of the Cell Saver Elite, growth of the Diagnostics business resulted from the company's Impact initiative that benefited the TEG Thrombelastograph Hemostasis Analyzer business. Strong sales of Cell Saver Elite and TEG equipments signify growth in disposables revenue in the forthcoming period. During the reported quarter, TEG disposables sales increased 23% in China.
The company expects its hospital business to grow 12−15% in fiscal 2013, which will be supported by growth in surgical, diagnostics and OrthoPAT disposables.
The company reported a 22.1% increase in adjusted gross profit to $111.6 million accompanied by a 10 basis points (bps) expansion in gross margin to 51% during the quarter. Despite an increase in adjusted research and development (2.7% year over year to $9.2 million) and selling, general and administrative expenses (20.9% to $68.7 million), the adjusted operating margin expanded 120 bps to 15.4%. The rise in operating expenses was due to investments in global growth initiatives, emerging markets and infrastructure development.
Haemonetics announced that its Board of Directors approved a two-for-one split in the form of a 100% stock dividend, record date being November 9, 2012. The company continued with its stock buyback program and repurchased 74,300 shares for $5.3 million during the quarter. The Board of Directors had previously approved the repurchase of up to $50 million of shares during the remainder of fiscal 2013.
Haemonetics reiterated its organic revenue growth forecast of 4−6% for fiscal 2013 resulting in total revenue in the range of $890−$915 million, up 23−26%. Adjusted EPS guidance of $3.30−$3.40 was reiterated.
The company still expects to report gross margin in the range of 50−51% with adjusted operating income of $127−$130 million. The outlook for gross margin takes into account the low-margin whole blood product line. Besides, free cash flow is still expected to be around $85 million.
The company also reiterated its outlook for fiscal 2014 with organic revenue growth of 5-7% ($1 billion of total revenues) resulting in adjusted EPS of $3.90−$4.10 (representing 20% growth over expected EPS for fiscal 2013.
Haemonetics reported a mixed quarter with earnings beating the Zacks Consensus Estimate while revenues fell short. The improvement in margins during the quarter was encouraging. Low global penetration and positive demand dynamics provide an encouraging long-term thesis for investing in the blood processing and supply chain management industry. Besides, gradual improvement of the plasma business should further aid growth of the company.
Over the long term, we have a Neutral recommendation on Haemonetics. The stock retains a Zacks #3 Rank (Hold) in the short term.
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