Haemonetics (HAE) Q2 Earnings & Revenues Beat Estimates

Zacks Equity Research
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Haemonetics Corporation HAE reported adjusted earnings per share (EPS) of 46 cents in the second quarter of fiscal 2017, beating the Zacks Consensus Estimate by 31.4%. Moreover, adjusted EPS rose 4.5% from the year-ago number.

The company recorded expenses in relation to the leukoreduction filter recall that was issued in Jun 2016, which affected the quarter's earnings by $1 million or 2 cents per share and had a modest impact on revenues as well. Despite this, the company delivered results in line with its expectations.

On a reported basis, Haemonetics posted net loss of $19.8 million or 38 cents per share, comparing unfavorably with the year-ago quarter’s net income of $12.8 million or 25 cents.

HAEMONETICS CP Price, Consensus and EPS Surprise

 

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

Total Revenue

Revenues remained flat year over year (up 1% at constant exchange rate or CER) at $220.3 million in the reported quarter but managed to beat the Zacks Consensus Estimate of $212 million.

Strong performance by Haemonetics’ Plasma and Hemostasis Management franchises, together contributed $119.9 million to revenues in the second quarter.

Geographically, Haemonetics witnessed 3% (same at CER) revenue growth in North America and 3% (up 6% at CER) in Asia Pacific. However, the company’s revenue declined 9% (down 5% at CER) in EMEA and 1% (down 5% at CER) in Japan.

Revenues by Product Categories

Starting fiscal 2017, Haemonetics has been reporting operating results under four business franchises: Plasma, Haemostasis Management, Cell Processing and Blood Center.

At the Plasma franchise, Haemonetics reported revenues of $103.5 million (46.9% of total revenues), up 11.3% year over year (up 12% at CER). The company observed Plasma growth across all of its geographic regions, with North America Plasma disposables revenue accounting for 14% growth in particular. Moreover, shipments of saline plasma collection sets contributed 6% to growth while the remainder came from increased saline and sodium citrate solutions shipments.

Revenues from the BloodCenter franchise declined 12% (same at CER) to $74.3 million (33.7% of total revenue). Within this franchise, revenues from Platelet disposables dropped 10% (same at CER) to $30.9 million while the same from Red cell disposables declined 20% (same at CER) to $7.4 million. Also, revenues from Whole blood fell 13% (down 12% at CER) to $26.5 million.

Hemostasis Management franchise revenues improved 15% (up 18% at CER) to $16.5 million (7.3% of total revenue). Within this franchise, TEG disposable revenues rose 15% (up 18% at CER) on continued growth in the U.S. and China.  Revenues from Cell Processing franchise dropped 8% (down 6% at CER) to $26.0 million (11.8% of total revenue) owing to a persistent decline in orthoPAT disposables volumes, which was partly offset by Blood Track software growth. 

Margins

Haemonetics’ second-quarter gross margin was 47.3%, a 60 basis-point contraction year over year. Factors like currency headwinds, reduced pricing in U.S. red cells and unfavorable product mix primarily led to the decline, partially offset by productivity benefits.

Operating income was $24.7 million in the second quarter, up 29.3% from the year-ago quarter. Operating margin was 11.2% in the quarter, an expansion of 253 basis points driven by operating cost reductions.

Financial Position

Haemonetics exited the second quarter with cash and cash equivalents of $138.8 million, higher than $118.2 million at the end of the first quarter. Capital expenditures totaled $41.6 million in the quarter, down from $50.1 million in the comparable year-ago quarter.

Haemonetics generated operating cash flow of $69.9 million at the end of the second quarter compared to the year-ago figure of $36.7 million. At the end of the quarter under review, Haemonetics reported free cash flow (before transformation, restructuring costs and VCC capital expenditures) of $41.3 million, compared with $10.5 million a year ago.

Fiscal 2017 Guidance

Haemonetics reaffirmed its 2017 guidance during investor day on May 10. The company expects revenues in the band of $850–$870 million, reflecting a year-over-year decline of 4–7% on a reported basis and 2–4% at CER. The current Zacks Consensus Estimate for revenues is pegged at $866.7 million for fiscal 2017.

In terms of the bottom line, management has maintained adjusted EPS guidance at $1.40–$1.50 for fiscal 2017. The current Zacks Consensus Estimate for adjusted EPS stands at $1.44.

Our Take

Haemonetics ended the second quarter of fiscal 2017 on an impressive note, with earnings and revenues beating the Zacks Consensus Estimate. The company’s strong cash position also raises investors’ confidence in the stock. However, despite the encouraging growth witnessed in Plasma and Haemonetics Management franchises, the underperformance at the other two franchises was quite a disappointment. The gross margin decline also added to the woes.

Nonetheless, to improve its performance in the Blood Center and Cell Processing franchises, management is currently focusing on simplification of the product line and business footprint. The company also expects growth from key products in cell salvage and transfusion management. We expect these initiatives to boost the top line of these franchises.

Zacks Rank & Key Picks

Amedisys currently has a Zacks Rank #4 (Sell). Better-ranked stocks in the medical space are GW Pharmaceuticals plc GWPH, Baxter International Inc. BAX and Bovie Medical Corporation BVX. GW Pharmaceuticals and Baxter sport a Zacks Rank #1 (Strong Buy) while Bovie Medical carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

GW Pharmaceuticals surged 71.6% year to date compared to the S&P 500’s 4.3% over the same period. The company has a four-quarter positive average earnings surprise of 41.6%.

Baxter International rallied 26.5% in the past one year, much better than the S&P 500’s 2.6%. It has a trailing four-quarter average positive earnings surprise of 27%.

Bovie Medical recorded a 153.5% gain in the past one year, way better than the S&P 500’s 2.6%. The company has a trailing four-quarter positive average earnings surprise of 28.7%.

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