Haemonetics Tops Q3 Earnings, Lags Revenues; Keeps View

Haemonetics CorporationHAE reported adjusted earnings per share (EPS) of 48 cents in the third quarter of fiscal 2016, exceeding the Zacks Consensus Estimate by a penny. However, adjusted EPS dropped 9% from the year-ago quarter.

On a reported basis, Haemonetics posted net loss of $59.4 million or loss of $1.17 per share, reflecting substantial deterioration from the year-ago quarter’s net income of $16 million or 31 cents per share.

 

Haemonetics Corporation (HAE) EPS BNRI & Surprise Percent - Last 5 Quarters | FindTheCompany

 

Total Revenue

Revenues grew 0.7% year over year (up 4% at constant exchange rate or CER) to $233.4 million but missed the Zacks Consensus Estimate of $240 million. According to the company, the year-over-year improvement was primarily driven by strong growth in U.S. Plasma and TEG disposables revenue along with modest growth in platelet and surgical disposables, which outweighed declines in Blood Center disposables on a constant currency basis. Unfavorable foreign exchange also affected total revenue by approximately 300 basis points.

Revenues by Product Categories

In the Disposables product category (86.2% of revenues), which comprises Plasma, Blood center and Hospital Disposables, Haemonetics reported revenues of $201.2 million, up 1.5% year over year. This improvement is primarily attributable to the strong performance of Plasma disposables (up 11.2%), which outweighed the decline in Blood center disposables (down 6.9%) and Hospital disposables (1.5%).

Software Solutions revenues were almost flat (up 2% at CER) at $18.2 million. Per management, the company witnessed encouraging initial customer interest in this category’s BloodTrack HaemoBank system, which experienced healthy growth in North America and Europe in the reported quarter.

Equipment and Other revenues declined 10% (down 7% at CER) year over year to $13.9 million primarily, hit by the category’s weakness in Russia.

Margins

Haemonetics’ adjusted gross margin contracted 210 bps (down 30 bps at CER) to 47.1% during the reported quarter. This margin deterioration was primarily due to an unfavorable product mix and reduced pricing, in particular recent pricing concessions in the U.S. red cell disposables business; which outweighed the benefits of the productivity programs including Value Creation & Capture ("VCC") initiatives.

Adjusted operating income dropped 9% (up 3% at CER) to $34.9 million. Consequently, adjusted operating margin also contracted 160 bps to 15% (down 10 bps at CER).

Financial Position

Haemonetics exited the fiscal third quarter with cash and cash equivalents of $105.2 million, compared with $100.2 million at the end of second-quarter fiscal 2016. Year to date, capital expenditure was $73.9 million, down from the year-ago equivalent of $100.5 million.

Haemonetics generated operating cash flow of $68.6 million at the end of the third quarter, compared to the year-ago figure of $71.9 million. At the end of the third quarter, Haemonetics reported free cash flow (before transformation, restructuring costs and VCC capital expenditures) of $26.5 million, compared to $53.2 million in the comparable year-ago period. In the fiscal third quarter, management bought back shares worth $61 million in the open market.

Fiscal 2016 Outlook

Haemonetics had reaffirmed its fiscal 2016 outlook. During fiscal 2016, the company continues to expect to deliver adjusted EPS in the range of $1.65–$1.75 (representing growth of 4% at CER) on revenues of $910–920 million (representing flat to 1% growth on a reported basis and 4% at CER). The current Zacks Consensus Estimate lies at $1.71 and $913 million respectively, both within the company’s guidance.

However, Haemonetics currently expects free cash flow (before funding approximately $34 million of capital and transformation expenditures to complete the VCC initiatives) of approximately $70 million (earlier $70–75 million) for fiscal 2016.

Our Take

Haemonetics delivered a mixed third-quarter fiscal 2016 performance. While EPS beat the Zacks Consensus Estimate, the top line failed to meet the mark. The year-over-year decline in earnings also adds to our disappointment. Unfavorable foreign currency fluctuations primarily played spoil sport. However, on a brighter note, Haemonetics witnessed positive top-line improvement across all geographies at CER; except in Japan.

Product category wise, while Plasma disposables business retained its strong growth during the reported quarter, particularly in Australia, Europe and Japan; a continued challenging blood center disposable market added to our concern. Going forward, in fiscal 2017, management still expects currency to be a significant dampener for growth; while Plasma and TEG business are expected to deliver significant growth. Alongside, the company should continue generating strong balance sheet and free cash flow figures. 

Zacks Rank

Haemonetics currently carries a Zacks Rank #4 (Sell). Some better-ranked medical stocks are LeMaitre Vascular, Inc. LMAT, Vascular Solutions Inc. VASC and Cardiovascular Systems Inc. CSII. While LeMaitre and Vascular Solutions sport a Zacks Rank #1 (Strong Buy), Cardiovascular Systems holds a Zacks Ranks #2 (Buy).

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