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Earnings Beat at SurModics

Zacks Equity Research

SurModics Inc.’s (SRDX) first-quarter fiscal 2013 earnings (excluding special items) of 22 cents per share beat the Zacks Consensus Estimate by 4 cents and the year-ago earnings by 11 cents per share. The impressive performance in the first quarter of fiscal 2013 (ended Dec 31, 2012) was primarily attributable to higher revenues along with a lower tax rate.

Quarter in Details

Adjusted revenues climbed 18.1% year over year to $13.8 million, just shy of the Zacks Consensus Estimate of $14 million. Increased sales of vitro diagnostics offerings and hydrophilic coatings were the primary reasons behind the year-over-year improvement.

For the reported quarter, royalties and license fees accounted for approximately 54.3% of the total adjusted revenues with product sales and research & development accounting for 38.6% and 7.1%, respectively.

We note that in calendar year 2011, SurModics received a blow when partner Johnson & Johnson (JNJ) stopped manufacturing Cypher and Cypher Select Plus sirolimus-eluting coronary stents on which SurModics received royalties on sales of the product.

Following the Nov 2011 sale of the assets of its Pharmaceuticals division to Germany’s Evonik Industries AG, SurModics operates through two business units – Medical Devices and In Vitro Diagnostics.

SurModics’ adjusted revenues from the Medical Devices segment came in at approximately $10.5 million, up 18.8%. Bulk of the segmental revenues came from the sales of hydrophilic coatings, which surged 27% from the year ago period. Revenues from the In Vitro Diagnostics unit increased 9% to $3.3 million in the first quarter of fiscal 2013.

During the reported quarter, the board of directors at SurModics announced a program to buy back up to an additional $10 billion of its common stock. We believe that the buyback program highlights the company’s commitment to create value for shareholders.

Fiscal 2013 Projection

Apart from announcing its financial results, SurModics also adjusted its outlook for fiscal 2013. SurModics now expects to end fiscal 2013 with earnings in the range of 86 cents to 99 cents per share (prior guidance: 75 cents–87 cents per share). SurModics continues to expect fiscal 2013 revenues in the range of $55–$58 million. The Zacks Consensus Estimate is currently pegged at earnings of 82 cents on revenues of $57 million for fiscal 2013.

SurModics currently carries a Zacks Rank #3 (Hold). Players in the Medical Devices market, of which Surmodics is a part, such as Edwards Lifesciences Corporation (EW) and CareFusion Corporation (CFN) appear to be more favorably placed. Both these companies carry a Zacks Rank #2 (Buy).

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Read the Full Research Report on JNJ

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