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Earnings Miss at SurModics

Zacks Equity Research

SurModics Inc.’s (SRDX) second quarter fiscal 2013 (ended Mar 31, 2013) earnings (excluding special items) of 20 cents per share missed the Zacks Consensus Estimate by 2 cents. The second quarter fiscal 2013 earnings increased 25% from the year-ago period. The year-over-year growth was attributable to higher revenues.

Quarter in Detail

Adjusted revenues climbed 12.3% year over year to $13.7 million. The Zacks Consensus Estimate was $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 50.8% of the total adjusted revenues with product sales and research & development accounting for 42.0% and 7.2%, 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 started operating through two business units – Medical Devices and In Vitro Diagnostics.

SurModics’ adjusted revenues from the Medical Devices segment came in at approximately $9.7 million, up 11.3%. Bulk of the segmental revenues came from the sales of hydrophilic coatings, which surged 10% from the year-ago period.

Revenues from the In Vitro Diagnostics unit increased 15% to $4.0 million in the second quarter of fiscal 2013. This was the tenth consecutive quarter in which segmental product revenues surged.  The quarter saw SurModics purchasing 105,097 shares at a cost of $2.7 million

Fiscal 2013 Projection Backed

SurModics continues to expect fiscal 2013 revenues in the range of $55–$58 million. Earnings on a reported basis are still expected in the range of 86 cents-99 cents per share. The Zacks Consensus Estimate for 2013 pegs earnings at 86 cents per share on revenues of $58 million.

SurModics currently carries a Zacks Rank #3 (Hold). Players in the Medical Devices market, of which SurModics is a part, such as Conceptus, Inc. (CPTS) and Bio-Rad Laboratories, Inc. (BIO) appear to be more favorably placed. While Conceptus carries a Zacks Rank #1 (Strong Buy), Bio-Rad Laboratories currently possesses a Zacks Rank #2 (Buy).

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