HAE Lags Earnings & Revenue Estimates
Haemonetics Corporation (HAE) reported earnings of 46 cents per share in the first quarter of fiscal 2014. The result was 46% higher than the year-ago figure but was a penny short of the Zacks Consensus Estimate. The adjusted earnings include certain one-time items including transformation, integration and deal amortization expenses (a total of $40.2 million). On a reported basis, Haemonetics’ net loss per share was 15 cents, a huge drag compared to the year-ago earnings of 19 cents a share.
Revenues increased 24% year over year (up 29% at CER) to $219.5 million. However, it significantly lagged the Zacks Consensus Estimate of $233 million. After taking into account the whole blood business from Pall Corporation (PLL), the quarterly organic revenues declined 5% year over year (down 2% at CER).
Revenues from the U.S. and the international market increased 38.9% and 10.0% to $122.1 million and $97.4 million, respectively. Barring Japan, where organic revenues declined 5% year over year, growth was recorded across other regions, namely Asia (12%), North America (2%) and Europe (14%).
Revenue Details
Haemonetics earns about 87% of its revenues from the sale of disposables – plasma, blood centers and hospital disposables. Revenues from plasma were $65.3 million, (up 2.3% year over year), blood generated $95.7 million (up 94.1%) and hospital disposables were $30.0 million (down 7.1%). The rest of the revenues were generated from software solutions and equipment, which recorded respective sales of $16.7 million (down 3.2% year over year) and $11.4 million (down 14.1%).
Within plasma, North America disposables were up 11%, partially offset by a decline in Europe. Within blood center disposables, revenues from platelets disposables were down 8% to $34.4 million, while red cell disposables were down 17% to $10.0 million. The whole blood business was included in the company’s portfolio following the acquisition of Pall Corp. in Aug 2012. During the reported quarter, this business recorded sales of $51.3 million.
Revenues from Surgical disposables decreased 12% to $16.1 million. The downside was accountable to the timing of tenders in certain emerging markets, return of a competitor whose production operations were limited by a natural disaster in the prior year and softer-than-expected market conditions. However, the Diagnostics business grew 17% year over year to $7.6 million. The upside was driven by the company's Impact initiative that benefited the TEG Thrombelastograph Hemostasis Analyzer business.
OrthoPAT (orthopedic perioperative autotransfusion system) was down 16% year over year to $6.3 million. However, the company expects the impending launch of the new OrthoPAT Advance system to drive growth in fiscal 2014.
Margin Trends
The company reported a 26% increase in adjusted gross profit to $113.5 million accompanied by a 60 basis points (bps) expansion in adjusted gross margin to 51.7% during the quarter.Margin improvement in the core business more than offset the impact of revenue mix toward low-margin whole blood disposables.
Despite an increase in adjusted operating expenses (up 18% to $80.0 million), the adjusted operating margin expanded 270 bps to 15.3%. The rise in operating margin was due to the inclusion of $14 million in the new whole blood collection business and operating discipline.
Outlook
Haemonetics provided an update to its fiscal 2014 outlook. The company expects its adjusted EPS in the range of $2.30–$2.40, (up 15–20% annually), in line with its outlook provided earlier this year. In addition, total revenue is expected to increase by 7–10% (earlier expectation was 9–12%) on a yearly basis. For fiscal 2014, organic revenues are expected to grow in the range of 3–5% at CER (unchanged).
The company expects its plasma business to grow in the range of 7−9% in fiscal 2014. Blood center revenues are expected to decline 3−5% on an organic basis. Hospital products and Software Solutions are expected to grow nil to 3% and 5−7%, respectively.
The company expects to report adjusted gross margin of 52% (earlier expectation was the range of 51−52%) with adjusted operating income of $176−$183 million ($177−$183 million). In addition, free cash flow is still expected at $125 million.
Recommendation
Haemonetics reported a disappointing quarter with both earnings and revenues missing the Zacks Consensus Estimate. Hospital disposable business remains a cause of concern for the company. However, low global penetration and positive demand dynamics provide an encouraging long-term thesis for investing in the blood processing and supply chain management industry.
The stock holds a Zacks Rank #3 (Hold). The medical device stocks worth a look are IDEXX Laboratories Inc. (IDXX) and Thoratec Corp. (THOR). Both the stocks carry a Zacks Rank #2 (Buy).
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