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Thoratec Earnings Meet Ests but Fall Y/Y

Zacks Equity Research

Thoratec Corporation (THOR) posted adjusted earnings of $17.5 million or 30 cents per share for the fourth quarter of 2013, meeting the Zacks Consensus Estimate. Adjusted earnings fell 9.3% from $19.3 million or 6.25% from 32 cents per share in the comparable quarter a year ago. As a result, shares of the company slid 0.9% since the earnings announcement.

Adjusted earnings excluded amortization of purchased intangibles, acquisition-related contingent consideration adjustments and acquisition-related transaction costs in the 2013 quarter, and amortization of purchased intangibles and intangibles impairment charge related to PVAD and IVAD, and acquisition-related transaction costs in the 2012 quarter.

THOR’s revenues in the quarter declined marginally by 0.2% to $128.2 million, lagging the Zacks Consensus Estimate of $130.0 million.

Revenues from HeartMate product line came in at $111.7 million, reflecting a 5.2% year-over-year increase due to the expansion of its international business. Revenues from CentriMag were $8.7 million, up 8.75% from the year-ago level. Revenues from PVAD and IVAD surged 52.6% to $5.8 million in the quarter.

Adjusted gross profit ebbed 8.9% to $83.4 million from $91.6 million a year ago. Adjusted gross margin declined 630 basis points (bps) to 65.0% from 71.3% in the fourth quarter of 2012. The decrease was attributable to costs associated with the charges and implementation of the U.S. medical device excise tax.

Adjusted operating income went down 16.1% to $24.3 million from $28.9 million a year ago. Adjusted operating margin fell 360 bps to 18.9% from 22.5% in the fourth quarter of 2012 despite a 16% fall in adjusted operating expenses to $24.3 million owing to higher project-related expenses and incentive compensation in 2012.

For full year 2013, THOR’s adjusted earnings dipped 7.7% to $88.8 million from $96.1 million a year ago while adjusted earnings per share fell 5.6% to $1.52 from $1.61 in 2012. Revenues in the year inched up 2.3% to $502.8 million. The rise was attributable to a 23% rise in international revenues, offset partially by a 3% fall in U.S. revenues.

THOR had cash and investments of $310.0 million as of Dec 28, 2013, up from $260.4 million as of Dec 29, 2012. During the quarter under study, the company utilized $8.9 million in cash to finance share repurchase at an average price of $36.00. Its board of directors approved a repurchase program of up to $200 million over a two-year period.

For fiscal 2014, THOR expects revenues in the range of $520–$535 million. The current Zacks Consensus Estimate of $536 million lies above the guided range. Adjusted gross margin is expected to be 71.7% for the year.

THOR also expects adjusted earnings per share of $1.40–$1.50 for the year. The current Zacks Consensus Estimate of $1.28 million lies below the guided range.

THOR develops, manufactures and markets proprietary medical devices used for circulatory support, vascular graft, blood coagulation and skin incision applications. The company currently markets the Thoratec Ventricular Assist Device System (called Thoratec VAD System or VAD System) and the HeartMate Left Ventricular Assist System (called HeartMate LVAS) in the U.S. and internationally for use as a bridge to heart transplant.

Currently, THOR retains a Zacks Rank #3 (Hold). Some better-ranked stocks in the medical instruments sector include Natus Medical Inc. (BABY), ABIOMED, Inc. (ABMD), and AngioDynamics Inc. (ANGO). Natus Medical carries a Zacks Rank #1 (Strong Buy), while both ABIOMED and AngioDynamics carry a Zacks Rank #2 (Buy).

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