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Varian (VAR) Earnings and Revenues Miss Estimates in Q1

Zacks Equity Research

Varian Medical Systems, Inc. VAR reported first-quarter fiscal 2020 adjusted earnings per share (EPS) of $1.16, missing the Zacks Consensus Estimate of $1.21. The figure however improved 9.4% year over year.

This Zacks Rank #3 (Hold) company reported revenues of $828.9 million, which lagged the consensus mark of $830.8 million. On a year-over-year basis, revenues rose 11.9% and 13% at constant currency (cc). Organically, revenues grew 8%.

Segment Details

Oncology Systems: Revenues totaled $782.4 million, up 11.4% year over year and 9% at cc. Operating earnings at the segment were $136 million, up 10% year over year.

Varian’s worldwide net installed base had 8,496 units, up by 366 units on a year-over-year basis. As a whole, gross orders grew 8% from the year-ago quarter to $77.4 million.

Orders in the United States rose 7% year over year on 4% growth in North America. In EMEA, orders rose 8% year over year. In APAC, orders climbed 9% year over year driven by growth in China, South East Asia and Korea but partially offset by softness in Japan.

Proton Solutions: Revenues at the segment dropped 28.3% to $27.6 million. Per management, operating earnings were impacted by project mix and costs.

Other: Revenues at this segment grossed $18.9 million. For investors’ notice, the segment comprises interventional oncology business, including cryoablation, embolic microspheres, and microwave ablation, as well as the company’s cardiac radioablation assets.

Varian Medical Systems, Inc. Price, Consensus and EPS Surprise

 

Varian Medical Systems, Inc. Price, Consensus and EPS Surprise

Varian Medical Systems, Inc. price-consensus-eps-surprise-chart | Varian Medical Systems, Inc. Quote

Margins

Total gross profit in the reported quarter was $366.8 million, up 16% year over year. Gross margin in the reported quarter was 44.2% of net revenues, up 150 basis points (bps).

Research and development expenses rose 10.2% year over year to $67.1 million. Selling, general and administrative expenses increased 25.4% year over year to $177 million.

Adjusted operating income in the fiscal first quarter totaled $134.6 million, up 12.9% year over year. As a percentage of revenues, operating margin was 16.2%, down 30 bps.

Guidance Retained

For fiscal 2020, Varian continues to expect revenues within $3.52-$3.61 billion, representing year-over-year growth of 9-12% and organic growth of 7-9%. The Zacks Consensus Estimate for the same stands at $3.57 billion.

Adjusted EPS is projected between $5.30 and $5.45. The Zacks Consensus Estimate is pegged at $5.39.

Our Take

Varian exited the fiscal first quarter on a weak note. However, the company continues to gain from its core Oncology Systems segment, which saw solid overseas growth, especially in EMEA and China. In fact, management foresees tremendous opportunities in China owing to the recent tariff exclusions. Gross orders surged in the quarter. Management is optimistic about the recently-closed acquisitions of CyberHeart, Cancer Treatment Services International, Endocare and Alicon. Expansion in gross margin is an added positive. Varian retained its outlook for fiscal 2020.

On the flip side, the Proton Solutions unit was weak in the quarter. Moreover, Varian saw some softness in orders in Japan.

Key Picks

Some better-ranked stocks in the broader medical space are Cerner CERN, DexCom DXCM and HealthEquity HQY, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Cerner’s fourth-quarter revenues is pegged at $1.43 billion, suggesting a year-over-year increase of 5%. The same for EPS stands at 74 cents, indicating a year-over-year upside of 17.5%.

The Zacks Consensus Estimate for DexCom’s fourth-quarter revenues is pinned at $457 million, calling for a year-over-year increase of 35.2%. The same for EPS stands at 72 cents, hinting at year-over-year growth of 33.3%.

The Zacks Consensus Estimate for HealthEquity’s fiscal fourth-quarter revenues is pegged at $193.6 million, calling for a year-over-year increase of 155.5%. The same for EPS stands at 19 cents.

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