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Varian (VAR) Meets Q1 Earnings Estimates, Grows Globally

Zacks Equity Research

Varian Medical Systems, Inc.’s VAR first-quarter fiscal 2019 adjusted earnings of $1.06 per share were on par with the Zacks Consensus Estimate. Adjusted earnings were in line with the year-ago quarter figure.

Revenues totaled $741 million, which outpaced the consensus mark of $717.9 million. On a year-over-year basis, revenues rose 9.2% and 10% at constant currency (cc). Quarterly revenues were negatively impacted by $8 million.

Meanwhile, the Zacks Rank #3 (Hold) stock has rallied 12.1% compared with the industry’s 4.1% rise. The current level also compares favorably with the S&P 500 index’s 7.1% decline.

Let’s delve deeper into the company’s quarterly results.

Halcyon Drives Revenues

In the first quarter, the Halcyon platform received 20 new orders. Since its launch, Varian has received 202 orders worldwide.

The recent approval from China National Medical Product Administration has expanded the global availability of Halcyon.

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

 

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

 

Segment Details

Oncology Systems: In the first quarter, revenues in the segment totaled $702.5 million, up 8% year over year and 9% at cc. Excluding the impact of tariffs, revenues were up 9% year over year.

Varian’s worldwide net installed base had 8,918 units, up 322 units on a year-over-year basis. As a whole, gross orders grew 16% from the year-ago quarter, marking the highest growth in a decade.

Geographically, gross orders in Americas increased 12% on a year-over-year basis. In EMEA, gross orders rose 15% year over year, marking the sixth consecutive quarter of double-digit growth. In APAC, gross orders increased 25% year over year on strength in China.

Operating earnings in the segment declined 10% year over year owing to the impact of tariffs.

Proton Solutions: Revenues at the segment climbed 32% on a year-over-year basis to $38.5 million. Per management, this was driven by clinical handovers, representing an important future recurring revenue source for the segment.

Margins

Total gross profit in the reported quarter was $316.1 million, up 4.4% year over year. Gross margin in the reported quarter was 42.7% of net revenues, down 190 basis points (bps) on a year-over-year basis.

Research and development expenses rose 8.9% year over year to $60.9 million. Selling, general and administrative expenses fell 4% year over year to $120.5 million.

Adjusted operating income in the fiscal first quarter totaled $120.2 million, down 4.6% year over year. As a percentage of revenues, adjusted operating margin was 16.2% down 240 bps.

Guidance Reiterated

Varian has kept its guidance for fiscal 2019 intact.

For fiscal 2019, year-over-year revenue growth is expected in the range of $3.06-$3.15 billion, up 5-8% year over year. The Zacks Consensus Estimate for revenues is pegged at $3.10 billion, within the guided range.

Adjusted operating earnings, as a percentage of revenues, is projected in the band of 17-18%.

Adjusted net earnings per share are expected in the range of $4.60 to $4.75. The Zacks Consensus Estimate for earnings is pegged at $4.69, within the guided range.

Cash flow from operations is expected in the band of $460-$510 million for the fiscal.

Wrapping Up

Varian ended the first quarter of fiscal 2019 on a strong note. While earnings met estimates, revenues outpaced the same. The company continues to gain from its core Oncology Segment, which saw solid overseas growth in the quarter. Strength in China buoys optimism. In fact, management foresees tremendous opportunities in China for Varian’s radiation therapy products. The company’s flagship Halcyon system was granted exclusion from tariffs which is a major positive. Additionally, new proton therapy products are slowly building momentum for Varian’s Proton Solutions business.

On the flip side, Varian’s gross and operating margins contracted in the quarter. The U.S.-China tariffs also impacted the top line. Resultantly, the Oncology segment’s operating income declined in the quarter. The company competes with large electronic companies as well as smaller and more specialized radiation therapy equipment manufacturers.

Key Picks

A few better-ranked stocks in the broader medical space are BioTelemetry, Inc. BEAT, ABIOMED, Inc. ABMD and DexCom, Inc. DXCM.

BioTelemetry is expected to release fourth-quarter 2018 results on Feb 28. The Zacks Consensus Estimate for the period’s adjusted earnings per share is pegged at 42 cents and the same for revenues is $103.02 million. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ABIOMED is expected to release fourth-quarter fiscal 2018 results on Jan 31. The Zacks Consensus Estimate for the quarter’s adjusted EPS is pegged at 94 cents and for revenues it stands at $200.6 million. The stock has a Zacks Rank #2 (Buy).

DexCom is slated to release fourth-quarter 2018 results on Jan 26. The Zacks Consensus Estimate for adjusted EPS for the to-be-reported quarter is 14 cents and for the top line, it stands at $330.6 million. The stock carries a Zacks Rank of 2.

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