VIVO Misses on Earnings, Revs In Line

Diagnostic test-kit maker Meridian Bioscience Inc.’s (VIVO) fourth-quarter fiscal 2013 earnings per share grew 4.8% year over year to 22 cents from 21 cents a year ago, but missed the Zacks Consensus Estimate by a penny. Earnings increased 6.7% to $9.2 million from $8.6 million in the prior-year quarter. The lack of any surprising element in the quarterly report led VIVO’s stock to inch up merely by 1.3% to $25.23 on Nov 11.

For fiscal 2013, earnings of 92 cents per share climbed 10.8% over the year-ago adjusted earnings of 86 cents per share. The figure also beat the Zacks Consensus Estimate by a penny. Adjusted earnings increased 11.8% to $38.0 million during the fiscal year.

Revenues grew 12.6% year over year to $49.0 million, a record high for the company, and were in line with the Zacks Consensus Estimate. Growth was led by robust sales of the flagship illumigene product line.

For fiscal 2013, revenues again surged to a record high of $188.7 million, up 9% from the year-ago figure. Fiscal full-year revenues were almost in line with the Zacks Consensus Estimate of $189 million.

Gross margin in the fourth quarter slipped 20 basis points (bps) to 63.1%, mainly due to the impact of the Medical Device Excise Tax. Selling and marketing and general and administrative expenses increased 5.5% and 26.6% to $5.8 million and $9.0 million, respectively. Research and development (R&D) expenses were down 3.0% to $2.7 million.

On a positive note, VIVO’s operating income in the reported quarter was a record $13.3 million, up 10% year over year. However, operating margin was 27.1%, 60 bps down from the year-ago figure of 27.7%.

Segment Details

Effective from the fourth quarter, the company has combined its U.S. Diagnostics and the European Diagnostics segments into a single reporting segment viz. Diagnostics.

Revenues from the larger Diagnostics segment surged 15.0% year over year to $37.3 million, driven by the illumigene product line, particularly C. difficile assays and Group B strep. The total global illumigene customer base now stands at 1,182 labs. Moreover, in the immunoassay category, rapid tests for food-borne diseases along with H. pylori tests are delivering strong results. Operating income from this segment improved 21.8% to $10.9 million, while operating margin climbed 150 bps to 29.2% in the quarter.

Management expects the illumigene molecular system to continue to drive top-line growth during fiscal 2014 and plans to include 3 new tests into this family viz. illumigene Pertussis, illumigene CT/NG and illumigene HSV. The company will submit illumigene Pertussis for the U.S. FDA clearance this month. It also plans to commence beta trials for the illumigene CT/NG assay with FDA submission scheduled later in fiscal 2014.

Additionally, the Group A and Group B strep along with food-borne and H. pylori rapid tests are expected to carry forward VIVO’s growth momentum in fiscal 2014. Further, the company has set a target of 50 fresh customers every quarter.

Yet, at the same time, Meridian Bioscience continues to face macroeconomic difficulties in the European market. However, management is optimistic that the Meridian Bioscience Europe business will deliver real organic growth by mid-2014.

Revenues from the Life Science segment increased 5.5% to $11.7 million, led by the new MyTaq and SensiFast products from the Bioline business. Revenues from this segment were partially offset by flat sales from the core unit. Operating income from this segment improved 21.8% to $10.9 million in the quarter, while operating margin dropped a whopping 600 bps to 20.5%.

We note that the Life Science unit is gaining significant grounds in China, as Meridian Bioscience garnered more than $1 million in revenues from this region. Moreover, Bioline is successfully gaining from penetration in the industrial market for molecular components. The new series of Bioline offerings and expansion into global markets are expected to boost growth in this segment in fiscal 2014.

Financial Position

Meridian Bioscience exited the quarter with cash and cash equivalents of $44.3 million, 40.2% higher than $31.6 million as of Sep 30, 2012. As of Sep 30, 2013, current assets were $114.1 million compared to current liabilities of $21.7 million, resulting in working capital of $92.4 million and a current ratio of 5.3. The company has 100% borrowing capacity under its $30.0 million commercial bank credit facility but doesn’t have any bank-debt obligations outstanding.

Further, management has raised its annual indicated cash dividend for fiscal 2014 from $0.76 to $0.80 per share (up 5%). This represents the first dividend hike since fiscal 2010 and the nineteenth instance of the company raising its dividend payout.

Guidance

Meridien Bioscience reiterated its outlook for fiscal 2014. Revenues are expected in the range of $203 to $208 million, while earnings per share are estimated between 98 cents and $1.03. The bottom-line guidance is based on management’s assumption that average diluted shares outstanding will increase from approximately 41.9 million at fiscal 2013-end to approximately 42.3 million at fiscal 2014-end.

The Zacks Consensus Estimates for revenues and earnings per share for fiscal 2014 are pegged at $204 million and $1.00, respectively. Both estimates lie within the range guided by the company.

Our Take

We remain on the sidelines based on Meridian Bioscience’s modest fiscal first-quarter results. Although the company is benefiting from new product introductions and increasing popularity of the novel illumigene platform, tempered margins are affecting profitability. Further, crisis in the European region is another cause of concern.

Despite these shortcomings, VIVO’s strategies and future outlook appear reasonable. Prudent utilization of the company’s cash position to buy out accretive businesses and foster R&D development should drive future growth.

Meridian Bioscience presently has a Zacks Rank #3 (Hold). While we choose to stay neutral regarding VIVO, other companies like Hill-Rom Holdings, Inc. (HRC), INSYS Therapeutics Inc. (INSY) and NuVasive, Inc. (NUVA) are expected to do well in the medical products industry. All these stocks carry a Zacks Rank #1 (Strong Buy).

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