Masimo Corporation (MASI), a leader in non-invasive monitoring technology for patient care, recorded third-quarter fiscal 2011 earnings per share of 24 cents, missing the Zacks Consensus Estimate of 28 cents. Reported profit dipped 9.7% year over year to $14.8 million.
Sales for the quarter increased 3% year over year to $104 million, missing the Zacks Consensus Estimate of $109 million. Product revenues were up 10% to $97.6 million, supported by higher sales of sensors. Masimo’s global end-user business shot up 18% year over year but revenues from Original Equipment Manufacturer (“OEM”) were down 20%.
Sales of Rainbow products dropped 35% year over year to $7.8 million as the company had recorded a large order worth $4 million from the U.S. Marine Corps in the prior-year period. Royalty revenues plummeted 47.4% to $6.4 million due to changes in the royalty structure under the company’s agreement with Covidien (COV).
During the quarter, Masimo shipped about 33,400 Masimo SET pulse oximetry and Masimo Rainbow SET pulse co-oximetry units, lower 11% year over year. The company’s worldwide installed base grew 16% year over year to 950,000 units at the end of the third quarter.
Gross margin fell to 65.8% from 70.9% in the year-ago quarter due to higher cost of sales and lower royalty revenues. Operating margin declined to 18.2% from 22.6% a year ago.
Balance Sheet
The company exited the quarter with cash, cash equivalents and short-term investments of $143.2 million, up 14.2% year over year.
Outlook
Masimo now expects total sales in a range of $436 million to $439 million for fiscal 2011, down from earlier projection of $446 million to $463 million. Product sales are expected to be in a band of $404 million and $407 million (earlier $415 million and $430 million) and royalty of about $31.5 million to $32.5 million (earlier $31 million to $33 million). The company projects earnings per share (on a reported basis) between $1.04 and $1.06 (earlier near the lower end of the range of $1.17 to $1.25).
Masimo is a market leader in the pulse oximetry monitoring equipment industry. The company’s prospects are encouraging, given the sizeable global market opportunity, adoption of pulse oximetry in non-critical areas of the hospital and growing barriers to entry due to additional non-invasive parameters.
Shipments have been growing at a steady rate fueled by new contracts. Moreover, the renewal of the royalty agreement with Covidien provides limited impetus albeit at lower rates. However, competition is intense and Masimo partly depends upon its OEM partners for sales as well as royalty.
On June 15, 2011, Masimo announced a non-exclusive, long-term agreement with Philips (PHG), under which Philips will utilize Masimo’s Rainbow SET know-how. Masimo anticipates that it will launch future joint development efforts. Subsequently, Philips products will integrate Masimo’s Rainbow SET technology. Currently, we have a Neutral rating on Masimo.
