Leading pelvic-health devices provider American Medical Systems (AMMD) reported third-quarter fiscal 2010 adjusted (excluding special gains and amortization charges) earnings per share of 29 cents, beating the Zacks Consensus Estimate by a penny while surpassing the year-ago earnings of 27 cents. The results matched the higher-end of the company’s guidance range of 26 to 29 cents.
However, net income slid 35% year over year to $18.6 million (or 24 cents a share). The year-ago profit was boosted by gains from the divestiture of the company’s female sterilization assets and technology (“Ovion technology”) and extinguishment of debt.
Revenues edged up 0.6% (1.8% in constant currency) year over year to $124 million, missing the Zacks Consensus Estimate of $130 million. Sales were impacted by an unfavorable foreign exchange translation and a soft U.S. market.
Segment Analysis
By business segments, Men’s Health sales rose 0.9% year over year to $55.2 million, as higher sales from male continence product lines were partly masked by a relatively flat erectile restoration business. BPH Therapy segment revenues dipped 2.9% year over year to $26.9 million, impacted by the delay in the launch of the much-anticipated next-generation BPH therapy system, MoXy Liquid Cooled Fiber.
Revenues from American Medical’s Women’s Health business spiked 6% year over year to $41.2 million. Growth was driven by the sustained healthy performance of pelvic floor repair products buoyed by the success of Elevate anterior and Elevate posterior systems. Sales in the female continence product line were flat in the quarter.
Geographically, the U.S. sales (up 2.1%) contributed roughly 74% to total sales while international revenues (up 0.5%) accounted for the balance.
Gross margin declined narrowly to 82.3% from 82.7% a year-ago as higher cost of sales offset revenue growth. Likewise, operating margin fell modestly to 26.5% from 26.9% on account of higher expenses.
Balance Sheet and Cash Flow
American Medical exited the quarter with a sound balance sheet with cash and short-term investments increasing 25% year over year to $61.8 million. The company remains committed to de-leveraging as total outstanding debt and other long-term liabilities declined roughly 25% year over year and 8% sequentially to $341 million.
American Medical generated $74.2 million in cash from operations during the nine month period (ended October 2), an annualized decline of roughly 23.6%.
Outlook
American Medical has released fourth quarter guidance and revised its fiscal 2010 outlook. For the fourth quarter, the company expects total revenues to range between $141 and $146 million. Adjusted earnings have been projected in the band of 35 to 38 cents per share.
American Medical has narrowed the revenue guidance for fiscal 2010 to a range of $536 million and $541 million from its earlier projection of $544 million to $560 million, factoring in the softness in U.S. procedure volume.
Adjusted earnings per share target have been revised to between $1.24 and $1.27 from $1.19 and $1.27. The current Zacks Consensus Estimates for EPS and revenues for fiscal 2010 are $1.26 and $553 million, respectively.
Minnesota-based American Medical is a world leader in manufacturing medical devices and procedures for treating health problems of both men and women. The company has a roughly 35% world market share in female continence products, ahead of its nearest rivals, Johnson & Johnson (JNJ) and Boston Scientific Corporation (BSX).
American Medical remains focused on rolling out new products to drive growth. Other positive factors are represented by the company’s strong position in the urology market and a healthy balance sheet. However, American Medical’s European markets have yet to recover from the macroeconomic headwinds.
Currently, we have a Neutral rating on the stock. We are currently Neutral on American Medical.
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