Immucor, Inc. (BLUD) reported an EPS of 30 cents for the first quarter of 2011 (ending in August 2010), meeting the Zacks Consensus Estimate and unchanged from the year-ago quarter. The company reported a 1% increase in revenues to reach $83.6 million. However, revenues were marginally lower than the Zacks Consensus Estimate of $84 million.

Apart from currency fluctuations, which had a negative impact of $1.3 million, revenues were impacted by fewer ship cycles and lower sales volume. To worsen the situation, Immucor lowered its guidance for fiscal 2011 leading to a sharp decline in stock price.

In June 2009, the US Food and Drug Administration (FDA) issued a Notice of Intent to Revoke (NOIR) Immucor’s biologics license based upon inspection conducted by the agency in January 2009. During the inspection, several quality control issues were observed. Consequently, the company undertook the quality improvement project. The plant inspection was initially carried out in 2008, the company failed to take corrective measures, thereby inducing a follow-up visit by the FDA in January 2009.

The FDA did a re-inspection of the site in June 2010. However, in September, the agency refused to change the compliance status of the company since some deviations were noted. The FDA will be re-assessing the compliance status during its next inspection.

Gross margin remained unchanged at $59.7 million. However, as a percentage of sales, it declined 60 basis points (bps) to 71.3%, primarily due to unfavorable manufacturing variances, currency fluctuations and instruments expenses during the quarter. The first quarter of fiscal 2010 included $2.3 million of costs related to the company’s Quality Process Improvement Project, targeted at establishing a better quality system, which was completed in the third quarter of fiscal 2010.

A 15.8% rise in research and development expenses led to a 4.4% rise in operating expenses (excluding amortization expense) to $26.4 million. Operating margin was lower by 170 basis points to 37.2%.

Immucor’s main products — traditional reagents, capture reagents and instruments — accounted for 59%, 26% and 13%, respectively, of total revenues. Although Immucor earns the most from the manufacture of traditional reagents, its gross margin used to be lower than capture reagents. However, this trend has changed since the last quarter. Currently, both traditional reagents and capture reagents have recorded a margin of 80.3% each.

While traditional reagent revenues declined 9% annually to $49.6 million, revenues from both capture reagents ($21.6 million) and instruments ($10.9 million) increased 18%.

Immucor’s fourth generation automated instrument, Neo, received approval from the US Food and Drug Administration (FDA) in April 2010. Neo was launched in Europe in February 2010 and has received approval in Japan as well. The instrument recorded 18 orders during the quarter (7 in North America, 11 rest of the world). The company’s Echo recorded 26 orders during the quarter.

Outlook

Having witnessed lower demand for both reagents and instruments resulting from economic uncertainty, Immucor has lowered its guidance for fiscal 2011. The company is projecting a 3%-4% decline in industry volume during 2011 driven by less elective surgeries and better blood utilization by hospitals. This is impacting reagent revenue and instrument orders.

The company now expects revenues and EPS of $320−$332 million (previous guidance: $345−$355 million) and $1.08−$1.18 ($1.23−$1.29), respectively. Gross margin is expected to be in the range of 69.5%−71.0% (70.5%−71.5%).

 
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