Thoratec Corp. (THOR) reported fourth-quarter fiscal 2010 adjusted (excluding one-time items) earnings per share of 25 cents, missing the Zacks Consensus Estimate of 27 cents while surpassing the year-ago results of 24 cents. For fiscal 2010, adjusted earnings per share of $1.12 beat the Zacks Consensus Estimate by a penny.
Reported net income from continuing operations rose a sharp 56% year over year to $12.6 million (or 21 cents per share). Results from continuing operations for both the current and previous years exclude results of Thoratec’s former International Technidyne Corporation (“ITC”) segment. The company completed the divestiture of this operation in November 2010.
Total revenues were $97.6 million in the fourth quarter, up 20.5% year over year, just missing the Zacks Consensus Estimate of $99 million. For fiscal 2010, sales rose 36.8% to $383 million, again trailing the Zacks Consensus Estimate of $388 million. Foreign exchange rate fluctuations had a $1.4 million unfavorable impact on revenues in fiscal 2010.
The HeartMate product line contributed $83.9 million in revenues in the fourth quarter, up 25.6% year over year. Among other products, revenues from CentriMag Blood Pump were $5.7 million, a growth of 29.5%.
During the reported quarter, pump sales amounted to $67.8 million, up 28.4%, while non-pump sales were $29 million, higher 5.8%. On a geographic basis, revenues from North America were $79.9 million, a growth of 18.2%, while international revenues were $17.7 million, up 32.1%.
Thoratec had a gross margin of 66.3% in the fourth quarter, an improvement from 64.8% in the year-ago quarter. Operating expenses climbed about 28.7% year over year to $42.4 million. Operating margin was lower at 22.9% versus 24.2% a year ago.
Outlook
The company forecasts revenues between $410 million and $425 million for fiscal 2011, driven by an estimated 10% to 15% growth in sales of HeartMate. The company expects adjusted earnings per share in the range of $1.35 to $1.45 for fiscal 2011.
Ventricular Assist Device (“VAD”) represents a substantial market opportunity for Thoratec with a significant number of eligible heart failure patients globally. With HeartMate II, Thoratec enjoys a monopoly in the U.S., having the only device of its kind for the destination therapy indication (for heart failure patients who are not eligible for heart transplant). Favorable adoption trend of the device is expected to support revenue growth moving forward.
However, Australian heart pump maker HeartWare International (HTWR) is expected to close the technology gap with the launch of its next generation VAD product. We are also cognizant of Thoratec’s single product line and concomitant lack of diversification in the business model.
Moreover, future VAD adoption is difficult to predict and is contingent on the reimbursement policies of the Centers for Medicare and Medicaid Services (“CMS”). Our Neutral recommendation on the stock is supported by a short-term Zacks #3 Rank (Hold).
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