Varian Medical Systems (VAR) has reported strong first quarter fiscal 2010 results. The company reported revenues of $540.94 million, up 6.3% from the corresponding period last year. Varian’s first quarter earnings per share (EPS) came in at 63 cents, which surpassed the Zacks Consensus Estimate and the year-ago quarter’s EPS by 7 cents. Earnings estimates were trending up recently, with two of the 10 analysts covering the stock raising their quarterly estimates in the last 30 days. In terms of earnings surprises, Varian has consistently reported above expectations. Varian had a positive surprise of 4% and 8% in the fourth and third quarters of fiscal 2009, respectively, with the four-quarter average of positive 7%. This means that, on an average, Varian has come ahead of the Zacks Consensus by 7% over the last four quarters.
Varian’s first quarter net orders of $496 million, including a $62 million reversal of a previously announced order declined 10% from the year-ago period. However, excluding the order reversal, Varian’s order book would have been $558 million, up 1% year-over-year. Order backlog at quarter-end stood at $2 billion, up 4% compared to the corresponding period last year.
Oncology Systems generated revenues of $430 million in the quarter, an increase of 8% year-over-year. Growth in this segment can be attributed to strong order flows (19% growth) from international markets. This was partly offset by lower business in North America (down 13%) due to the current economic turbulence. Net orders in Oncology Systems were $437 million, up 2% year-over-year.
X-Ray Products revenues increased 6% year over year to $91 million. Growth primarily stemmed from higher demand for the company’s digital detectors from several new customers in Asia and Europe. Net orders increased 9% year-over-year to $99 million.
Other revenues declined 20% year-over-year to $19 million. Net orders were a negative $40 million, compared to $73 million in the year-ago quarter, primarily due to a $62 million order reversal from Swedish company, Skandion Kliniken.
Gross margin increased by 160 basis points (bps) year over year to 44.6%. Increase in gross margin was due to a 6.3% increase in revenues, which was partially offset by a 3.5% increase in cost of revenue. Operating expenses of $121.9 million almost remained unchanged from the year-ago period. Improved gross margin raised the operating margin by 260 bps to 22%.
Varian exited the quarter with cash and cash equivalents of $625.5 million, up from $553.5 million as on October 2, 2009. The company’s outstanding long-term debt stood at approximately $32.3 million at the end of the reported quarter.
In addition to posting quarterly results, Varian upgraded its guidance for fiscal 2010. The company expects revenues to rise by 6% compared to 2009 and EPS in the range of $2.76 to $2.83, up from the previous guidance of $2.65 and $2.75. For the second quarter of 2010, Varian expects a 4% year-over-year rise in revenues with EPS in the range of $0.66 – $0.68. For 2010, the current Zacks Consensus estimate is $2.72, with estimates on the rise. Over the last 7 days, two analysts raised their annual estimates. We are Neutral on the stock.
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