Varian Medical Systems (VAR) reported second quarter fiscal 2010 earnings per share of 73 cents, beating the Zacks Consensus Estimate of 68 cents and the year-ago earnings of 54 cents.
 
Sales
 
Total revenue in the second quarter increased 6% year over year to $586 million. Excluding a favorable foreign currency translation (FX), net sales increased 3% year over year.
 
Varian reported strong net orders and backlog in the second quarter. Net orders increased 13% year over year to $593 million. Total backlog at the end of the quarter was $2 billion, up 6% year over year.
 
Oncology Systems generated revenues of $465 million in the quarter, an increase of 4% year over year. Growth in this segment can be attributed to strong order flows (34% growth) from international markets. This was partly offset by lower business in North America (down 12%). Net orders in Oncology Systems were $476 million, up 10% year over year. 

X-Ray Products revenues increased 19% year over year to $102 million. Growth primarily stemmed from higher demand from several new customers for the company’s flat panel detectors. Net orders increased 52% year over year to $105 million.
 
Other revenues declined 19% year over year to $19 million. Net orders declined 42% year over year to $12 million.
 
Margins
 
Varian ended the second quarter with a gross margin of 43.4%, roughly flat year over year. Operating margin increased 100 basis points year over year to 23.1%.
 
Balance Sheet
 
Varian exited the second quarter with cash and cash equivalents of $654.7 million, an increase of 18% in the first half of the fiscal year. The company’s outstanding long-term debt stood at approximately $29.8 million at the end of the reported quarter.
 
Outlook
 
Varian expects total revenues in fiscal 2010 to grow by 6% to 7% year over year, compared with its previous guidance of a 6% growth. Earnings per share should range between $2.82 and $2.88, versus the previous guidance of $2.65 and $2.75.
 
In the third quarter, total revenues are expected to grow 13% year over year. Operating income should grow 16% to 17% year over year. Earnings per share should range between 60 and 63 cents. 

Varian is the world’s leading manufacturer of integrated radiotherapy systems used for treating cancer and a premier supplier of X-ray tubes for diagnostic imaging applications.

 
Presently, we are ‘Neutral’ on Varian.

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