Varian Medical Systems (VAR) posted first-quarter fiscal 2012 (ended December 30) net earnings of 79 cents a share, beating the Zacks Consensus Estimate of 76 cents but missing the year-ago earnings of 80 cents a share.
Net earnings for the quarter slipped 6.5% year over year to $90.2 million (or 79 cents a share).
Revenues & Orders
Sales for the first quarter increased roughly 8% year over year to $625 million, but trailed the Zacks Consensus Estimate of $633 million. Varian experienced delays in orders in the North American oncology segment while sales of X-Ray products were hit by inventory adjustments by Japanese customers. Order backlog increased 14% year over year to $2.5 billion at the end of the quarter.
Segment Review
Revenues from the Oncology Systems unit rose 8% year over year to $488 million, backed by demand for the company’s TrueBeam radiotherapy and radiosurgery system. Net orders went up 6% to $485 million as an 11% decline in North America was more than offset by 22% growth in international markets. Net orders from overseas markets constituted 60% of net orders received during the first quarter.
Varian’s X-Ray Products business ended the first quarter with sales of $113 million, up just 1% year over year. Net orders slipped 2% to $110 million.
Revenues from the “Other” category shot up about 56.3% year over year to $25 million in the quarter. Sales were driven by revenues from the setting up of the Scripps proton system. Net orders dropped 45.5% to $12 million primarily due to a fall in the security business and a difficult year-over-year comparison.
Gross margin dipped to 43% from 46% a year ago; gross margin was adversely impacted by difficult comparison, product mix and accounting policies for the Scripps proton system, which has a zero margin. Operating margin edged down to 20.6% from 23.6%.
Balance Sheet and Cash Flow
Varian ended the quarter with cash and cash equivalents of $606 million, down 13.9% year over year, with long-term debt of roughly $188 million compared with $23 million in the year-ago period.
Outlook
Moving ahead, Varian expects revenues to grow by 10% for fiscal 2012. Net earnings per share for the fiscal have been projected to rise by roughly 15%. The current Zacks Consensus Estimate for earnings per share is $3.96 on sales of $2,845 million.
For second-quarter fiscal 2012, the company envisions sales to grow roughly 8% year over year. Net earnings per share have been forecast to grow 12% to 13%. The current Zacks Consensus Estimate for earnings per share is $1.00 on sales of $713 million.
Varian is a leading manufacturer of integrated radiotherapy systems for treating cancer and a premier supplier of X-ray tubes for diagnostic imaging applications. The company operates in a technology-driven environment where success depends on the use of new technology, product development and upgrades. In the radiation oncology market, Varian competes with Accuray (ARAY).
Varian is poised to increase its market share in radiation oncology. It is currently enjoying a healthy demand for its coveted TrueBeam technology, which is meaningfully contributing to its net order oncology growth.
Moreover, Varian enjoys a strong balance sheet marked by minimal debt and sizeable cash. The company uses a part of its healthy cash flows for share repurchases.
However, Varian competes with larger players in a technology-intensive industry. Further, uncertainties stemming from health care reform and a still weak hospital capital spending environment across many developed countries, especially in Europe, are significant challenges. We currently have a long-term Neutral rating on Varian supported by a short-term Zacks #3 Rank (Hold).
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