ZOLL Medical Corp.’s (ZOLL) second quarter fiscal 2010 (ended Apr 4, 2010) earnings of 17 cents per share surpassed the Zacks Consensus Estimate by 4 cents. The company earned 8 cents per share in the year-ago quarter. The better-than-expected results were driven by strong showing of its LifeVest business and inclusion of its Temperature Management business. 

Revenues in the reported quarter climbed approximately 15% year-over-year to $107.1 million. Revenue for the quarter reflected a positive foreign exchange impact of approximately $2.2 million, compared to the year-ago quarter and included approximately $4 million from the acquisition of the Temperature Management business. 

While sales in the North American market climbed approximately 16% year-over-year to $81 million during the reported quarter. International sales, which included $1.7 million related to Temperature Management, came in at $26.1 million, up 15% year over year. 

Sales in the North American hospital market, which included $2.3 million from the acquisition of the Temperature Management business, climbed to $24.7 million in the second quarter of 2010 from $17.5 million recorded in the year-ago quarter. North American hospital revenues were inclusive of US Military/Big Government sales of $4 million in the reported quarter as against $1.4 million in the year-ago period. Sales in the North American pre-hospital market for the quarter came in at $49.9 million, compared to $47.1 million in the year-ago quarter, up 6%. 

LifeVest revenues grew 59% year-over-year to $16.7 million and AutoPulse revenues climbed approximately 12% year-over-year to $4.5 million. ZOLL is continuing to grow its LifeVest business. ZOLL has established a direct sales force in Germany from April 2010 which focuses on the LifeVest Wearable Defibrillator business in Germany. 

ZOLL reported a gross margin of 55% for the reported quarter, as against 52% in year-ago quarter. The rise was primarily attributable to the improved pricing in the North American core defibrillator business. Total expenses increased 16.2% year-over-year to $53.2 million in the quarter. ZOLL exited the second quarter of fiscal 2010 with cash and cash equivalents of $44.4 million. 

Our Take 

We are pleased with Zoll’s wide range of products. Its significant international presence is also encouraging. ZOLL has operations in the United States, Canada, Germany, Austria, France, the Netherlands, New Zealand, United Kingdom, and Australia, and has distributorships and sales representative business relationships in the world’s major markets. 

However, we are concerned about the fierce competition faced by the company’s products. Furthermore, ZOLL’s strategy of growth by acquisition has inherent risks. Currently we are Neutral on ZOLL which implies that the stock is expected to perform in line with the overall U.S. equity market over the next six to twelve months. We advise the shareholders to retain the stock over this time period.
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