Cooper Companies (COO), a company dedicated to contact lens and women’s health, reported its second-quarter fiscal 2011 (ended April 30) results with adjusted earnings per share of $1.02 handily beating both the Zacks Consensus Estimate of 93 cents and the year-ago earnings per share of 61 cents.
Adjusted earnings exclude $16.5 million (or 29 cents per share) related to the retirement of senior notes. Net income for the quarter increased eight-fold to $35.4 million (or 73 cents a share), partly boosted by higher operating income among other factors.
Revenue Analysis
Company-wide revenues for the quarter shot up 12% (8% in constant currency) year over year to $325.3 million, surpassing the Zacks Consensus Estimate of $315 million, driven mostly by healthy growth in vision-related products.
Sales from the contact lens division (“CVI”) increased 14% (8% in constant currency) year over year to $275.3 million. Revenues were higher from most product lines with mainstay toric lenses (up 14%), single-use sphere lenses (higher 17%) and non-single-use sphere lenses (up 15%) performing well, while multifocal sales dropped marginally.
On a geographic basis, sales from EMEA and Asia-Pacific surged 12% and 34%, respectively, and climbed a more modest 6% in the Americas. On a material basis, revenues from silicone hydrogel sales were up sharply 49% to $80.5 million while Proclear sales increased moderately by 7% to $74.3 million.
The women’s health segment (“CSI”) continued to perform reasonably well with revenues rising 6% year over year (5% excluding acquisitions) to $50 million. Sales of this strategic business unit was buoyed by surgical procedures which jumped 16% to $18 million.
Margin Trends
Cooper’s gross margin improved to 62% in the quarter from 57% a year ago, on account of improvement in manufacturing efficiency and changes in product mix. Higher gross margin was partially offset by rise in operating expenses. Operating margin improved to 19% from 13% in the year-ago period.
Financial Health
Cooper finished the quarter with cash and cash equivalents of just $8.4 million, down 14.2% year over year. The company continued with its de-leveraging trend as total debt dropped $159.7 million, or 22.4% year over year, to $553.2 million in the quarter.
Cooper generated $64.9 million of operating cash flow in the quarter and expended $23.2 million on capital expenditure, resulting in free cash flows of $41.7 million (down 31% year over year).
Outlook
Cooper amended its guidance for fiscal 2011 based on improved prospects for contact lens sales. The company now forecasts adjusted earnings per share for the year in a higher range of $3.90 to $4.05 versus its earlier expectation of $3.60 to $3.80. Revenue forecast for the year has also been slightly tweaked to a higher range of $1.280 billion to $1.3 billion versus the earlier forecast of $1.265 billion to $1.290 billion.
Revenues for the CVI and CSI divisions are expected in the range of $1,080 million to $1,095 million and $200 million to $205 million, respectively. Free cash flow has been forecast in a range of $190 million to $210 million, up from the earlier guidance of $180 million to $210 million.
Cooper is a global medical products company specializing in a wide range of contact lenses for the vision correction market. The worldwide contact lens market is poised for accelerated growth. User preferences are shifting from low-feature commodity lenses to more expensive single-use and specialty lenses including the higher oxygen permeable lenses (silicone hydrogel).
Higher lens prices, international expansion and increase in contact lens utilization rates in developing markets (given the declining drop-out rates) are expected to act as tailwinds.
However, Cooper faces stiff competition from well-established contact lens manufacturers such as Novartis (NVS) and Johnson & Johnson (JNJ). Depressed levels of consumer spending have heightened competitive pressures on the company.
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