Haemonetics Corporation (HAE) reported an adjusted EPS of 65 cents in the first quarter of fiscal 2012, way below the Zacks Consensus Estimate of 78 cents and the year-ago quarter’s adjusted EPS of 74 cents. The company was impacted by the OrthoPAT devices recall during the quarter. In addition, costs were incurred in an effort to substitute plasma HS core product (to collect plasma for transfusion) in certain European countries. These challenges will continue to impact over the remainder of the year, as Haemonetics strives to improve its quality and product portfolio.
The company reported revenues of $170.6 million in the quarter, up 5% compared with the year-ago period. However, revenues were lower than the Zacks Consensus Estimate of $175 million. Revenues from the domestic market increased 8.9% to $86.4 million, while international revenues came down by 0.5% to $84.2 million during the quarter.
Haemonetics earns about 82% of its revenues from the sale of disposables – plasma, blood bank and hospital disposables. While revenues from plasma and blood bank disposables increased 12.2% to $62.8 million and 3.2% to $49.2 million during the quarter, sales declined in hospital disposables (down 3% to $29.1 million). The remaining revenues were derived from software solutions and equipment, which recorded sales of $18.2 million (up 10.3% from the year-ago quarter) and $11.4 million (down 12.7%), respectively.
Despite growth, Plasma business continues to be negatively impacted by a change in collection practices in Japan. Within blood bank disposables, revenues from platelets increased 3% ($37 million) while Red cell disposables recorded a 5% growth to $12 million. While Platelet revenues benefited from strong sales in emerging markets, growth in Red cell disposables came on the back of better demand and market share gains.
Barring Diagnostics (consists principally of TEG Thrombelastograph Hemostasis Analyzer), which recorded a 19% growth to $6 million, revenues from Surgical disposables and OrthoPAT declined 4% to $16 million and 13.1% to $8 million, respectively. As mentioned earlier, OrthoPAT revenues were impacted by the voluntary recall of pre-2002 devices.
Outlook
Haemonetics revised its outlook for fiscal 2012. While the revenue guidance of 4−6% growth remains unchanged, operating margin is expected at 6−7% (previous guidance of 8−10%).
Gross margin is expected to increase by over 100 basis points (earlier expectation 200 basis points) and EPS should be around $3.35−$3.45 (adjusted EPS guidance of $3.50−$3.62). The current remediation plan is likely to cost the company $10 million or 25 cents per share, of which $9 million is expected to be non-recurring in nature.
Recommendation
Low global penetration and positive demand dynamics provide a positive long-term thesis for investing in the blood processing and supply chain management industry. However, the reported quarter has been disappointing for the company with regard to product recall. Although Haemonetics is striving to improve its quality, the recall would remain a headwind for the remainder of the year.
We are currently Neutral on Haemonetics.
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