The Cooper Companies (COO), a company focused on contact lens and women’s health, reported third-quarter fiscal 2011 (ended July 31) results with adjusted earnings per share of $1.15 comfortably beating both the Zacks Consensus Estimate of $1.08 and the year-ago earnings per share of 91 cents.
Net income (as reported) for the quarter stood at $38.1 million (or 78 cents a share), down 4% y/y, after the company recalled certain Avaira toric contact lenses and recognized a one-time charge.
Revenue Analysis
Company-wide revenues for the quarter increased 19% (12% in constant currency) year over year to $351.4 million, exceeding the Zacks Consensus Estimate of $332 million, driven mostly by solid growth in vision-related products.
Sales from the contact lens division (“CVI”) were up 20% (11% in constant currency) year over year to $298.3 million. Sales were higher across the board with mainstay toric lenses (up 17%), single-use sphere lenses (higher 21%) and non-single-use sphere lenses (up 24%) doing well, while multifocal sales were up more marginally.
On a geographic basis, sales from EMEA and Asia-Pacific jumped 25% and 40%, respectively, and increased a more modest 7% in the Americas. On a material basis, sales of silicone hydrogel were up a significant 56% to $91.9 million while Proclear sales increased moderately by 14% to $80.7 million.
The women’s health segment (“CSI”) continued to perform reasonably well with revenues rising 14% year over year (12% excluding acquisitions) to $53.1 million. Sales of this strategic business unit were bolstered by surgical procedures which increased 29% to $20.4 million.
Margin Trends
Cooper’s gross margin dropped to 58% in the quarter from 60% a year ago, on account of a $14.2 million reserve for inventory and return provisions arising from the voluntary recall of select lots of Avaira toric lenses, on August 19, 2011. Gross margin was higher at 62% excluding this reserve. Operating margin dropped to 13% from 17% in the prior-year quarter due to the Avaira recall and the reversal of a one-time gain of $6.1 million. Excluding these adjustments, operating margin was 19%.
Financial Health
Cooper exited the quarter with cash and cash equivalents of only $7.9 million, up 143% year over year. The company continued with its de-leveraging trend as total debt fell 34.9% year over year, to $406.5 million in the quarter.
Cooper generated $87.4 million of operating cash flow in the quarter and spent $19.1 million on capital expenditure, yielding free cash flows of $68.3 million (up 17% year over year).
Outlook
Cooper amended its guidance for fiscal 2011 based on better prospects for contact lens sales. The company now forecasts adjusted earnings per share for the year in a higher range of $4.20 to $4.25 versus its earlier projection of $4.00 to $4.15. Revenue forecast for the year has also been slightly modified to a higher range of $1.320 billion to $1.335 billion versus the earlier forecast of $1.280 billion to $1.300 billion.
Revenues for the CVI and CSI divisions are projected in the range of $1,117 million to $1,127 million and $203 million to $208 million, respectively. Free cash flow has been forecast in a range of $200 million to $220 million, up from the earlier guidance of $190 million to $210 million.
Cooper said it expects revenues in the range of $350 million to $365 million with adjusted earnings per share between $1.19 and $1.24 per share in the fiscal fourth quarter. That comprises $300 million to $310 million in sales from CVI and $50 million to $55 million from CSI.
Cooper is a global medical products company specializing in a wide range of contact lenses for the vision correction market with a smaller strategic business unit for women’s health. It reportedly holds the number three position in the $6 billion global contact lens industry.
Cooper is a leader in the high-margin toric lens market. It offers multiple designs of toric lenses, across a wide range of parameters, unlike some of its competitors, who offer toric lenses in a limited number of designs. The company is benefiting from strong demand for its Biofinity toric lenses.
However, Cooper faces formidable competition in each of its major product lines. Competition comes from globally well established contact lens makers such as Johnson & Johnson (JNJ) and Novartis (NVS). Depressed levels of consumer spending have heightened the competitive pressures on the company. Our Outperform recommendation on the stock is backed by a short-term Zacks #2 Rank (Buy).
COOPER COS (COO): Free Stock Analysis Report
JOHNSON & JOHNS (JNJ): Free Stock Analysis Report
NOVARTIS AG-ADR (NVS): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment