Leading integrated radiotherapy systems maker Varian Medical Systems (VAR) posted fourth-quarter fiscal 2011 (ended September 30) earnings from continuing operations of 95 cents a share, missing the Zacks Consensus Estimate by a couple of cents while surpassing the year-ago earnings of 87 cents.
Net earnings for the quarter slipped 4% year over year to $100.7 million (or 87 cents a share) as the company booked a $9.7 million charge for the settlement of all remaining contractual commitments in its discontinued ACCEL research instruments business. Profit from continuing operation rose roughly 4% year over year to $110.4 million.
For fiscal 2011, earnings from continuing operation of $3.44 a share missed the Zacks Consensus Estimate by a penny and exceeded the year ago earnings of $2.96. The California-based company's shares were down $1.52 (or 2.55%) at $58 in after-hours trading on October 27.
Revenues & Orders
Sales for the fourth quarter jumped roughly 10% year over year to $719 million, but trailed the Zacks Consensus Estimate of $735 million. Sales were boosted by healthy growth across the company’s Oncology Systems and X-ray segments.
Order backlog zoomed 15% year over year to $2.5 billion at the end of the quarter. Growth was led by higher demand for new products of both Oncology Systems and X-ray divisions.
For fiscal 2011, revenues surged 10% year over year to $2,596.7 million, also falling short of the Zacks Consensus Estimate of $2,613 million.
Segment Review
Revenues from the Oncology Systems unit rose 7% year over year to $549 million, backed by healthy demand for the company’s TrueBeam radiotherapy and radiosurgery system. Net orders went up 9% to $717 million as a 2% decline in North America was more than offset by a 22% growth in international markets.
Varian’s X-Ray Products business ended fiscal 2011 strongly registering solid growth in tube and flat panel image detectors. Revenues from the X-Ray Products division soared 11% year over year to $119 million in the fourth quarter. Net orders spurted 13% to $126 million.
Revenues from the “Other” category shot up 53% year over year to $51 million in the quarter. Net orders for this business surged to $124.4 million from $7.6 million a year ago, buoyed by the recently booked $88 million order to supply the company’s ProBeam system to the Scripps Proton Therapy Center (being set up in San Diego under an agreement between Scripps Health, Scripps Clinic Medical Group and Advanced Particle Therapy of Nevada).
Margins
Gross margin dipped to 41.8% from 42.4% a year ago. Operating margin edged down to 22.2% from 22.8%. Margins were affected by a number of factors including pricing pressure.
Balance Sheet and Cash Flow
Varian ended fiscal 2011 with cash and cash equivalents of $583.7 million, up 12% year over year, with long-term debt of roughly $16 million, down 31% year over year.
Outlook and Recommendation
Moving ahead, Varian expects revenue to grow by 9%-11% for fiscal 2012, factoring in its recently announced acquisition of Calypso Medical Technologies. Net earnings from continuing operations for the fiscal have been projected in the band of $3.92 to $4.02 a share versus the current Zacks Consensus Estimate of $3.98.
For first-quarter fiscal 2012, the company envisions sales to grow roughly 8% to 9% year over year. Net earnings from continuing operations have been pegged in a range of 74 cents to 75 cents a share. Varian expects charges related to the Calypso acquisition and higher tax to impact its first quarter earnings. The current Zacks Consensus Estimate for the first quarter is 89 cents.
Varian is poised to increase its market share in radiation oncology. It is currently enjoying a healthy demand for its coveted RapidArc and TrueBeam radiotherapy technology, which is meaningfully contributing to its oncology net order growth. Moving forward, new products coupled with emerging markets should contribute to growth.
However, Varian aggressively competes with resourceful competitors for a limited pool of sales volume. In the radiation oncology market, the company competes with Accuray (ARAY). Further, uncertainties stemming from health care reform and a still weak hospital capital spending environment across many developed countries, especially in Europe, provide headwinds. We currently have a Neutral long-term rating on Varian supported by a short-term Zacks #3 Rank (Hold).
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