Shares of Haemonetics Corporation (HAE) lost 1.9% to close at $30.60 on Apr 29, 2014, following the company’s announcement of its fourth-quarter and fiscal 2014 financial results on Apr 28. Haemonetics provided a preliminary outlook for fiscal 2016 along with its outlook for fiscal 2015 during the earnings call.
The company reported adjusted earnings of 46 cents per share in the fourth quarter of fiscal 2014, which decreased a significant 17.9% from the year-ago level while also lagging the Zacks Consensus Estimate of 58 cents. Adjustments include certain one-time items such as transformation, integration, and deal amortization expenses and tax benefits, totaling $24.2 million. On a reported basis, Haemonetics’ net earnings per share (EPS) were 19 cents, down 20.8% from the year-ago earnings.
For fiscal 2014, the company reported adjusted earnings of $2.19 per share, up from the year-ago earnings of $1.99 per share.
Total Revenues
Revenues decreased 3.5% year over year (down 2.3% at constant exchange rate or CER) to $241.1 million. The top line also fell short of the Zacks Consensus Estimate of $245 million. After taking into account the whole blood business from Pall Corporation (PLL), quarterly organic revenues increased 2% year over year at CER.
For fiscal 2014, revenues increased 5.2% year over year (up 7% at CER) to $938.5 million. Post consideration of the whole blood business from Pall Corp., fiscal 2014 organic revenues increased 1% year over year at CER.
Revenues by Product Categories
Under the Disposables product category (84.2% of revenues) comprising Plasma, Blood center and Hospital Disposables, Haemonetics reported revenues of $202.9 million, down 5.1% from the year-ago quarter. This decline is attributable to the weak performance of Blood center disposables.
Revenues from Blood center disposables declined 15.0% from the prior year to $95.9 million. The ongoing weakness in the U.S. blood collection market, loss of a European tender and order timing in the emerging markets were the major reasons for lower-than-expected revenues in the Blood center disposables business.
Software Solutions (7.9%) revenues were $18.9 million for the quarter, up 2.0% year over year while Equipment and Other (7.9%) revenues were $19.2 million, up 9.5% year over year.
Margins
Haemonetics reported a 90 basis points (bps) contraction in adjusted gross margin to 48.8% during the quarter. The decline in gross margin was largely on the back of unfavorable currency movement.
Adjusted operating expenses were flat at $83.4 million. However, adjusted operating profit declined 16.2% to $34.2 million and adjusted operating margin dropped 210 bps to 14.2%.
Fiscal 2015 Outlook
Haemonetics provided its fiscal 2015 outlook. The company expects adjusted EPS for the fiscal in the range of $1.85 – $1.95. However, the Zacks Consensus Estimate of adjusted EPSof $2.22 lies above the guided range. Moreover, total revenue for the year is expected to decline in the range of 0–2% on a year-over-year basis. The Zacks Consensus Estimate lies near the lower end of the guided range with an estimated decline of 0.05% in revenues in fiscal 2015. For fiscal 2015, organic revenues are expected to grow in the range of 0–2% at CER.
Haemonetics anticipates its plasma business revenues to grow in the range of 7–9% in fiscal 2015. Blood center revenues are likely to decline 10–12% on an organic basis. On the other hand, Hospital products are expected to grow 4–6% while Software Solutions are likely to grow 2–4%.
Haemonetics expects adjusted gross margin of 50% with adjusted operating income of $140−$150 million. In addition, free cash flow is expected at $120–$130 million.
Prelim Fiscal 2016 Outlook
Haemonetics also provided a preliminary outlook for fiscal 2016. The company expects to gain traction and return to a mid-single-digit revenue growth rate along with adjusted EPS growth in mid-to-high teens in fiscal 2016. The Value Creation & Capture ((VCC) investments are expected to be completed in fiscal 2016 with a nominal amount of $10–$15 million investments likely to be made that year.
Our Take
Haemonetics reported a disappointing quarter with both earnings and revenues missing the Zacks Consensus Estimate. Blood Centre disposable business remains a cause of concern for the company. The outlook provided for the next fiscal also fails to indicate any near-term catalyst that may improve the economic scenario.
Haemonetics considers fiscal 2015 to be a transition year for the company. It expects growth in Plasma, TEG and emerging markets to be offset due to three major reasons: unfavorable currency trend (weakness in the Japanese yen); continued non-performance of Blood Centre disposable on the back of U.S. secular headwinds resulting in decline in net volume and price and finally, fiscal 2014 bonus funding program that is expected to escalate the operating costs.
On the brighter side, the company also came up with an encouraging preliminary outlook for fiscal 2016. In addition, Haemonetics encompasses an enviable portfolio of blood management products and services, a strong cash balance along with a dedicated management focused on revenue enhancement and cost reduction programs. Thus, based on the aforementioned factors, we believe the company has the potential to sail through the difficult conditions characterizing 2015 and is poised to witness improved financials in the next fiscal.
Zacks Rank
Currently, Haemonetics holds a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the broader healthcare sector that warrant a look are Enzymotec Ltd. (ENZY), Myriad Genetics Inc. (MYGN) and Natus Medical Inc. (BABY). Enzymotec and Myriad Genetics sport a Zacks Rank #1 (Strong Buy) while Natus Medical carries a Zacks Rank #2 (Buy).
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