Leading medical devices maker C. R. Bard’s (BCR) third-quarter fiscal 2011 adjusted earnings per share of $1.62 were ahead of the Zacks Consensus Estimate by a couple of cents and exceeded the year-ago earnings of $1.43. The results surpassed the New Jersey-based company’s guidance of $1.57 to $1.61.
Adjusted earnings exclude one-time items such as acquisition/restructuring charges and impairment of Greek bonds. Profit (as reported) for the quarter rose 2% year over year to $130.1 million (or $1.46 a share) on higher sales. Separately, C.R. Bard announced that it is buying medical devices maker Medivance Inc for roughly $250 million.
Revenues
Revenues climbed 6% (up 3% in constant currency) year over year to $719.2 million, yet missed the Zacks Consensus Estimate of $724 million. Sales were powered by growth across the board with the company’s Vascular and Oncology business leading from the front, backed by higher overseas revenues.
Geographically, U.S. sales edged up 2% to $486.5 million, impacted by sustained softness across several product lines. The company continues to face procedure volume headwind in the domestic market. International revenues zoomed 17% (up 7% in constant currency) to $232.7 million, buoyed by the emerging markets, which have registered a 39% growth in the quarter.
Segments Analysis
Revenues from the core Vascular segment jumped 9% year over year (up 5% in constant currency) to $208.2 million, benefiting from the contributions of the SenoRx acquisition.
Within Vascular, endovascular sales rose 6% in the quarter driven by higher sales of biopsy products (up 14%), SenoRx acquisition and double-digit growth in international sales. Peripheral PTA sales grew 5% with healthy growth (of 23%) witnessed in the specialty small vessel product category.
Vena cava filter sales tumbled 21% while Electrophysiology (“EP”) revenues rose 4%. EP Lab system sales cruised 28% whereas surgical graft revenues fell 3%. Revenues from stent and stent graft business were flat year over year with LifeStent posting double-digit growth in the quarter.
Oncology sales climbed 9% (up 6% in constant currency) to $198.9 million. Peripherally inserted central catheters/PICC sales surged 10% while Port revenues rose 3%, driven by sustained strong growth in the emerging markets. Revenues from vascular access ultrasound products went up 4% while the dialysis catheter business climbed 8% in the quarter.
Urology sales moved up 2% (flat in constant currency) to $182.2 million. Revenues from continence products slid 20% partly due to the discontinuation of the Contigen product line. Basic drainage business edged up 1% while I.C. Foley catheter sales fell 4%. Urological specialties revenues rose 4% with brachytherapy sales growing 5% in the quarter. Stand-alone sales of StatLock catheter stabilization line increased 5%.
Surgical Specialties division registered a revenue growth of 3% (up 1% in constant currency) to $107.6 million. Soft tissue repair business rose 4% with natural tissue products sales growing 6% in the quarter. Revenues from hernia fixation business clipped 18%, hit by increased competition. Synthetic hernia products business posted a growth of 8%, strongly backed by new products. Performance irrigation franchise contracted 13% while the hemostasis business remained flat year over year.
Margin Trends
Gross margin dipped to 61.8% from 62.9% as higher sales were neutralized by a rise in the cost of sales. Pricing pressure continues to affect gross margin. Marketing, selling and administrative expenses as a percentage of sales fell to 26.3% from 27.4%. Research and development expenses (as a percentage of sales) declined to 6.5% from 7% a year ago. Operating margin contracted to 25.3% from 27% a year ago.
Financial Condition
C.R. Bard exited the quarter with cash and short-term investments of $967.3 million (up 6% sequentially). Total debt increased modestly sequentially to $908.9 million. The company repurchased roughly 1.3 million shares in the quarter.
Medivance Takeover
C.R. Bard reported that it has struck a definitive agreement to buy Louisville, Colorado-based privately-held Medivance Inc for roughly $250 million. The transaction, which is subject to customary closing conditions including antitrust clearance, is expected to complete in fourth-quarter 2011.
Medivance is a leader in the growing field of therapeutic hypothermia. The company makes the Arctic Sun line of products which allows physicians to effectively control body temperature (a treatment known as therapeutic hypothermia), which help to treat critically ill patients.
The acquisition, which bodes well with C.R. Bard’s business model and will boost its critical care offerings, is expected to have an immaterial impact on its earnings per share in fiscal 2011. Following the takeover, Medivance will become part of the company’s Bard Medical division.
Guidance and Recommendation
Looking ahead, C.R. Bard forecast its fourth-quarter fiscal 2011 sales to grow 3%-5% in constant currency with new acquisitions contributing 1% to the growth. Adjusted earnings for the quarter are expected at $1.68 a share. The current Zacks Consensus Estimate for the fourth quarter is $1.70. For the fiscal, the company continues to expect earnings of $6.38 a share versus the Zacks Consensus Estimate of $6.37.
C.R. Bard’s well-diversified end-markets and vast product portfolio insulate it from fluctuations in any single therapeutic category. The company faces a mix of competitors ranging from large manufacturers with multiple business lines like Boston Scientific (BSX) and Johnson & Johnson (JNJ) to smaller manufacturers that offer a limited selection of products like Angiodynamics (ANGO).
We expect new product flow to drive organic revenue growth and help C.R. Bard to meet its sales objective. However, heightened competition (especially in soft tissue repair) and pricing/volume pressure remain areas of concern. Currently, we have a Neutral recommendation on the stock, supported by a short-term Zacks #3 Rank (Hold).
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