Haemonetics Tops Q1 Earnings and Revenues, Guidance Retained

Haemonetics Corporation (HAE) reported adjusted earnings of 38 cents per share in the first quarter of fiscal 2015, which decreased a significant 17.4% from the year-ago level of 46 cents per share. However, adjusted earnings beat the Zacks Consensus Estimate by 3 cents or 8.6%. On a reported basis, Haemonetics posted loss per share of 7 cents, up 53.3% from the year-ago loss of 15 cents per share.

The company’s shares lost 1.4% to eventually close at $35.57 yesterday, following the huge year-over-year loss the company experienced in its earnings outcome.

Total Revenues

Revenues increased 2.3% year over year (up 2.0% at constant exchange rate or CER) to $224.5 million. The top line also steered ahead the Zacks Consensus Estimate of $216 million. In the reported quarter, net currency had no impact on the company’s revenue growth rate. Moreover, both the yen and euro spot rates, being slightly better than expected, benefited top-line growth during the first quarter.

Revenues by Product Categories

Under the Disposables product category (87.4% of revenues) comprising Plasma, Blood center and Hospital Disposables, Haemonetics reported revenues of $196.2 million, up 2.7% from the year-ago quarter. This improvement is attributable to the robust performance of Plasma disposables and low-single-digit growth in hospital disposables, which outweighed the weak performance of Blood centre disposables.

Software Solutions (7.9% of revenues) revenues were $17.7 million for the quarter, up 5.9% year over year, which can be attributable to the BloodTrack orders in the U.S. and the U.K. On the other hand, Equipment and Other (4.7% of revenues) revenues were $10.6 million, down 10.1% year over year, driven by timing of tenders and capital budgets.

Margins

Haemonetics reported a 330 basis points (bps) contraction in adjusted gross margin to 48.4% during the quarter. Currency contributed 70 bps of this fall in the adjusted gross margin while lower pricing and volume in the U.S. whole blood business and mix toward lower gross margin plasma revenues accounted for the rest of the decline.

Adjusted operating income declined 14.1% to $28.8 million. Consequently, adjusted operating margin also dropped 250 bps to 12.8%.

Financial Position

Haemonetics exited the quarter with cash and cash equivalents of $139.9 million, down from $192.5 million as of Mar 29, 2014. Capital expenditure in the second-quarter of fiscal 2015 was $37.1 million, significantly up from the year-ago figure of $13.1 million. Haemonetics reported free cash flow (before transformation and restructuring costs) of $1 million in the reported quarter, down from the prior-year’s number of $13 million.

Fiscal 2015 Outlook

Haemonetics has reaffirmed its fiscal 2015 outlook. The company continues to expect adjusted EPS for the fiscal in the range of $1.85–$1.95. The Zacks Consensus Estimate of adjusted EPS of $1.88 lies below the midpoint of the guided range.

Total revenue for the year is still expected to decline in the range of 0–2% on a year-over-year basis. In addition, $40–$50 million of revenue growth from identified growth drivers is expected to be more than offset by $50–$55 million of revenue headwind from net volume and pricing declines in the U.S. blood center business and weakness in the Japanese yen. The Zacks Consensus Estimate of $929 million lies within the guided range representing a decline of 1.1% in revenues in fiscal 2015.

Haemonetics continues to expect adjusted gross margin of 50% with adjusted operating income of $140−$150 million and operating margin of approximately 16%. In addition, income taxes are still expected at approximately 26% of pre-tax adjusted income and free cash flow is expected at $120–$130 million.

Prelim Fiscal 2016 Outlook

Haemonetics provided an update to its preliminary outlook for fiscal 2016. The company continues to expect to gain traction and return to a mid-single-digit revenue growth rate. However, Haemonetics now expects double-digit growth in adjusted EPS (up from its previous guidance of mid-to-high EPS growth). The company also expects double-digit growth in adjusted operating income in fiscal 2016. The Value Creation & Capture (VCC) investments are still 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 an impressive first quarter fiscal 2015 with both earnings and revenues outpacing the Zacks Consensus Estimate. The company’s plasma disposables continue to be a profitable business, with particular strength in North America. The company’s hospital diagnostics business also happens to be a booming one, with 1,800 TEG devices installed in the past three fiscal years. Management firmly anticipates strong growth to continue in this business segment on account of current and anticipated trends in surgical ongoing OrthoPAT market headwinds, and constant strong growth observed in TEG.

However, the company’s Blood Centre disposable business remains a cause of concern for management, particularly the white blood disposables segment which drastically deteriorated in the reported quarter. The company expects that the loss of the ARC whole blood tender will continue to adversely affect this business segment for the remaining quarters of fiscal 2015.

Haemonetics continues to consider fiscal 2015 as a transition year for the company. It expects growth in Plasma, TEG and emerging markets to be offset by three major factors: unfavorable currency trend , the weak performance of the U.S blood collection market and finally, fiscal 2014 bonus funding program that is expected to escalate the operating costs. We believe Haemonetics has every potential to overcome its existing difficulties and achieve improved financials in the next fiscal.

Zacks Rank

Currently, Haemonetics holds a Zacks Rank #2 (Buy). Some better-ranked stocks in the medical products industry that warrant a look are AtriCure, Inc. (ATRC), Abaxis, Inc. (ABAX) and Alere Inc. (ALR). AtriCure sports a Zacks Rank #1 (Strong Buy) while Abaxis and Alere hold a Zacks Rank #2 (Buy).