C. R. Bard Inc (BCR) reported an impressive fourth quarter of 2014, wherein EPS of $2.29 surpassed the Zacks Consensus Estimate by a nickel. EPS also surged 40.5% from the year-ago quarter driven by a 9.6% increase in net sales, which totaled $867.2 million and surpassed the Zacks Consensus Estimate of $858 million.
At constant currency (cc), net sales increased 11% from the year-ago quarter. U.S. net sales jumped 14%, while International sales inched up 1% (5% at cc) in the reported quarter. At cc, Europe, Japan, and other International territories grew 3%, 2% and 8%, respectively. Meanwhile, emerging market sales accounted for 9% of total sales in the quarter.
Gore royalty revenues were approximately $38.6 million in the quarter under review. Organic sales grew 6.3% on the back of an early approval and launch of Lutonix drug-coated PTA balloon in the U.S.
Segment Details
Vascular product sales surged 19.5% year over year (22% at cc) to $244.6 million. Excluding the royalty payment from Gore and the impact from the divestiture of the Electrophysiology business, Vascular sales climbed 9% globally. Sales in the U.S. soared 14% whereas international sales were up a modest 3%.
Sales from surgical graft went down 6% in the quarter. The Endovascular business sales grew 11%, excluding the royalty payment from Gore. Within the Endovascular business, peripheral PTA line sales jumped 49% driven by the early FDA approval of the Lutonix drug-coated balloon in the U.S.
Sales from biopsy products climbed 1%, whereas sales from the Stent business declined 10% in the quarter. Vena cava filter line sales remained almost flat on a year–over-year basis.
Urology sales increased 7.6% from the year-ago quarter (9% at cc) to $217.8 million. Sales from the U.S. increased 6%, while it improved 14% internationally. Sale of products acquired from Rochester Medical contributed significantly to global growth of this business.
Within Urology, sales from the basic drainage business increased 7% globally, with about 4% of growth generated from the acquired Rochester medical products. I.C. Foley's sales were down 2% globally and also declined 4% in the U.S. Sales from the continence business soared 24% in the quarter, mainly driven by synergies from the Rochester Medical products.
Sales from neurological specialties grew 11% while that from the StatLock catheter stabilization line declined 3% in the reported quarter. Brachytherapy product sales decreased 3% globally.
Oncology sales increased 7.8% (9% at cc) to $237.5 million. Sales were up 7% in the U.S. and 15% outside the U.S. PICC sales grew 11% in the quarter with continued strong performance in the U.S., Europe and the emerging markets. Port line sales were up 5% year over year with significant growth coming from emerging markets.
Meanwhile, sales from the Vascular Access ultrasound product line were up 8%. Lastly, sales from the dialysis catheter business rose 11% in the quarter.
Surgical Specialties sales increased 3.1% (4% at cc) to $145 million. U.S. sales increased 4% while international sales were up 6%. Sales from the soft tissue repair business grew 5%.
Within soft tissue, synthetic hernia products sales posted a double-digit rise from the year-ago quarter. However, Bard reported declines of 15%, 3% and 4% in sales from its natural tissue product line, hernia fixation business and performance irrigation business, respectively.
Sales from the Other product line decreased 3.9% (or 12% in constant currency) to $22.3 million.
Product/Clinical Trial Update
During 2014, Bard launched 40 new products. Currently, its drug-coated balloon product is undergoing the Levant 2 Japan study. The company expects to submit clinical data from the study by late 2015 for approval in Japan.
In Vascular, Bard launched the LifeStream Balloon Expandable Covered Stent in Europe during the quarter. Further, enrollment is going on in the IDE study to support an iliac artery disease indication in the U.S. Bard expects to launch Tru-Flo PTA Catheters for use in valvuloplasty procedures in the upcoming first quarter.
Under the Urology segment, the company initiated the rollout of its new skyline sub 2 French stone basket family. In the Targeted Temperature Management portfolio, Bard recently launched its new PAD systems for use on neonates and pediatric patients in the U.S.
The company expects U.S. regulatory approval for the freehand stereotactic system for Vascular Access named Pinpoint GT by mid-year. Bard plans to expand its PICC product portfolio over the second half of 2015 and 2016.
Bard expects to submit antimicrobial PICC in the second half of 2015 for regulatory clearance and eventual launch upon approval. This first product will be followed by a series of launches to support coated PICCs in both PowerPICC and PowerPICC SOLO configurations.
Bard expects to file an application for the approval of its next generation POWERGLIDE family and expects to launch the product in the first half of 2016.
In Dec 2014, Bard launched its first antibiotic-coated biologic mesh, XenMatrix AB. The company expects to receive a PMA approval for its Progel sealant in the first half of this year. Other products in the pipeline include TRIDYNE vascular sealant and spring-loaded resorbable tack device named OPTIFIX.
Outlook
Bard expects full-year 2015 organic sales growth rate improvement over the full-year 2014 figure. The company projects organic sales growth between 4% and 5% at cc for 2015. At cc, it expects sales growth in the range of 3% to 5%. Foreign currency volatility is expected to negatively impact sales by approximately 3%.
Bard forecasts Vascular sales growth between 3% and 7%; Urology between 1% and 4%; Oncology between 3% and 6%; and Surgical Specialties business between 3% and 6%. The company expects its continuing investments in emerging markets will shift its portfolio to faster growing geographies.
Bard expects 2015 gross margin to decline in the range of 30 to 70 basis points (bps) from 2014, primarily owing to negative impact of foreign exchange volatility (50 bps) and incremental amortization from the U.S. approval of Lutonix (30 bps ) in Oct 2014.
Increasing pricing pressure will be a 40 to 60 bps negative headwind for gross margin. On the other hand, cost improvement program is expected to contribute 50 bps, while improving mix is expected to have a positive impact of 20 to 40 bps.
Management expects selling, general and administrative expenses, as a percentage of sales, to decline between 50 and 100 bps in 2015. The company expects research & development expenses, as a percentage of sales, in the mid-7% range.
For 2015, Bard forecasts adjusted EPS in the range of $8.95 to $9.05, which includes 25 cents negative impact from foreign currency volatility. Meanwhile, capital expenditure is forecasted between $120 and $140 million. The company expects operating cash flow to remain at around $700 million for 2015.
For the first quarter of 2015, Bard expects adjusted EPS in the range of $2.04 to $2.08. Also, the company expects sales growth at cc between 4% and 5% for the quarter.
Our Take
The fourth-quarter results reflect that the strategic investment plan announced by Bard in the beginning of 2013 has begun to generate returns. The company continues to focus on executing its plans with the objective of improving revenue growth and profitability. Management also expects enhanced revenue growth from the emerging markets which we believe has immense potential.
We believe that Bard’s expansive product portfolio is the key growth catalyst. Moreover, cost improvement program, investments on new product development and strong growth from emerging markets will help the company achieve its double-digit EPS growth target over the long term. Nevertheless, stiff competition and sluggish macro-environment remain headwinds.
Zacks Rank
Currently, Bard has a Zacks Rank #3 (Hold). Better-ranked stocks in the same sector are AmerisourceBergen (ABC), Bio-Reference Laboratories (BRLI) and Halyard Health (HYH). All the companies sport a Zacks Rank #1 (Strong Buy).
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