Shares of The Cooper Companies Inc. COO fell 8.5% ($12.07) in after hours trading on Dec 3, following dismal fourth-quarter fiscal 2015 results, which lagged the Zacks Consensus Estimate on both the fronts.
Cooper Companies reported adjusted earnings of $2.00 per share in the fourth quarter, which fell short of the Zacks Consensus Estimate of $2.10. Adjusted earnings per share (EPS), however, increased 2.6% on a year-over-year basis.
Quarter Details
Revenues fell 2.7% year over year to $455.5 million but fell short of the Zacks Consensus of $473 million. The year-over-year downside can be primarily attributed to weak performance by the CooperVision (CVI) and CooperSurgical (CSI) segments.
CVI revenues dropped 3% (up 5% at constant currency) on a year-over-year basis to $373.4 million, driven by lower adoption of Multifocal (down 1%) and Non-single-use sphere (down 9%) lenses. Adoption of Single-use sphere lenses was slightly better (up 2%), while that of Toric lenses remained flat on a year-over-year basis.
Geographically, revenues from the Americas rose 2%, Europe; Middle East and Africa (EMEA) fell 9% while Asia Pacific remained flat on a year-over-year basis.
CSI revenues declined 1% on a year-over-year basis to $82.2 million. Revenues from the office and surgical business declined 5% year over year, offset by a better performance by the fertility business (up 3%).
Adjusted gross margin expanded 70 basis points (bps) from the year-ago quarter to 63.9% owing to favorable foreign exchange impact on cost of goods sold, encouraging manufacturing variances and a favorable product mix led by Biofinity. These were offset by an unfavorable foreign exchange impact on revenues.
As a percentage of revenues, selling, general and administrative (SG&A) expenses remained flat at 36%. Research & development (R&D) expenses fell 20 bps to 3.5% in the quarter.
Adjusted operating margin expanded 70 bps on a year-over-year basis to $24% primarily because of a higher gross margin base.
Outlook
Cooper Companies provided its projection for fiscal 2016. Adjusted EPS is projected in the band of $7.60–$7.90, reflecting year-over-year growth of 10%–14%. This guidance includes negative foreign exchange rate impact of 58 cents per share.
The company forecasts total revenues in the range of $1.83–$1.87 billion.
CVI revenues are estimated in the band of $1.51–$1.54 billion, while that from CSI are now expected at around $325–$335 million.
For the first quarter of fiscal 2016, adjusted EPS is expected in the range of $1.52–$1.62.
Revenues are forecasted in the of $435–$447 million band. CVI revenues are projected in the band of $356–$366 million, while CSI revenues are expected to range between $79 million and $81 million.
Our Take
We are disappointed with Cooper Companies’ fourth-quarter 2015 results, which lagged expectations. We are concerned about the dip in the flagship contact lens business. Unfavorable foreign exchange rate continues to be a major headwind. We also view the integration disruptions in Europe as a negative.
However, CVI holds considerable promise in the long run. The company has already made a significant headway with the launch of clarity lenses in the U.S. MyDay lenses, which have been recently rolled out in the domestic market, also hold substantial prospects for the company.
We believe that the company will largely benefit from the complete integration of the Sauflon business. The manufacturing platform and formulation expertise of Sauflon will significantly help Cooper Companies to cut down production costs as well as capital expenditures and improve free cash flow. We are also impressed with the improving margins in the fourth quarter of 2015, which helped drive bottom-line growth in spite of weak top-line numbers.
Revenues from CSI continue to be a drag, marring overall results. However, a turnaround in the fertility business is expected to bode well for the company.
Zacks Rank & Stocks to Consider
Currently, Cooper Companies carries a Zacks Rank #3 (Hold). Better-ranked stocks in the medical sector are Masimo MASI, Natus Medical BABY and Olympus Corp OCPNY. All the stocks sport a Zacks Rank #1 (Strong Buy).
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