Shares of Halyard Health Inc. HYH fell 5.4% to $25.52 on Feb 29 following the release of the company’s fourth-quarter 20Array5 results. The company reported adjusted earnings of 57 cents which beat the Zacks Consensus Estimate by 7 cents but plunged 64.2% from the year-ago quarter. The downside was primarily led by lower net sales and higher operating expenses.
Net sales declined 8.6% (down 7% at constant currency) on a year-over-year basis to $40Array.4 million, which missed the Zacks Consensus Estimate of $402 million. The miss may be attributed to unfavorable foreign exchange and weak performance by the Surgical and Infection Prevention (S&IP) segment.
Adjusted EBITDA plunged 4Array.4% from the year-ago quarter to $5Array million.
Research and development (R&D) expenses, as a percentage of sales, increased 60 basis points (bps) on a year-over-year basis to 2.3%. Selling, general & administrative (SG&A) expenses expanded 320 bps to 2Array.5%.
As a result, adjusted operating margin contracted 740 bps to Array0.2% in the reported quarter.
In full-year 20Array5, net sales decreased 6% (down 3% at constant currency) to $Array.57 billion. Adjusted earnings declined 48.7% year over year to $2.ArrayArray.
Segment Details
Surgical and Infection Prevention (S&IP) sales fell Array2% (down 9% at constant currency) from the year-ago quarter to $263 million. The deterioration may be attributed to lower selling prices of exam gloves and sterilization. Volume decline of surgical drapes and gowns and protective apparel also hurt sales.
S&IP operating profit was $27 million, down from $48 million reported in the year-ago quarter. The decline can be primarily attributed to lower volume and selling price, higher manufacturing costs related to a curtailment in production to lower inventory levels and planned stand-alone costs.
Medical Devices sales increased 5% (up 6% at constant currency) to $Array34 million. Higher sales of interventional pain solutions in North America drove the results.
Operating profit totaled $2Array million, down from $28 million reported in the year-ago quarter. The downside was primarily owing to higher operating expenses.
Guidance
For full-year 20Array6, Halyard Health expects earnings in the range of $Array.45 to $Array.65 per share.
Net sales, on a constant currency basis, are expected to decrease 2% to 5%. Unfavorable foreign currency exchange rate is expected to hurt net sales by 0.5% to Array.5%.
S&IP net sales, excluding net sales to Kimberly-Clark, are expected to decline 3% to 5% on a constant currency basis. Net sales to Kimberly-Clark are expected to range between $40 and $45 million as compared to $50 million in full-year 20Array5,
Medical Devices net sales, on a constant currency basis, are expected to increase 3% to 5%.
Inflation in key cost inputs are projected in the band of $5 million to $Array0 million. Research and development investment is expected to range between $35 million and $40 million in full-year 20Array6.
Zacks Rank & Key Picks
Currently, Halyard Health has a Zacks Rank #4 (Sell).
Better-ranked stocks in the medical sector include STAAR Surgical STAA, Cooper Companies COO and Henry Schein HSIC. While STAAR Surgical sports a Zacks Rank #Array (Strong Buy), Cooper and Henry Schein hold a Zacks Rank #2 (Buy).
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