Haemonetics Corporation (HAE - Analyst Report) reported earnings of 46 cents per share in the first quarter of fiscal 2014. The result was 46% higher than the year-ago figure but was a penny short of the Zacks Consensus Estimate. The adjusted earnings include certain one-time items including transformation, integration and deal amortization expenses (a total of $40.2 million). On a reported basis, Haemonetics’ net loss per share was 15 cents, a huge drag compared to the year-ago earnings of 19 cents a share.
Revenues increased 24% year over year (up 29% at CER) to $219.5 million. However, it significantly lagged the Zacks Consensus Estimate of $233 million. After taking into account the whole blood business from Pall Corporation (PLL - Analyst Report), the quarterly organic revenues declined 5% year over year (down 2% at CER).
Revenues from the U.S. and the international market increased 38.9% and 10.0% to $122.1 million and $97.4 million, respectively. Barring Japan, where organic revenues declined 5% year over year, growth was recorded across other regions, namely Asia (12%), North America (2%) and Europe (14%).
Haemonetics earns about 87% of its revenues from the sale of disposables – plasma, blood centers and hospital disposables. Revenues from plasma were $65.3 million, (up 2.3% year over year), blood generated $95.7 million (up 94.1%) and hospital disposables were $30.0 million (down 7.1%). The rest of the revenues were generated from software solutions and equipment, which recorded respective sales of $16.7 million (down 3.2% year over year) and $11.4 million (down 14.1%).
Within plasma, North America disposables were up 11%, partially offset by a decline in Europe. Within blood center disposables, revenues from platelets disposables were down 8% to $34.4 million, while red cell disposables were down 17% to $10.0 million. The whole blood business was included in the company’s portfolio following the acquisition of Pall Corp. in Aug 2012. During the reported quarter, this business recorded sales of $51.3 million.
Revenues from Surgical disposables decreased 12% to $16.1 million. The downside was accountable to the timing of tenders in certain emerging markets, return of a competitor whose production operations were limited by a natural disaster in the prior year and softer-than-expected market conditions. However, the Diagnostics business grew 17% year over year to $7.6 million. The upside was driven by the company's Impact initiative that benefited the TEG Thrombelastograph Hemostasis Analyzer business.
OrthoPAT (orthopedic perioperative autotransfusion system) was down 16% year over year to $6.3 million. However, the company expects the impending launch of the new OrthoPAT Advance system to drive growth in fiscal 2014.
The company reported a 26% increase in adjusted gross profit to $113.5 million accompanied by a 60 basis points (bps) expansion in adjusted gross margin to 51.7% during the quarter.Margin improvement in the core business more than offset the impact of revenue mix toward low-margin whole blood disposables.
Despite an increase in adjusted operating expenses (up 18% to $80.0 million), the adjusted operating margin expanded 270 bps to 15.3%. The rise in operating margin was due to the inclusion of $14 million in the new whole blood collection business and operating discipline.
Haemonetics provided an update to its fiscal 2014 outlook. The company expects its adjusted EPS in the range of $2.30–$2.40, (up 15–20% annually), in line with its outlook provided earlier this year. In addition, total revenue is expected to increase by 7–10% (earlier expectation was 9–12%) on a yearly basis. For fiscal 2014, organic revenues are expected to grow in the range of 3–5% at CER (unchanged).
The company expects its plasma business to grow in the range of 7−9% in fiscal 2014. Blood center revenues are expected to decline 3−5% on an organic basis. Hospital products and Software Solutions are expected to grow nil to 3% and 5−7%, respectively.
The company expects to report adjusted gross margin of 52% (earlier expectation was the range of 51−52%) with adjusted operating income of $176−$183 million ($177−$183 million). In addition, free cash flow is still expected at $125 million.
Haemonetics reported a disappointing quarter with both earnings and revenues missing the Zacks Consensus Estimate. Hospital disposable business remains a cause of concern for the company. However, low global penetration and positive demand dynamics provide an encouraging long-term thesis for investing in the blood processing and supply chain management industry.
The stock holds a Zacks Rank #3 (Hold). The medical device stocks worth a look are IDEXX Laboratories Inc. (IDXX - Analyst Report) and Thoratec Corp. (THOR - Analyst Report). Both the stocks carry a Zacks Rank #2 (Buy).