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Shares of Volcano Corporation (VOLC - Analyst Report) lost 17.4% since it released a disappointing preliminary result for the third quarter of 2013 earlier this week. The precision guided therapy tools provider for the diagnosis and treatment of coronary and peripheral vascular disease is slated to release its exhaustive third-quarter results on Nov 4.

A Look at Elementary Results for 3Q

For the third quarter, Volcano estimates revenues of about $95.8 million, higher than the year-ago revenues of $93.7 million but lower than the current Zacks Consensus Estimate of $97 million.

Growth was led by improved revenues from peripheral IVUS (Intravascular Imaging) and FFR (Fractional Flow Reserve) businesses accompanied by a 20% increase in European revenues.  

Revenues in the Medical segment that increased 3% (up 9% at CER) in the third quarter to $99.0 million, based on a robust 16% (at CER) hike in FFR single-procedure disposable business along with a 14% rise in total consoles sales and 4% increase in intravascular ultrasound (IVUS) single-procedure disposables.

FFR disposable sales grew 10% at CER in the U.S., 21% in Europe and 34% in Japan offset by an 8% drag in Rest of the world on a reported basis. On the other hand, console placement improved 5% in the U.S., 69% in Europe, 1% in Japan and 2% in the Rest of world compared with the year-ago quarter.

IVUS single-procedure disposables franchise revenues increased 7% in the U.S., 6% in Europe, 1% in Japan and declined 1% in the Rest of world on a year-over-year basis. The Industrial segment recorded revenues of $2.1 million in the quarter, down 28% year over year.

According to the company, the U.S. business continued to be impacted by a decline in PCI volumes. Moreover, despite growth in FFR business in Japan, the company is not happy with the overall performance in this region.

Outlook

Volcano also provided an updated fiscal 2013 guidance and a preliminary fiscal 2014 outlook.On a reported basis, revenues were lowered to the range of $391.0–$395.0 million from the earlier provided range of $394.0–$400.0 million.

The Zacks Consensus Estimate for 2013-revenues is pegged at $398 million which stands outside the guided range. At CER, the company expects revenue growth of 8% to 9% with medical segment revenues increasing 9% to10%.

For 2014, Volcano expects revenue growth in the range of 9% to 11% on a reported basis and 8% to 10% at CER. It expects PCI volume to be down 2.5% in the U.S., down 2% in Japan and flat in Europe on year-over-year bases. Moreover, second quarter of 2014 onwards, management anticipates a 7.5% reduction in reimbursement for all of the company’s disposable products in Japan.

Our Take

Favorable industry trends should lend positive momentum to Volcano. Barring Rest of the world, the other regions showed improvements through all the segments of Volcano. We are also encouraged by the console revenues which increased across all geographic regions. While we are impressed with the company’s pipeline development program, weaker guidance remains a major downside.

The stock currently carries a Zacks Rank #3 (Hold). Better-performing medical stocks such as Align Technologies Inc., (ALGN - Analyst Report), Cardinal Health, Inc. (CAH - Analyst Report) and Mindray Medical International Ltd (MR - Analyst Report), carrying a Zacks Rank #1 (Strong Buy) are expected to do well.

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