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CareFusion Corp. (CFN - Analyst Report) posted flat adjusted earnings per share of 44 cents for the first quarter of fiscal 2014 compared with the comparable quarter a year ago but exceeded the Zacks Consensus Estimate of 40 cents. Adjusted net earnings fell marginally by 3% to $96 million from $99 million a year ago.

On a reported basis, earnings declined to $78 million or 36 cents per share from $87 million or 39 cents in the first quarter of fiscal 2013.

Revenues in the quarter dipped marginally by nearly 1% (both in reported and constant currency) to $830 million, topping the Zacks Consensus Estimate of $818 million. The decrease was driven by fall in Medical Systems revenues.

Adjusted operating expenses inched up 1.8% to $281 million from $276 million a year ago, due to the medical device excise tax. Consequently, adjusted operating income fell 11.25% to $142 million from $160 million a year ago while adjusted operating margin ebbed 200 bps to 17.1% from 19.1% a year ago due to the unfavorable revenue mix apart from the impact of medical device excise tax.

Segment Results

Revenues from Medical Systems dropped 4.9% to $524 million as strong performance in the Infusion Systems business was offset by weaknesses in the Respiratory Technologies and Dispensing Technologies businesses. Segment profit ebbed 27.4% to $74 million from $102 million in the prior year quarter due to lower volumes in the Dispensing Technologies business resulting from a product line transition. Adjusted segment profit dipped 19.6% to $90 million from $112 million in the year-ago quarter.

Revenues from Procedural Solutions rose 7% $306 million, driven by double-digit revenue increases in both the Medical Specialties and Specialty Disposables businesses. Segment profit rose 2.4% to $42 million, driven by higher gross margin that was partially offset by increased investments in R&D. On an adjusted basis, segment profit grew 8.3% to $52 million from $48 million in the prior-year quarter.

Share Repurchase

CFN’s board of directors approved a two-year $750 million share repurchase program, after completing their previous $500 million authorization in June this year. Under the present authorization, the company repurchased approximately 3.3 million shares for $121 million in the quarter. Since the company initiated its repurchase program in February 2012, CareFusion spent $621 million for repurchasing 18.6 million shares.

Financial Position

CareFusion had cash and cash equivalents of $1,773 million as of Sep 30, 2013, down marginally from $1,798 million as of Jun 30, 2013. Total debt rose to $1,451 million as of Sep 30, 2013 compared with $1,446 million as of Jun 30, 2013. Debt to capitalization ratio was flat at 21.2% comparing both the timeframe.

In the quarter ended Sep 30, 2013, cash flow from operating activities went down 5.1% to $74.0 million from $78.0 million in the same period of 2012. But capital expenditure remained the same at $18 million during the quarter.

Fiscal 2014 Outlook

For fiscal 2014, CFN continues to expect revenues to grow between 1 and 4% on a constant currency basis. Adjusted earnings are also expected to lie in the previously guided range of $2.30 to $2.40 per share.

The guidance is based on an assumed weighted average outstanding share count of approximately 215 million, which includes the impact of expected share repurchases during fiscal 2014.

Our Take

CareFusion is a global corporation serving the health care industry with products and services that help hospitals measurably improve the safety and quality of care. Currently, CFN retains a Zacks Rank #4 (Sell).

Other stocks that are performing well in the medical products industry include Bio-Rad Laboratories, Inc. (BIO - Snapshot Report), Hill-Rom Holdings, Inc. (HRC - Snapshot Report), and INSYS Therapeutics, Inc. (INSY - Snapshot Report). All of them carry a Zacks Rank #1 (Strong Buy).

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