Kensey Beats Zacks Estimate

Kensey Nash Corp. (KNSY - Snapshot Report) recently reported strong results for the fourth quarter and full year 2009. Quarterly profit came in at 41 cents per share, compared to the Zacks Consensus Estimate of 38 cents and the year-ago loss of 9 cents per share.

Quarterly Results

Sales

Net sales in the quarter were $20.5 million, down about 7% year over year. In terms of business segments, sales of Biomaterials products fell 8% year over year to $12.3 million. Within this segment, Orthopaedic revenue declined 16% year over year to $7 million on lower sales of sports medicines due to the ongoing economic turbulence. This was partly offset by higher sales of the Vitoss Bioactive Foam products to its customer Orthovita Inc. (VITA).

Cardiovascular sales rose 8% year over year to $4.5 million. This segment consisted of vascular closure products that were sold to St. Jude Medical (STJ - Analyst Report).

The Endovascular unit, which Kensey sold to Spectranetics Corp. (SPNC - Snapshot Report) in May 2008, generated sales of $1.2 million. This indicates a decline of roughly 24% year over year primarily due to lower transfer pricing.

Royalty income was roughly flat year over year at $6.9 million. This included $5.3 million of Angio-Seal royalties and $1.6 million in royalties from Orthovita.

Margins

Gross margin increased 1,320 basis points year over year to 71.8%. The increase was due to lower cost of goods sold that offset declining sales. Research and development (R&D) expenses as a percentage of sales climbed 240 basis points year over year to 22.2%. Selling, general and administrative (SG&A) costs as a percentage of sales fell 2,870 basis points year over year to 12.6%.

Higher gross margin and lower SG&A expenses as a percentage of sales helped in improving operating margin by 4,500 basis points year over year to 37%.

Full-Year Results

Sales

Net sales for the year increased 3% year over year to $82.1 million. Biomaterials products sales grew 7% year over year to $51 million due to higher sales of cardiovascular and orthopedic products. Endovascular sales declined 38% year over year to $3.9 million. Royalty income rose 4% year over year to $27.2 million.

Margins

Gross margin jumped 460 basis points year over year to 70.5%. R&D expenses as a percentage of sales rose 50 basis points year over year to 22.1%. SG&A expenses as a percentage of sales declined 2,340 basis points year over year to 11.2%. Higher gross margin and lower SG&A expenses as a percentage of sales sent operating margin up by 2,890 basis points year over year to 37.2%.

Outlook

Kensey provided guidance for the first quarter and full fiscal year 2010. For the first quarter, the company expects total revenue between $19.8 million and $20.2 million. Product sales are expected in the range of $13.0 million to $13.2 million. Royalties are expected in the range of $6.8 million to $7.0 million. Earnings per share should range between 40 cents and 42 cents.

For the next year, the company expects total revenue between $86 million and $89 million. Product sales are expected in the range of $58 million to $60 million. The company guided towards royalties in the range of $28 million to $29 million. Earnings per share are expected in the range of $1.76 to $1.80. R&D costs should be about $20 million.

Kensey is a medical device company that provides resorbable biomaterials used in a wide variety of medical procedures and endovascular devices. The company’s products are used in cardiovascular, sports medicine, spine, extremities and endovascular markets.

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