Varian’s Robust Results

Varian Medical Systems, Inc. (VAR - Snapshot Report) reported strong fourth quarter and fiscal 2009 results. Quarterly earnings of 78 cents per share was ahead of the Zacks Consensus Estimate of 75 cents and the year-ago profit of 68 cents. For fiscal 2009, earnings per share was $2.65, surpassing the Zacks Consensus Estimate of $2.62 and the prior-year profit of $2.31.
 
Quarterly Results
 
Total revenues for the reported quarter increased 8% year over year to $642 million. Growth was seen across all the major business categories. Net orders increased 4% year over year to $755 million.
 
Oncology Systems generated revenues of $527 million in the quarter, an increase of 9% year over year. Growth in this segment can be attributed to strong order flows in international markets. This was partly offset by lower business in North America due to the current economic turbulence. Net orders in the Oncology Systems were $570 million, a decline of 7% year over year.
 
X-Ray Products revenues increased 11% year over year to $93 million. Growth was primarily stemmed from higher demand for the company’s new line of radiographic imaging panels. Net orders increased 3% year over year to $97 million.
 
Other revenues declined 16% year over year to $23 million. However, net orders were $89 million, compared to $21 million in the year-ago quarter.
 
Gross margin increased marginally by 10 basis points (bps) year over year to 44.4%. Research and development (R&D) expenses as a percentage of sales declined 70 bps year over year to 5.9%. Selling, general and administrative (SG&A) expenses as a percentage of sales increased 20 bps year over year to 15.0%. Higher gross margin and lower R&D expenses were responsible for increasing the operating margin 60 bps year over year to 23.5%.
  
Fiscal Year Results
 
Total revenues for fiscal 2009 increased 7% year over year to $2.2 billion. Growth was witnessed across all the major business segments. Oncology Systems’ revenues increased 8% year over year to $1.8 billion. X-Ray Products revenues increased 9% year over year to $332 million. Other revenues declined 9% year over year to $85 million. This was mainly due to slower deployment of the company’s security systems.
 
Net orders increased 3% year over year to $2.4 billion. Total backlog at the end of 2009 were $2.1 billion, an increase of 9% over that in fiscal 2008.
 
Gross margin increased 100 bps year over year to 43.4%. R&D expenses as a percentage of sales increased 10 bps year over year to 6.7%. SG&A expenses as a percentage of sales declined 30 bps year over year to 15.3%. Higher gross margin and lower operating expenses increased the operating margin 110 bps year over year to 21.4%.
 
Balance Sheet
 
Varian ended the year with cash and cash equivalents of $553.5 million, an increase of 39% year over year. The company’s outstanding long-term debt stood at approximately $32.4 million at the end of fiscal 2009.
 
Guidance
 
Varian has provided revenues and earnings guidance for the first quarter and fiscal 2010. For the first quarter, revenues are expected to increase 3% to 4% year over year. Earnings per share is projected in the range of 52 to 56 cents.
 
For fiscal 2010, revenues should increase by 4% to 5% year over year. Earnings per share should range between $2.65 and $2.75.
 
Varian is a global leading manufacturer of medical devices and software for treating cancer and other medical conditions. The company uses radiotherapy, radiosurgery, proton therapy, and brachytherapy for treating these diseases. In addition, the company supplies informatics software to different cancer clinics, radiotherapy centers and medical oncology practices.