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Varian Medical (VAR) Beats Q3 Earnings & Revenue Estimates
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Maintaining its streak of positive earnings surprises, Varian Medical Systems, Inc.’s third-quarter fiscal 2018 adjusted earnings of $1.04 per share trumped the Zacks Consensus Estimate of $1.01. Adjusted earnings also improved 26.8% on a year-over-year basis.
Revenues totaled $709.1 million, which beat the consensus mark of $664.9 million. On a year-over-year basis, revenues rose 12.1% or 10% at constant currency (cc).
Varian Medical has a Zacks Rank #3 (Hold). The company has outperformed its industry in a year’s time. The stock has returned 16.1% compared with the industry’s decline of 8.1%.
Let’s delve deeper into the company’s quarterly results.
Varian Medical Systems, Inc. Price, Consensus and EPS Surprise
In the third quarter, oncology revenues totaled $667 million, up 18% year over year. Revenues increased 16% at cc. Varian Medical’s worldwide net installed base was 8,046 units, up 4% or 280 units on a year-over-year basis. As a whole, gross orders totaled $763 million, up 11% from the year-ago quarter. Gross orders grew 9% at cc.
Geographically, gross orders in Americas increased 9% on a year-over-year basis. The figure grew 9% at cc as well. Strong performance in North America boosted sales in the unit.
In EMEA, gross orders increased 27% year over year, 21% at cc.
In APAC, gross orders increased 7% year over year. Gross orders from APAC grew 9% at cc.
Operating earnings in the segment rose 20% year over year.
Particle Therapy
Revenues in this segment declined 39% on a year-over-year basis to $42 million.
Notably, the company did not book any new ProBeam order in the quarter.
Halcyon Drives Revenues
In the third quarter, the Halcyon platform received 17 new orders. In Spain, the Ortega Foundation in Catalonia ordered nine TrueBeam and three Halcyon systems.
Varian Medical announced that Halcyon is now being used in three centers in Africa: Clinique le Littoral Casablanca and Centre d'Oncologie Nakhil Rabat in Morocco, and Busamed Oncology Center, Hillcrest in South Africa.
Of the Halcyon orders taken since launch, approximately 45% have been from emerging markets. Notably, 60% of third-quarter Halcyon orders were from the Americas.
Margins
Total company gross profit in the reported quarter was $313.6 million, up 18.1% year over year. Gross margin in the reported quarter was 44.2% of net revenues, up 220 basis points (bps) on a year-over-year basis.
Research and development expenses rose 8% year over year to $59.5 million. Selling, general and administrative expenses increased 14.4% year over year. The company’s operating income rose 3.4% to $91.5 million.
However, operating margin decreased 110 bps in the quarter.
Financial Condition
Varian Medical exited the third quarter of fiscal 2018 with cash and cash equivalents of $536 million compared with $739.9 million at the end of the third quarter of fiscal 2017.
Year-to-date operating cash flow was $346.7 million, up 28.7% from the year-ago period.
Free cash flow came in at $362.3 million in this period, down 8.3% from the year-ago period.
During the quarter under discussion, the company returned $39 million to shareholders via share repurchases.
Guidance
For fiscal 2018, year-over-year revenue growth is expected in the range of 9-11%, up from the previous guidance of 6-9%. The Zacks Consensus Estimate for revenues is pegged at $2.84 billion at the moment.
Adjusted operating earnings, as a percentage of revenues, is projected in the range of 17.5-18%.
Adjusted earnings per share are expected in the band of $4.43 to $4.48. The Zacks Consensus Estimate for earnings is pegged at $4.48, which lies at the high end of the guided range.
Cash flow from operations is expected in the range of $475-$550 million for the fiscal.
In Conclusion
Varian Medical ended the third quarter on a solid note, with the Halcyon platform driving the top line.
The company has been gaining consistently from its coveted Halcyon platform. Solid revenues from Oncology and strong overseas presence, particularly in the emerging countries, are positives. The recent display of brachytherapy solutions also deserves a mention. Varian Medical has also been going global in terms of acquisitions and agreements. Recent acquisitions include Sirtex of Australia and COOP of Taiwan. A solid guidance for fiscal 2018 instills confidence.
Lackluster performance by the Particle Therapy unit is a concern. The company competes with large electronic companies as well as smaller and more specialized radiation therapy equipment manufacturers. Thus, competition is likely to mar revenues.
Upcoming Releases
A few better-ranked stocks in the broader medical space slated to release results soon are Insulet Corporation (PODD - Free Report) , Wright Medical Group N.V. and Illumina, Inc. (ILMN - Free Report) .
Insulet is expected to release second-quarter fiscal 2018 results on Aug 2. The Zacks Consensus Estimate for the quarter’s loss per share is pegged at 13 cents and for revenues at $132.9 million. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Wright Medical is expected to release second-quarter 2018 results on Aug 8. The Zacks Consensus Estimate for the top line is at $197.1 million, showing an improvement of 9.7% year over year. The stock carries a Zacks Rank of 1.
Illumina is slated to release second-quarter 2018 results on Jul 30. The Zacks Consensus Estimate for the bottom line is pegged at $1.11 and for revenues at $787.7 million. The company is a Zacks #1 Ranked player.
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Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.
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Varian Medical (VAR) Beats Q3 Earnings & Revenue Estimates
Maintaining its streak of positive earnings surprises, Varian Medical Systems, Inc.’s third-quarter fiscal 2018 adjusted earnings of $1.04 per share trumped the Zacks Consensus Estimate of $1.01. Adjusted earnings also improved 26.8% on a year-over-year basis.
Revenues totaled $709.1 million, which beat the consensus mark of $664.9 million. On a year-over-year basis, revenues rose 12.1% or 10% at constant currency (cc).
Varian Medical has a Zacks Rank #3 (Hold). The company has outperformed its industry in a year’s time. The stock has returned 16.1% compared with the industry’s decline of 8.1%.
Let’s delve deeper into the company’s quarterly results.
Varian Medical Systems, Inc. Price, Consensus and EPS Surprise
Varian Medical Systems, Inc. Price, Consensus and EPS Surprise | Varian Medical Systems, Inc. Quote
Segment Details
Oncology Systems
In the third quarter, oncology revenues totaled $667 million, up 18% year over year. Revenues increased 16% at cc. Varian Medical’s worldwide net installed base was 8,046 units, up 4% or 280 units on a year-over-year basis. As a whole, gross orders totaled $763 million, up 11% from the year-ago quarter. Gross orders grew 9% at cc.
Geographically, gross orders in Americas increased 9% on a year-over-year basis. The figure grew 9% at cc as well. Strong performance in North America boosted sales in the unit.
In EMEA, gross orders increased 27% year over year, 21% at cc.
In APAC, gross orders increased 7% year over year. Gross orders from APAC grew 9% at cc.
Operating earnings in the segment rose 20% year over year.
Particle Therapy
Revenues in this segment declined 39% on a year-over-year basis to $42 million.
Notably, the company did not book any new ProBeam order in the quarter.
Halcyon Drives Revenues
In the third quarter, the Halcyon platform received 17 new orders. In Spain, the Ortega Foundation in Catalonia ordered nine TrueBeam and three Halcyon systems.
Varian Medical announced that Halcyon is now being used in three centers in Africa: Clinique le Littoral Casablanca and Centre d'Oncologie Nakhil Rabat in Morocco, and Busamed Oncology Center, Hillcrest in South Africa.
Of the Halcyon orders taken since launch, approximately 45% have been from emerging markets. Notably, 60% of third-quarter Halcyon orders were from the Americas.
Margins
Total company gross profit in the reported quarter was $313.6 million, up 18.1% year over year. Gross margin in the reported quarter was 44.2% of net revenues, up 220 basis points (bps) on a year-over-year basis.
Research and development expenses rose 8% year over year to $59.5 million. Selling, general and administrative expenses increased 14.4% year over year. The company’s operating income rose 3.4% to $91.5 million.
However, operating margin decreased 110 bps in the quarter.
Financial Condition
Varian Medical exited the third quarter of fiscal 2018 with cash and cash equivalents of $536 million compared with $739.9 million at the end of the third quarter of fiscal 2017.
Year-to-date operating cash flow was $346.7 million, up 28.7% from the year-ago period.
Free cash flow came in at $362.3 million in this period, down 8.3% from the year-ago period.
During the quarter under discussion, the company returned $39 million to shareholders via share repurchases.
Guidance
For fiscal 2018, year-over-year revenue growth is expected in the range of 9-11%, up from the previous guidance of 6-9%. The Zacks Consensus Estimate for revenues is pegged at $2.84 billion at the moment.
Adjusted operating earnings, as a percentage of revenues, is projected in the range of 17.5-18%.
Adjusted earnings per share are expected in the band of $4.43 to $4.48. The Zacks Consensus Estimate for earnings is pegged at $4.48, which lies at the high end of the guided range.
Cash flow from operations is expected in the range of $475-$550 million for the fiscal.
In Conclusion
Varian Medical ended the third quarter on a solid note, with the Halcyon platform driving the top line.
The company has been gaining consistently from its coveted Halcyon platform. Solid revenues from Oncology and strong overseas presence, particularly in the emerging countries, are positives. The recent display of brachytherapy solutions also deserves a mention. Varian Medical has also been going global in terms of acquisitions and agreements. Recent acquisitions include Sirtex of Australia and COOP of Taiwan. A solid guidance for fiscal 2018 instills confidence.
Lackluster performance by the Particle Therapy unit is a concern. The company competes with large electronic companies as well as smaller and more specialized radiation therapy equipment manufacturers. Thus, competition is likely to mar revenues.
Upcoming Releases
A few better-ranked stocks in the broader medical space slated to release results soon are Insulet Corporation (PODD - Free Report) , Wright Medical Group N.V. and Illumina, Inc. (ILMN - Free Report) .
Insulet is expected to release second-quarter fiscal 2018 results on Aug 2. The Zacks Consensus Estimate for the quarter’s loss per share is pegged at 13 cents and for revenues at $132.9 million. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Wright Medical is expected to release second-quarter 2018 results on Aug 8. The Zacks Consensus Estimate for the top line is at $197.1 million, showing an improvement of 9.7% year over year. The stock carries a Zacks Rank of 1.
Illumina is slated to release second-quarter 2018 results on Jul 30. The Zacks Consensus Estimate for the bottom line is pegged at $1.11 and for revenues at $787.7 million. The company is a Zacks #1 Ranked player.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>