A month has gone by since the last earnings report for Varian Medical Systems . Shares have lost about 3.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Varian due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Varian Medical Beats Q3 Earnings, Oncology Systems Segment Strong
Maintaining its streak of positive earnings surprises, Varian Medical’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).
Let’s delve deeper into the company’s quarterly results.
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. This reflects solid demand for the platform in the quarters ahead. The projected growth will be driven by solid new-scaled configurations optimized for different customer segments with advanced capabilities.
In Spain, the Ortega Foundation in Catalonia ordered nine TrueBeam and three Halcyon systems.
In the third quarter, 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 $593.5 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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.13% due to these changes.
VGM Scores
Currently, Varian has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is primarily suitable for growth investors while also being suitable for those looking for momentum and to a lesser degree value.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Varian has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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Why Is Varian (VAR) Down 3.6% Since Last Earnings Report?
A month has gone by since the last earnings report for Varian Medical Systems . Shares have lost about 3.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Varian due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Varian Medical Beats Q3 Earnings, Oncology Systems Segment Strong
Maintaining its streak of positive earnings surprises, Varian Medical’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).
Let’s delve deeper into the company’s quarterly results.
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. This reflects solid demand for the platform in the quarters ahead. The projected growth will be driven by solid new-scaled configurations optimized for different customer segments with advanced capabilities.
In Spain, the Ortega Foundation in Catalonia ordered nine TrueBeam and three Halcyon systems.
In the third quarter, 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 $593.5 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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.13% due to these changes.
VGM Scores
Currently, Varian has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is primarily suitable for growth investors while also being suitable for those looking for momentum and to a lesser degree value.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Varian has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.