Masimo EPS Meets, Sales Trail

Masimo Corporation (MASI - Analyst Report), a leader in non-invasive monitoring know-how for patient care, posted second-quarter fiscal 2011 earnings per share of 28 cents, meeting the Zacks Consensus Estimate. Reported profit increased 19.3% year over year to $17 million.  

Revenues

Revenues for the quarter rose 9% year over year to $109.6 million, missing the Zacks Consensus Estimate of $111 million. Product revenues shot up 17% to $102.6 million. Product sales were bolstered by higher revenues from sensors.

Revenues from Rainbow products jumped 26% year over year to $9.1 million. Royalty revenues, however, dropped 42.2% to $7 million due to a change in royalty rate under the company’s agreement with Covidien (COV - Analyst Report).

During the quarter, the company shipped 37,300 Masimo SET pulse oximetry and Masimo Rainbow SET pulse co-oximetry units, up 2% year over year. The company’s global installed base increased 17% year over year to 922,000 units at the end of the second quarter.

Margins

Gross margin fell to 68.7% from 70.2% in the year-ago quarter due to higher cost of sales and lower royalty revenues. Operating margin dropped to 20.2% from 21% a year ago.

Balance Sheet

The company ended the quarter with cash, cash equivalents and short-term investments of $125.7 million, up 13.3% year over year.

Outlook

Masimo is a market leader in the pulse oximetry monitoring equipment industry. The company’s prospects are encouraging, given the sizeable global market opportunity, adoption of pulse oximetry in non-critical areas of the hospital and growing barriers to entry due to additional non-invasive parameters.

Shipments have been growing at a steady rate fueled by new contracts. Moreover, the renewal of the royalty agreement with Covidien provides additional impetus albeit at lower rates. However, competition is intense and Masimo partly depends upon its OEM partners for sales as well as royalty.

On June 15, 2011, Masimo announced a non-exclusive, long-term agreement with Philips (PHG - Analyst Report), under which Philips will utilize Masimo’s Rainbow SET know-how. Masimo anticipates that it will launch future joint development efforts. Subsequently, Philips products will integrate Masimo’s Rainbow SET technology. Currently, we have a Neutral rating on Masimo.

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