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Going by the preliminary results, Volcano Corporation (VOLC - Analyst Report) expects to report revenues of $92.7 million for the fourth quarter of fiscal 2011 (representing a 14% increase year over year), marginally falling short of the Zacks Consensus Estimate of $93 million. This will result in total revenue of $343.5 million for the fiscal year, up 17% year over year and at the mid-point of the company’s guidance of $342–$345 million.

Volcano Corporation reported preliminary results ahead of its presentation at the J P Morgan Healthcare conference, scheduled for today. The company will come up with complete results along with guidance for 2012 in late February.

Revenues in the Medical segment increased 20% during the quarter on the back of 37% growth in FFR (Fractional Flow Reserve) disposable business and an in-line performance in the IVUS (intravascular ultrasound) business. However, performance of the Industrial segment remained challenging due to softness in telecom infrastructure spending in key international geographies. This resulted in a 70% year-over-year decline in Industrial revenues to $1.5 million in the fourth quarter.

The company is confident about the market potential of the IVUS and FM (functional measurement) markets based on some favorable trends in the industry in the form of greater clinical and economic pressure to prove the benefits of PCI (percutaneous interventional ) procedures.  Besides, the company has a strong portfolio which should ensure growth over the long term. The company has strengthened its position as the IVUS market leader in the US, Japan and Europe and continues to run in excess of 80% of system placements in the US.

Volcano Corporation is keen on expanding its presence in Japan through a direct sales program and introduction of new products. It is heartening to note that the macro environment in Japan is gradually picking up with procedure volume reverting to pre-earthquake levels. The rollout of Vibe RX imaging balloon catheter in Japan is currently ongoing with full market release expected in early 2012. The recent transition of the distribution agreement with Johnson & Johnson (JNJ - Analyst Report) regarding Cordis would allow Volcano to address 100% of the business on a direct basis. Over the long term, the company should benefit from this move as Japan has the largest IVUS market in the world.

However, capital spending by hospitals has been affected by the weak economy. This has affected PCI volumes in US, Europe and Japan resulting in a slower growth of the IVUS disposable business in the most recent quarter. The stock carries a Zacks #4 Rank (“Sell”) in the short term. Over the long term, we maintain our Neutral recommendation on Volcano Corporation.

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