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Masimo Corporation (MASI - Analyst Report), a leader in non-invasive monitoring technology for patient care, recorded fourth quarter and fiscal 2011 earnings per share of 23 cents and $1.05, respectively, matching the corresponding Zacks Consensus Estimates but missing the year-ago earnings per share of 29 cents and $1.03, respectively. Reported profit dipped 14.2% year over year to $13.8 million.  

Revenues

Sales for the quarter were up 6% year over year to $112.3 million, beating the Zacks Consensus Estimate of $110 million. For fiscal 2011, revenues moved up 8% to $439 million, surpassing the Zacks Consensus Estimate of $437 million.  

Product revenues increased 12% to $104.7 million in the reported quarter. Masimo’s global end-user business (86% of product revenue) increased 17% year over year, but revenues from Original Equipment Manufacturers (“OEM”) (14% of product revenue) were down 12%.  Sales of Rainbow products increased 16% year over year to $9.8 million.  

During the quarter, Masimo shipped about 34,400 Masimo SET pulse oximetry and Masimo Rainbow SET pulse co-oximetry units, excluding hand-held sets, declining 18% year over year. The company’s worldwide installed base grew 15% year over year to about 979,000 units at the end of the fourth quarter.

Margins

Gross margin fell 65.5% from 70.2% in the year-ago quarter due to higher cost of sales and lower royalty revenues. Operating margin declined to 17.9% from 20.4% a year ago.

Balance Sheet

The company ended the quarter with cash and cash equivalents of $129.9 million, up 47.1% year over year.

Outlook

Masimo expects total sales of about $483 million for 2012. Product sales and royalty are expected to be $455 million and $28 million, respectively. The company projects earnings per share (on a reported basis) of $1.20 for the year.

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 (COV - Analyst Report) provides limited 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 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. Philips products are expected to integrate Masimo’s Rainbow SET technology. We currently have a Neutral recommendation on Masimo. The stock currently retains a Zacks #3 Rank, which translates into a short-term “Hold” recommendation.

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