Cooper Surpasses, Profit Up

The Cooper Companies ( COO - Analyst Report ) , a company dedicated to contact lens and women’s health, reported first-quarter fiscal 2012 (ended January 31) results with adjusted earnings per share of $1.12 sailing past the Zacks Consensus Estimate of $1.03 and the year-ago earnings per share of 85 cents. Net income (as reported) for the quarter jumped 39.3% year over year to $54.6 million (or $1.12 a share).

Revenue Analysis

Sales for the quarter were up 11% (11% in constant currency) year over year to $326.1 million, ahead of the Zacks Consensus Estimate of $316 million.

Sales from the contact lens division (“CVI”) were higher 10% (10% in constant currency) year over year at $268.9 million. Revenues were higher, for all types of lenses, with mainstay toric lenses up 9% in constant currency, single-use sphere lenses higher 10%, non-single-use sphere lenses up 8% and multifocal sales shooting up 26%.

On a regional basis, revenues from EMEA and Asia-Pacific were up 7% and 13%, respectively, in constant currency, and increased 11% in the Americas. On a material based analysis, revenues from silicone hydrogel were up sharply 40% to $86.9 million while Proclear sales increased moderately 6% to $70.8 million.

The smaller women’s health segment (“CSI”) continued to perform fairly well with revenues rising 15% year over year (higher 9% without acquisitions) to $57.2 million. Sales of this segment received a boost from surgical procedures, which increased 24% to $22.9 million.

Margin Trends

Cooper’s reported gross margin rose to 65% in the quarter from 60% a year ago, on account of enhanced manufacturing synergies and a shift in product mix as well as savings emanating from the closure of the manufacturing unit at Norfolk. Operating margin rose to 19% from 17% in the prior-year quarter due to higher gross margin partly offset by investments in R&D, sales and marketing and higher amortization charges.

Financial Health

Cooper exited the quarter with cash and cash equivalents of only $7.7 million, up 131.4% year over year. The company continues to de-leverage as total debt fell 31.9% year over year, to $410.3 million in the quarter.

The company generated $41.6 million of operating cash flow in the quarter and spent $20 million on capital expenditure, plus insurance recovery of $1.6 million, yielding free cash flow of $23.2 million.

Outlook

Cooper continues to expect total revenue of $1,385 million to $1,440 million comprising CVI of $1,170 million to $1,210 million and CSI of $215 million to $230 million for fiscal 2012.

Both reported and adjusted earnings were raised to a higher range of $4.90 to $5.15 a share from $4.80 to $5.00 earlier. Free cash flow is projected to remain in the range of $200 million to $230 million for fiscal 2012.

Cooper is a global medical products company specializing in a wide range of contact lenses for the vision correction market with a smaller strategic business unit for women’s health. It reportedly holds the number three position in the $6 billion global contact lens industry.

The company is a leader in the high-margin toric lens market. It offers multiple designs of toric lenses, across a wide range of parameters, unlike some of its competitors, who offer toric lenses in a limited number of designs. The company is benefiting from strong demand for its Biofinity toric lenses.

However, Cooper faces formidable competition in each of its major product lines. Competition comes from well established global contact lens makers such as Johnson & Johnson ( JNJ - Analyst Report ) and Novartis ( NVS - Snapshot Report ) . Depressed levels of consumer spending have heightened the competitive pressures on the company. We currently have a Neutral recommendation on Cooper. The stock currently retains a Zacks #2 Rank, which translates into a short-term “Buy” recommendation.