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The Cooper Companies (COO - Analyst Report), a company focused on contact lens and women’s health, reported second-quarter fiscal 2012 (ended April 30) results with adjusted earnings per share of $1.12 missing the Zacks Consensus Estimate of $1.20 but beating the year-ago earnings per share of $1.02. Net income (as reported) for the quarter jumped 55.3% year over year to $54.9 million (or $1.12 a share).

Revenue Analysis

Revenues for the quarter were up 6% (7% in constant currency) year over year to $344.6 million, lower than the Zacks Consensus Estimate of $350 million.

Revenues from the contact lens division (“CVI”) were higher 5% (6% in constant currency) year over year at $288 million. Sales were higher for all categories of lenses, with mainstay toric lenses up 8% in constant currency, single-use sphere lenses higher 6%, non-single-use sphere lenses up 2% and multifocal sales shooting up 26%.

On a geographic basis, revenues from EMEA and Asia-Pacific were up 6% and 10%, respectively, in constant currency, and increased 4% in the Americas. On a material based analysis, sales of silicone hydrogel were up sharply 32% to $103.8 million while Proclear sales dropped slightly 2% to $71.4 million.   

The smaller women’s health segment (“CSI”) did moderately well with revenues rising 13% year over year (higher 8% without acquisitions) to $56.6 million. Sales of this division were bolstered by surgical procedures, which increased 32% to $22 million.

Margin Trends

Cooper’s reported gross margin rose to 64% in the quarter from 62% a year ago, due to manufacturing synergies and a shift in product mix as well as savings emanating from the closure of the manufacturing unit at Norfolk. Operating margin remained at 19%, in line with the year-ago quarter.

Financial Health

Cooper finished the quarter with cash and cash equivalents of only $7.7 million, down 8.1% year over year. The company continues to de-leverage as total debt dropped 42.3% year over year, to $319.3 million in the quarter.

The company generated $80.6 million of operating cash flow in the quarter and spent $23.1 million on capital expenditure, with insurance recovery of $3.2 million, yielding free cash flow of $60.7 million.

Outlook

For fiscal 2012, Cooper expects total revenue of $1,400 million to $1,440 million (earlier $1,385 million to $1,440 million) comprising CVI of $1,175 million to $1,205 million and CSI of $225 million to $235 million.

Guidance for reported earnings per share for fiscal 2012 was shifted to a slightly lower range of $4.88 to $5.13 (earlier $4.90 to $5.15) while the forecast for adjusted earnings was retained in a band of $4.90 and $5.15. 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 retains a Zacks #2 Rank, which translates into a short-term “Buy” recommendation.

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