CR Bard Misses 2Q Estimates

CR Bard Inc. ( BCR - Analyst Report ) , a global medical technologies and devices company, reported second quarter 2012 adjusted earnings (excluding one-time charges such as stock-based compensation) of $1.62 per share, trailing the Zacks Consensus Estimate of $1.64 but surpassing the year-ago earnings of $1.57 per share.

In the reported quarter, profits were $133.9 million (or $1.54 a share) versus a net loss of $47.8 million (or loss of 55 cents) in the year-ago quarter. Moderate revenue growth and lower expenses contributed to higher net income.

Revenue

Revenues increased 2% (up 4% in constant currency) year over year to $742.6 million, but fell short of the Zacks Consensus Estimate of $755 million. Year-over-year growth was driven by balanced growth across the company’s Vascular, Urology and Oncology segments.

On a geographic basis, revenues in the U.S. and international markets rose 2% and 3% (up 8% in constant currency) to $490 million and $252.6 million, respectively. Both the U.S. and the European markets remained soft during the quarter but sales in Japan benefited from the discontinuation of a competitor’s stent business. Moreover, international sales were boosted by double-digit growth in emerging markets.

Segment Analysis

Revenues from the core Vascular segment increased 3% (up 6% in constant currency) year over year to $221.3 million. Within Vascular, endovascular sales grew 9% led by the ClearStream acquisition. Biopsy sales were flat year over year due to prevailing softness in the U.S. economy. Electrophysiology (“EP”) revenues dropped 2% due to lower EP LabSystem sales (down 1%) along with declining disposable EP sales (down 2%) and surgical graft sales (down 7%).

Revenues from peripheral PTA rose 5%, driven by double-digit sales from Chronic Total Occlusion (CTO) offerings. Vena Cava Filter sales increased 2% in the reported quarter, which is the first positive quarter in 3 years. Revenues from the stent franchise jumped 22%, owing to the discontinuation of a competitor’s product line in Japan.

Sales from Urology division increased 3% (up 5% in constant currency) to $188.8 million led by the company’s latest targeted temperature management products. Revenues from the basic drainage division were flat in the U.S and up 1% globally. I.C. Foley sales dropped 7% and 2% in the U.S. and globally, respectively as these segments faced continued pricing pressure.

Continence segment’s sales dropped 6% mostly due to the closure of the Contigen product line. Following the launch of the DIGNISHIELD product, the company’s fecal management products posted double-digit growth in the quarter, which partially offset the decline in women’s health products sales.

Urological specialties sales were down 10%, with a 14% fall in brachytherapy sales. However, revenues from StatLock catheter stabilization line inched up 1% in the quarter.

The company’s Oncology segment reported revenue growth of 3% (up 4% in constant currency) year over year to $199.1 million. Peripherally inserted central catheters/PICC sales climbed 7% while Port revenues were flat due to inventory timing-related issues in Japan. Revenues from vascular access ultrasound products jumped 10% in the quarter.

Sales from Surgical Specialties business were $111.4 million, flat year over year (up 2% in constant currency). Soft tissue repair business grew 2% whereas natural tissue products sales dipped 4% in the quarter. Synthetic hernia products reported double-digit sales strongly backed by new products. Revenues from hernia fixation business plunged 26%, hurt by increased competition. Both the performance irrigation business and the hemostasis segment inched down 1% in the quarter.

Margins

Gross margin dropped 50 basis points from the year-ago quarter to 61.5%. Operating margin was 27.1% versus 28.4% in the year-ago quarter.

Marketing, selling and administrative expenses (as a percentage of sales) increased to 27.7% from 27.1% a year ago. Research and development expenses, as a percentage of sales, also increased to 6.7% from 6.5%.

Balance Sheet

C.R. Bard ended second quarter 2012 with cash, restricted cash and short-term investments of $769.4 million, down 4.4% on a sequential basis. Total debt decreased 2% sequentially to $1,214 million.

Guidance

For third quarter 2012, C.R. Bard expects constant currency revenue growth in the range of 3% to 5%. The company expects adjusted earnings in a band of $1.60 and $1.64 a share. The current Zacks Consensus Estimates for revenue and earnings per share for full year 2012 are $3025 million and $6.68, respectively.

C.R. Bard’s well-diversified end-markets and vast product portfolio insulate it from fluctuations in any single therapeutic category. We expect new product launches to drive organic revenue growth and help C.R. Bard to meet its sales objective.

However, increasing competition, fluctuating currency, pricing/volume pressure and an overall tough U.S. and European economy remain areas of concern. C.R. Bard faces strong competition from Boston Scientific ( BSX - Analyst Report ) , and Johnson & Johnson ( JNJ - Analyst Report ) . We currently have a Neutral recommendation on C.R. Bard. The stock currently retains a Zacks #3 Rank, which translates into a short-term “Hold” rating.