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The Cooper Companies’ (COO - Analyst Report) first-quarter fiscal 2013 (ended Jan 31) adjusted earnings per share of $1.23 beat the Zacks Consensus Estimate of $1.20 and the year-ago earnings of $1.12 per share.

Profit soared almost 36.7% on a year-over-year basis to $74.7 million ($1.50 per share) in the fiscal first quarter. Reported net income includes insurance receipt of $14.1 million on account of damage to the manufacturing unit in UK in Oct 2011. 

Revenues

Cooper’s revenues in the fiscal first quarter increased 16% (up 11% in constant currency, barring acquisitions) year over year to $379.8 million, beating the Zacks Consensus Estimate of $365 million. Growth was led by robust sales of fertility offerings from CooperSurgical (CSI) and higher revenues from CooperVision (CVI) Biofinity.

Segments Analysis

Revenues from Cooper’s mainstay contact lens division (79.4% of company-wide revenues), CVI moved up 12% (up 14% in constant currency) year over year at $301.4 million. Sales were higher for all categories of lenses. Sales for the mainstay toric lenses increased 12% (up 13% in constant currency) to $91.6 million; multifocal lens sales surged 31% (up 31% in constant currency) to $27.2 million. Cooper’s revenues from single-use sphere lenses improved 8% (up 13% in constant currency) to $65.5 million while revenues from non single-use sphere lenses increased 11% (up 12% in constant currency) on a year-over-year basis to $117.1 million.

On a geographical basis, Cooper’s revenues from EMEA and Americas were up 7% and 18%, respectively in constant currency, and increased 17% in the Asia-Pacific. On a material-based analysis, sales of silicone hydrogel contact lenses were up sharply 38% in constant currency to $119.6 million, while Proclear contact lens sales edged up 8% to $75.5 million.   

The smaller women’s health segment (20.6% of company-wide revenues) CSI performed well with revenues soaring 37% year over year (up 1% barring acquisitions) to $78.4 million. Cooper witnessed mixed contributions from operating units under its CSI segment. Surgical procedures revenues increased 9% year over year to $24.9 million; revenues from fertility sub-division jumped 535% to $24 million, whereas office sales decreased 3% to $29.5 million.

Margin Trends

Adjusted gross margin was 63.3% in the fourth quarter, lower than the 64.5% a year ago. Gross margin was adversely impacted by currency fluctuation and the re-launch of the Avaira lens. Adjusted gross margin for CVI was 63.1% compared with 64% in the prior-year quarter.

Selling, general and administrative expenditure increased 14.3% year over year to $150.7 million while research and development expenses shot up 19.5% to $13.7 million in the reported quarter. This led to contraction of adjusted operating margin from 18.9% in the year-ago quarter to 18.3% in the reported quarter.

Financial Health

Cooper exited fiscal first quarter with cash and cash equivalents of $14.4 million, up 12.5% on a sequential basis. Long-term debt increased 8.3% sequentially to $377.5 million in the quarter.

The company generated $47.6 million of operating cash flow in the quarter. Cooper spent $29.3 million on capital expenditure yielding free cash flow of $19.2 million, upon exclusion of acquisition costs of $0.3 million and minor adjustments.

Outlook

For fiscal 2013, Cooper envisages revenues in the range of $1,575 million and $1,625 million (earlier $1,565 million to $1,625 million), comprising CVI sales of $1,260 million to $1,290 million and CSI sales of $315 million to $335 million.

The company expects reported earnings per share in the band of $6.22 and $6.37 (earlier $5.90 and $6.10) for fiscal 2013. Cooper also guided to adjusted earnings per share between $5.95 and $6.10 (earlier $5.90 and $6.10). Free cash flow is expected in the range of $170 million to $200 million (earlier $210 million to $230 million).

Our Take

The stock carries a Zacks Rank #2 (Buy). We are positive on Cooper as it reported a good performance in the reported quarter. Moreover, this contact lens and women health focused company continues to expand margins, synergize acquisitions and expand geographical reach.

However, the company faces formidable competition in each of its major product lines. Its peer in the contact lenses market Johnson & Johnson (JNJ - Analyst Report) carries a Zacks Rank #3 (Hold). We are more positive about Novo Nordisk A/S (NVO - Analyst Report) and Becton, Dickinson and Company (BDX - Analyst Report) both of which carry a Zacks Rank #2 (Buy) and are expected to do well.  

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