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CareFusion Q2 Earnings Rise but Miss Estimates

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CareFusion posted a 10% rise in adjusted earnings per share to 55 cents in the fourth quarter of its fiscal year from 50 cents in the comparable quarter of fiscal 2012. However, earnings per share missed the Zacks Consensus Estimate by a penny. Adjusted net earnings rose 9% to $121 million from $111 million in the prior-year quarter.

Revenues in the quarter fell 6.0% to $903 million, lagging the Zacks Consensus Estimate of $914 million. The decrease was driven by a fall in Medical Systems revenues, partially offset by strong revenue growth in the Procedural Solutions segment.

Adjusted operating income for the quarter grew 4% to $189 million from $182 million a year ago. Adjusted operating margin went up 200 basis points (bps) to 20.9% from 18.9% in the fourth quarter of fiscal 2012.

Segment Results

Revenues from the Medical Systems went down 12% to $592 million on both a reported and constant currency basis from the prior year period. Adjusted segment profit slipped 4% to $136 million due to lower revenues, partially offset by improvements in gross margin and operating margin.

Revenues from Procedural Solutions rose 7% to $311 million, driven by continued boost from its clinically differentiated products in specialty disposables. Adjusted segment profit grew 29% to $53 million due to higher sales and margin improvement across all business lines.

Fiscal 2013 Results

CareFusion reported a 9% rise in adjusted earnings per share to $2.12 in the year from $1.95 a year ago while net earnings improved 8% to $475 million from $441 million a year ago. Revenues fell marginally by 1% to $3.55 billion in the fiscal year.

Adjusted operating income for the quarter grew 8% to $739 million from $687 million a year ago. Adjusted operating margin increased 170 bps to 20.8% from 19.1% in fiscal 2012.

Share Repurchase

CFN’s board of directors approved a two-year $750 million share repurchase program, after completing their previous $500 million authorization in Jun this year. Under the previous authorization, the company repurchased approximately 11.4 million shares for $400 million in fiscal 2013.

Fiscal 2014 Outlook

For fiscal 2014, CareFusion expects revenues to grow between 1% and 4% on a constant currency basis. Adjusted earnings are expected to be in the range of $2.30 to $2.40 per share.

The guidance is based on an assumed weighted average outstanding share count of approximately 215 million, which includes the impact of expected share repurchases during fiscal 2014.

Our Take

CareFusion is a global corporation serving the health care industry with products and services that help hospitals measurably improve the safety and quality of care. Currently, the stock retains a Zacks Rank #3 (Hold).

Other stocks that are performing well in the medical products industry include Hanger, Inc. and Alere Inc. , both with a Zacks Rank #1 (Strong Buy), and Advaxis, Inc. with a Zacks Rank #2 (Buy).

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