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Haemonetics' (HAE) Hospital Business Grows, Cost Ails Stay

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Haemonetics Corporation (HAE - Free Report) has been gaining from strength in its Hospital business. A rebound in plasma collection is an added plus. However, mounting operating expenses and soft Blood Center sales do not bode well for the company. Currently, Haemonetics carries a Zacks Rank #3 (Hold).

Haemonetics ended the third quarter of fiscal 2022 with better-than-expected earnings. During the quarter, the company registered year-over-year growth in revenues, driven by recovery across businesses. The company’s Hospital business was robust, along with Hemostasis Management and Vascular Closure registering record-high quarterly sales.

The Hospital business delivered double-digit growth in fiscal third quarter, led by Hemostasis Management overcoming staffing shortages and uneven procedure volumes in U.S. hospitals. The company-adjusted gross margin was up 331 basis points (bps) year over year, driven by the addition of the Vascular Closure business, incremental gross savings from the Operational Excellence Program and favorable product mix, given a higher proportion of revenues being derived from the high-margin Hospital business.

Further, the Operational Excellence program, coupled with other cost mitigation efforts, partially offset inflationary pressure, allowing the company to continue to fund investments for long-term growth. Strong customer end-market demand for NexSys PCS system with Persona technology buoys optimism.

During the fiscal third quarter, the company successfully converted several hundred plasma centers to the NexSys platform without interrupting their daily collections. The company has also made NexSys PCS devices available in the United States to ensure timely conversion of the remainder of its major customers by mid-fiscal 2023.

Hemostasis Management, the company’s largest hospital product line, saw revenue growth of 18% in the fiscal third quarter. The upside was driven by the growing uptake of the company’s TEG 6s devices and increased utilization of cartridges in North America. The company also benefited from sales growth in Europe, where the ClotPro viscoelastic diagnostic device drove disproportionate growth.

On the flip side, sluggish performance by Haemonetics’ Blood Center and Plasma businesses in the third quarter of fiscal 2022 due to the pandemic-led business disruptions is concerning. Blood Center revenues declined 6.5% in the fiscal third quarter as the emergence of the Omicron variant disrupted U.S. blood collections. Meanwhile, Plasma revenues fell 5.4% year over year, primarily due to disruption from Omicron and a $6-million stocking order in the prior year. The company has lowered its fiscal 2022 GAAP total revenue and organic growth projection, raising apprehensions.

Adjusted operating expenses in the fiscal third quarter were up 24.1% from the year-ago quarter. This increase was primarily driven by the acquisition of the Vascular Closure business and an increase in freight costs. Adjusted operating margin was 18.4%, down 120 bps compared with the year-ago quarter.

Economic uncertainty and stiff competition remain concerns. The company continues to be challenged by inflationary pressure in the global manufacturing and supply chain, including freight and raw material costs, previous divestitures and price adjustments.

Over the past year, Haemonetics has underperformed its industry. The stock has declined 44.8% compared with the industry's 12.9% fall.

Key Picks

A few better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. (AMN - Free Report) , Henry Schein, Inc. (HSIC - Free Report) and McKesson Corporation (MCK - Free Report) .

AMN Healthcare has a long-term earnings growth rate of 16.2%. The company’s earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, delivering a surprise of 19.5%, on average. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AMN Healthcare has outperformed its industry in the past year. AMN has gained 38.5% versus the 53.5% industry decline.

Henry Schein has an estimated long-term growth rate of 11.8%. Henry Schein’s earnings surpassed estimates in the trailing four quarters, the average surprise being 25.5%. It currently has a Zacks Rank #2 (Buy).

Henry Schein has outperformed the industry over the past year. HSIC has gained 26% compared with the industry’s 7.6% growth over the past year.

McKesson has a long-term earnings growth rate of 11.8%. McKesson’s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 20.6%, on average. It presently carries a Zacks Rank #2.

McKesson has outperformed the industry over the past year. MCK has gained 58.4% in the said period compared with 7.6% growth of the industry.