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Varian Medical (VAR) Tops Earnings & Lags Revenues in Q3

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Palo Alto, CA-based leading manufacturer of medical devices and software Varian Medical Systems, Inc. (VAR - Free Report) reported adjusted earnings of $1.04 per share in the third quarter of fiscal 2017, steering past the Zacks Consensus Estimate of 95 cents. However, adjusted earnings declined 14.8% on a year-over-year basis.

Meanwhile, revenues of $662.4 million were up 3% from the year-ago quarter and 7% at constant currency (cc). Revenues marginally missed the Zacks Consensus Estimate of $663 million.

Varian Medical reported a backlog of $3.25 billion at the end of the fiscal third quarter, up 6% on a year-over-year basis.

Varian Medical carries a Zacks Rank #3 (Hold) at the moment.

Varian Medical Systems, Inc. Price, Consensus and EPS Surprise

 

Varian Medical Systems, Inc. Price, Consensus and EPS Surprise | Varian Medical Systems, Inc. Quote

Segment Details

Oncology Systems: At this segment, revenues totaled $594 million, down 1.9% year over year. Per management, the oncology segment lacked luster, thanks to increased backlog mix in emerging markets. Notably, this caused a longer backlog conversion cycle, marring oncology revenues in the quarter under review.

Gross orders in the quarter totaled $708 million, up 5% at cc from the year-ago quarter. In the U.S., gross orders increased 3% at cc. In EMEA and APAC, gross orders rose 5% and 13%, respectively, on a year-over-year basis.

Particle Therapy: Third-quarter revenues at the segment were $68.4 million, up 82.4% up on a year-over-year basis. During the quarter, the company registered orders worth $122 million, including an order at the Georgia Proton Therapy Center in Atlanta.

The segment put up an impressive show in the third quarter banking on orders for single-room ProBeam Compact systems at the University of Pennsylvania and in Thailand.

Product Launches Bode Well

Varian Medical has been taking initiatives to gain customer attention for its broad spectrum of products. The company unveiled the Halcyon radiotherapy treatment system at the ASTRO conference in Vienna in the third quarter.

The Halcyon radiotherapy treatment system has been designed to offer cost-effective cancer care worldwide. The system streamlines every aspect of image-guided volumetric intensity modulated radiotherapy (IMRT).

Halycon received both 510(k) clearance and CE mark from the European directive, allowing Varian Medical to start selling the system in the U.S. Per management, regulatory clearances from China and Japan should follow within the next year.

During the quarter, Varian Medical booked several orders from countries like Australia, Belgium, India, Morocco, Romania, Russia, Turkey and the U.K.

Margins

In the third quarter, gross margin expanded 18 basis points (bps) to 44.5% of revenues, buoyed by increased mix of services, consistent with Varian Medical’s long-term strategy. Oncology Systems gross margin rose nearly 200 bps to 48.1% driven by supply chain efficiencies. Proton Therapy gross margin in the third quarter remained flat on a year-over-year basis at 12.7% of revenues.

Expenses on research and development (R&D) in the quarter were $55 million or 8% of revenues.

Meanwhile, selling, general and administrative (SG&A) expenses in the quarter were $117 million, up 2% on a year-over-year basis. The rise in expenses was driven by investments in new product launches.

Guidance

For the fourth quarter, management estimates adjusted earnings per share in the range of $1.15 to $1.23.

For the second through the fourth quarter, Varian Medical expects revenue growth in the range of 2% to 3% and earnings in the band of $3.08 to $3.16.

Stocks Performance

Shares of Varian Medical dropped 1.1% to close at $102.59 following the earnings release. The stock has gained 0.3% over the last one month, comparing favorably with the industry’s decline of 1.7%. However, the current level is slightly lower than the S&P 500’s gain of 1.5% over the same time frame.

Key Picks

A few better-ranked stocks in the broader medical sector are Edwards Lifesciences Corporation (EW - Free Report) , CryoLife, Inc. (CRY - Free Report) and Fresenius Medical Care Corporation (FMS - Free Report) . Notably, Fresenius Medical Care sports a Zacks Rank #1 (Strong Buy), while Edwards Lifesciences and CryoLife have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Fresenius Medical Care represents an impressive return of 4.3% over the last one year. The company delivered a solid earnings surprise of 20.5% in the last reported quarter.

Edwards Lifesciences has a long-term expected earnings growth rate of 15.2%. Notably, the stock has a one-year return of 2.3%.

CryoLife yielded a strong return of 35.8% over the last one year. The stock delivered a positive earnings surprise of 20% in the last reported quarter.

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