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Why Is Varian (VAR) Up 2.3% Since Last Earnings Report?

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It has been about a month since the last earnings report for Varian Medical Systems (VAR - Free Report) . Shares have added about 2.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Varian due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Varian (VAR - Free Report) Q4 Earnings Miss, Proton Solutions Segment Sluggish

Varian Medical Systems fourth-quarter fiscal 2018 adjusted earnings of $1.16 per share missed the Zacks Consensus Estimate of $1.19. Adjusted earnings also improved 11.5% on a year-over-year basis.

Revenues totaled $801.6 million, which beat the consensus mark of $762.7 million. On a year-over-year basis, revenues rose 11.1% or 12% at constant currency (cc).

Let’s delve deeper into the company’s quarterly results.

FY18 Results

Varian Medical registered revenues of $2.92 billion in the fiscal, up 11.4% year over year.  The company registered adjusted earnings of $4.42 per share, up 35.6% year over year.

Oncology revenues of $2.77 billion, up 13.7% year over year. The segment contributed 94.9% of net revenues,

Revenues in the proton therapy unit totaled $148.9 million, down 18.4% year over year. The segment contributed 7.4% of net revenues.

Segment Details

Oncology Systems:In the fourth quarter, revenues in the segment totaled $756 million, up 13% year over year.

Varian Medical’s worldwide net installed base was 8,057 units, up 224 units on a year-over-year basis. As a whole, gross orders totaled $1.1 billion, up 13% from the year-ago quarter’s tally.

Geographically, gross orders in Americas increased 6% on a year-over-year basis. Gross orders in North America increased 4% on a year-over-year basis. In EMEA, gross orders increased 14% year over year. In APAC, gross orders increased 31% year over year.

Operating earnings in the segment rose 8% year over year.

Proton Solutions:Revenues in the segment declined 12% on a year-over-year basis to $46 million.

Notably, the company did not book any new ProBeam order in the quarter.

Halcyon Drives Revenues

In the fourth quarter, the Halcyon platform received 84 new orders.Nearly 40% of these orders were for greenfield sites. During the quarter, the company had 510(k) clearance for Halcyon with kilovoltage cone-beam CT imaging.

Since the launch, approximately 40% of the Halcyon orders have been received from the emerging markets.

Margins

Total company gross profit in the reported quarter was $338.7 million, up 10.8% year over year. Gross margin in the reported quarter was 42.3% of net revenues, down 10 basis points (bps) on a year-over-year basis.

Research and development expenses rose 15.3% year over year to $59.6 million. Selling, general and administrative expenses increased 4.1% year over year. As a percentage of revenues, operating margin increased 240 bps in the quarter.

Guidance

Varian Medical issued guidance for fiscal 2019.

For fiscal 2019, year-over-year revenue growth is expected in the range of $3.06-$3.15 billion, up 5-8% year over year. The Zacks Consensus Estimate for revenues is pegged at $3.04 billion, lower than the previous guidance.

Adjusted operating earnings, as a percentage of revenues, is projected in the range of 17-18%.

Adjusted net earnings per share (EPS) is expected in the range of $4.60 to $4.75. The Zacks Consensus Estimate for earnings is pegged at $4.86, which is above the guidance.

Cash flow from operations is expected in the range of $460-$510 million for the fiscal.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -7.54% due to these changes.

VGM Scores

At this time, Varian has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Varian has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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