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Mindray Misses, Profit Down

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Chinese medical devices major Mindray Medical International Limited’s third-quarter 2012 adjusted (excluding one-time expenses other than stock-based compensation expense) earnings per share of 39 cents missed the Zacks Consensus Estimate of 41 cents. Reported net income drifted down 4.2% year over year to $35.8 million (or 30 cents per share) in the quarter.


Revenues were up sharply 17.7% year over year to $257.1 million, in the third quarter, missing the Zacks Consensus Estimate of $268 million.

During the reported quarter, Mindray recorded ex-China sales of $139.4 million, up 11.6% year over year. Revenues in China increased 25.9% year over year to $117.7 million in the reported quarter. The company performed well in emerging markets.

Segment-wise Revenues

Patient Monitoring & Life Support Products (40.4% of total sales) revenues grew 8% year over year in the reported quarter to $103.8 million. In-Vitro Diagnostic Products (28.3% of total revenue) revenues were $72.6 million, up 30.3%. Revenues from reagents contributed 37.3% of In-Vitro Diagnostic segment sales during the quarter. 

Medical Imaging Systems (23.7% of total sales) sales rose to $60.9 million, a growth of 14.4%. Other revenues (7.6% of total revenue) were up 47.8% to $19.8 million.


Adjusted gross profit amounted to $145.2 million in the quarter, higher 19.8% year over year. Adjusted gross margin was 56.5% higher than 55.5% in the year-ago period.

Adjusted selling expenses were $45.8 million, or 17.8% of total net sales, compared with 18% a year ago. Adjusted general and administrative expenses were $23.7 million, or 9.2% of sales, versus 8.9% a year ago. Adjusted research and development expenses were $22.2 million, or 8.6% of sales, compared with 8.4% in the prior-year quarter.

Adjusted operating income stood at $53.5 million in the quarter, a year-over-year growth of 21.9%. Adjusted operating margin was 20.8%, higher than the 20.1% in the year-ago quarter.

Balance Sheet and Cash Flow

As of September 30, 2012, Mindray had $747.6 million in cash and liquid investments, up about 40.5% from a year ago. Long-term bank loan stood at $85.1 million, up 143.3% from a year ago. Net cash generated from operating activities was $59.3 million in the quarter (up 98.3% year over year) while capital expenditure amounted to $14.4 million.


Mindray provides guidance on a full year basis. The company continues to forecast revenue growth of 18% or more for 2012. It also expects adjusted net income for the year to increase by a minimum of 15% year over year (a minimum of 15% earlier). The guidance does not take into account any tax advantage on account of key software enterprise status. The forecast for capital expenditure for 2012 is under $70 million (versus $90 million earlier).   

Mindray is a bellwether in the Chinese MedTech industry with a solid international presence. A key distinction with domestic competitors is that the majority of Mindray’s products have CE Mark and/or Food and Drug Administration (FDA) clearance.

Mindray maintains a decent product pipeline and brings out several new products each year. New products contribute in a major way to Mindray’s revenues. In 2011, the company launched 13 new products.

The company has entered the premium segment globally, where its competitive advantage is still unclear. Also, on the negative side, health care reforms in China and the U.S. may reduce demand for Mindray’s products. Competition is fierce and leads to price erosion over time.

Mindray’s competitors, in different niche segments, include GE Healthcare, a part of General Electric (GE - Free Report) , Philips (PHG - Free Report) and Siemens . The stock currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

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