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CR Bard Squarely Beats Estimates

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CR Bard Inc.’s fourth-quarter 2012 adjusted earnings of $1.70 per share beat the Zacks Consensus Estimate of $1.67 (flat year-over-year). Adjusted earnings exclude one-time items such as acquisition-related expenses ($3.1 million) and restructuring costs ($19 million). The results also exceeded the company’s guidance by a couple of cents.
In the reported quarter, profit was $128.2 million (or $1.52 a share), up 13% from the year-ago quarter.
For fiscal 2012, the company’s adjusted earnings per share of $6.57 edged past the Zacks Consensus Estimate by 3 cents and exceeded the year-ago earnings of $6.40 per share (up 3%) as well. Profit jumped roughly 62% year over year to $530.1 million, due to controlled expenses.
Despite the sluggish growth rate in the U.S. and dilution from the Neomend acquisition, the company was able to meet its 2012 adjusted earnings per share guidance.
Revenues inched up 1% (up 2% in constant currency) year over year to $762.6 million. Revenues surpassed the Zacks Consensus Estimate of $756 million. Acquisitions contributed 1% to sales growth in the quarter. The results met the upper-end of the company’s guidance.
On a geographic basis, revenues in the U.S. dipped 1% to $498.1 million due to sustained softness in the market. However, international sales grew 6% (up 8% in constant currency) to $264.5 million, led by healthy sales in Japan and Europe. Moreover, international sales were boosted by double-digit growth (33%) in emerging markets.
For the fiscal, sales increased 2% year over year to $2,958.1 million, surpassing the Zacks Consensus Estimate of $2,952 million.
Segment Analysis
Revenues from the core Vascular segment decreased 4% (down 2% in constant currency) year over year to $212 million. Within Vascular, endovascular sales fell 3% but Biopsy sales inched up 1% year over year. Electrophysiology (“EP”) revenues dropped 2%. EP Lab system sales inched up 1%, while disposable EP sales declined 4% year over year. Surgical graft sales rose 4%.
Revenues from peripheral PTA increased 1% in the quarter. Vena Cava Filter sales dropped 12% in the reported quarter. Revenues from the stent franchise also dipped 9%, as the Japanese competitor, which pulled back its product line last year, returned to the market.
Sales from the Urology division increased 3% (up 3% in constant currency) to $195.8 million led by solid sales in the emerging markets and the company’s latest targeted temperature management products. Revenues from the basic drainage division were up 3%, driven by strong sales in Japan and emerging market growth. I.C. Foley sales dropped 5% and 9% in the U.S and international markets, respectively, as these segments faced continued pricing pressure.
Continence segment’s sales were down 5% in the reported quarter. Urological specialties sales edged down 1%, with an 18% fall in brachytherapy sales. Revenues from StatLock catheter stabilization line declined 5% in the quarter.
The company’s Oncology segment reported revenue growth of 5% (up 5% in constant currency) year over year to $203.9 million, backed by higher international sales. Peripherally inserted central catheters (PICC) sales climbed 6%, reflecting solid sales in the emerging markets and Port revenues inched up 2% in the quarter. The Sherlock 3CG Confirmation technology continues to contribute to sales growth. Revenues from vascular access ultrasound products increased 8% in the reported quarter.
Sales from Surgical Specialties business were up 4% at $121.3 million, (4% in constant currency), led by the Neomend acquisition. Soft tissue repair business grew 1%, whereas natural tissue products sales dipped 10% due to market pressure. Revenues from the hernia fixation business were down 9%, narrower than the double-digit decline posted through the past 5 quarters. Sales from the performance irrigation business decreased 7%.
Sales from Other segment inched up 1% year over year to $23 million.
Gross margin was 62.3% in the reported quarter compared with 62.5% in the prior-year quarter. Operating margin was 23.2% versus 18.9% in the year-ago quarter.
Marketing, selling and administrative expenses (as a percentage of sales) decreased to 27.9% from 28.5% a year ago. Research and development expenses, as a percentage of sales, increased to 6.9% from 5.8%.
Balance Sheet
CR Bard ended the fourth quarter of 2012 with cash, restricted cash and short-term investments of $921.3 million, up 10.1% on a sequential basis. Total debt increased 9% sequentially to $1,410 million.
Moving ahead, C.R. Bard expects marginal sales growth for the first-quarter of 2013 due to difficult year-over-year comparisons and fewer selling days in the U.S. and Europe. On the earnings front, the company expects adjusted earnings in the range of $1.40 to $1.44 a share. The current Zacks Consensus Estimate for the quarter is $1.64.
For 2013, CR Bard expects constant currency revenue growth in the range of 2% to 5% (including $60–$70 million royalty benefit from the Gore litigation). On the earnings front, the company expects adjusted earnings in the range of $6.25 to $6.30 a share. 
The current Zacks Consensus Estimates for revenue and earnings per share for full year 2013 are $3,074 million and $6.54, respectively.
Our View
C.R. Bard’s well-diversified end markets and a vast product portfolio insulate it from fluctuations in any single therapeutic category. We expect new product launches to drive organic revenue growth and help CR Bard meet its sales objective. We are also impressed by the company’s initiative to expand into emerging markets with attractive growth opportunities.
In 2012, the company acquired privately-owned innovative surgical sealants maker, Neomend, Inc. to expand its surgical specialty product line. However, increasing competition, fluctuating currency, pricing/volume pressure and an overall tough U.S. economy remain areas of concern. 
The stock carries a Zacks Rank #3 (Hold). Companies like Merit Medical Systems, Inc. (MMSI - Free Report) , carrying a Zacks Rank #1 (Strong Buy), as well as The Cooper Companies Inc. (COO - Free Report) and Becton, Dickinson and Company (BDX - Free Report) , which carry a Zacks Rank #2 (Buy), are expected to do well in the medical industry.

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