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Bard Beats on 1Q Earnings, Profit Slumps

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CR Bard Inc.’s first-quarter 2013 adjusted earnings of $1.44 per share beat the Zacks Consensus Estimate by a penny. Adjusted earnings exclude one-time items such as acquisition-related expenses ($0.7 million), asset impairment charges ($5.7 million) and litigation expenses ($25.8 million). Although adjusted earnings declined 11%, it was within the company’s previously announced guidance.

In the quarter, net income was $90.7 million (or $1.08 a share), down 35% from the year-ago quarter, mainly due to the aforementioned one-time expenses.


Revenues inched up 1% both in terms of reported and constant currency on a year-over-year basis to $740.3 million. Revenues surpassed the Zacks Consensus Estimate of $738 million. Foreign currency rate positively impacted sales by about 20 basis points year over year.

On a geographic basis, revenues in the U.S. were roughly flat at $498.5 million. However, international sales grew 3% both in terms of reported and constant currency to $241.8 million, led by healthy sales in emerging markets.

Segment Analysis

Revenues from the core Vascular segment decreased 3% year over year to $203.2 million. Within Vascular, endovascular sales fell 3%, with Biopsy sales declining 4%. Electrophysiology (“EP”) revenues dropped 1%. EP Lab system sales jumped 30% led by solid sales in the emerging markets, while disposable EP sales declined 6%. Surgical graft sales were down 10% due to soft OEM orders.

Revenues from peripheral PTA increased 9%. Vena Cava Filter sales grew 7% in the reported quarter. This was quite a turnaround from the 12% decline in the sequentially prior quarter. Revenues from the stent franchise dipped 13% year over year, as the Japanese competitor, which pulled back its product line last year, returned to the market. However, it was flat sequentially, reflecting pricing and competitive pressure.

Sales from the Urology division increased 2% to $188.8 million. We note that the company is experiencing healthy sales from Medivance, which it acquired a year ago. Revenues from the basic drainage division were up 3%. I.C. Foley sales dropped 5% and 1% 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. Neurological specialties sales were down 5% due to a 9% fall in brachytherapy sales. Revenues from the StatLock catheter stabilization line declined 1% in the quarter.

The company’s Oncology segment reported revenue growth of 4% year over year to $207.1 million. Sales of peripherally inserted central catheters (PICC) increased 5%, while revenues from the Port franchise inched up 1%. Revenues from the Vascular Access ultrasound products and dialysis catheter products line increased 5% and 8%, respectively, in the reported quarter.

Sales from Surgical Specialties business were up 5% at $120.3 million, led by the Neomend acquisition. Soft tissue repair business grew 3% due to an unexpected 11% growth in natural tissue products sales. Revenues from the hernia fixation business were down 11% and that from the performance irrigation business fell 16%.

Sales from Other segment dropped 5% (down 6% in constant currency) year over year to $20.9 million.


On an adjusted basis, gross margin was 60.4%, down 130 basis points (bps) from the prior-year quarter, mainly due to timing issues. Marketing, selling, and administrative expenses (as a percentage of sales) increased 150 bps to 29.2%. This was driven partly by the medical device excise tax and the rest because of increased spending on investment plans focused on emerging markets.

Research and development expenses, as a percentage of sales, increased to 8% from 6.6% in the year-ago quarter. Reported operating margin was 17.2% versus 26.2% in the year-ago quarter.

Balance Sheet

CR Bard ended the first quarter of 2013 with cash, restricted cash and short-term investments of $905.3 million, down 1.7% on a sequential basis. Total debt remained flat at $1.4 billion.


Moving ahead, C.R. Bard expects similar sales performance for the second quarter of 2013 as in the first quarter due to difficult year-over-year comparisons and several headwinds. On the earnings front, the company expects adjusted earnings in the range of $1.35 to $1.39 a share. The current Zacks Consensus Estimate for the quarter is $1.46.

Our View

Although CR Bard managed to beat estimates this quarter, we remain concerned over the sluggish growth rate in the U.S., despite improvement in the broad market. Further, we remain on the sidelines unless its recent investment strategies to increase profitability pay off. Its recent acquisitions and initiatives to expand into emerging markets should boost growth in the long-term but we see no near-term catalysts.

Moreover, the company’s claim that the Gore litigation is moving toward a positive direction and is about to complete instills confidence. However, there is always a degree of uncertainty related to legal matters.

The stock carries a Zacks Rank #4 (Sell). While we remain on the sidelines regarding CR Bard, companies like Tornier N.V. , carrying a Zacks Rank #1 (Strong Buy), as well as The Cooper Companies Inc. (COO - Free Report) and MWI Veterinary Supply, Inc. , which carry a Zacks Rank #2 (Buy), are expected to do well in the medical/dental supply industry.

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