Volcano Beats on EPS, Guides Low - Analyst Blog
February 23 2012 - 4:30AM
Zacks
Volcano
Corporation (VOLC) reported EPS of 54 cents in the fourth
quarter of fiscal 2011 compared with a net loss of 3 cents per
share in the year-ago period. However, after taking into account
the benefit of 40 cents per share (related to the release of a
portion of the company's deferred tax valuation allowance) in the
reported quarter, EPS came in at 14 cents, way above the Zacks
Consensus Estimate of 4 cents. For the full year, the company
reported adjusted EPS of 30 cents, ahead of both the Zacks
Consensus Estimate of 20 cents and 10 cents in the previous
year.
In line with the preliminary
results reported last month, revenues for the quarter climbed 14%
year over year to $92.7 million. For the full year, revenues were
up by 17% to $343.5 million.
Revenues in the Medical segment
increased 20% during the quarter to $91.2 million on the back of
37% growth in FFR (Fractional Flow Reserve) disposable business and
an in-line performance in the IVUS (intravascular ultrasound)
business. However, performance of the Industrial segment remained
challenging due to softness in telecom infrastructure spending in
key international geographies. This resulted in a 70%
year-over-year decline in Industrial revenues to $1.5 million in
the fourth quarter.
Management is impressed with the
overall performance despite the challenging economic environment
that has affected procedure volume, particularly in the IVUS
business. Volcano Corporation benefited from a growing volume of
data depicting improved patient outcomes and economic benefits from
the use of Functional percutaneous interventional (PCI) and the use
of intravascular guidance to optimize and confirm the therapy
during the procedure.
The US market recorded a growth of
4% in IVUS disposable sales, with Europe and Japan recording growth
rates of 3% and 40%, respectively. The robust growth in Japan, the
largest IVUS market in the world, is gratifying as Volcano
Corporation has been trying to increase its penetration in the
country through direct sales program and/or introduction of new
products.
Volcano Corporation recorded gross
margin of 67.3% in the quarter compared with 64.1% in the fourth
quarter of 2010. With both selling, general and administrative, and
research and development (R&D) expenses remaining almost
unchanged, the company recorded operating margin of 10.3%
(excluding amortization of intangibles and in-process R&D
expenses) compared with an operating loss in the year-ago
quarter.
Volcano Corporation’s bottom line
also benefited from a 37% drop in interest expense to $1.2 million
in the quarter. Besides, the company recorded an exchange rate gain
of $184 million compared with a loss of $269 million in the
year-ago period.
Outlook
Volcano Corporation provided its
outlook for fiscal 2012. The company expects to report revenues of
$392–$399 million (growth of 14–16% or 15–17% at constant currency)
and EPS of 21–24 cents. While the Zacks Consensus Estimate of $399
million in revenues is at the high end of the company’s guidance,
the consensus EPS of 31 cents is more optimistic than the guidance.
Gross margin is expected around 64–-65% with operating expenses
coming in at 57−58% of revenues.
Recommendation
Volcano Corporation continues to
execute strategies to drive sales in the IVUS/FM markets backed by
new product launches and product enhancements. The company has been
expanding its presence in Japan through a direct sales program and
introduction of new products. The recent transition of the
distribution agreement with Johnson & Johnson
(JNJ) would allow Volcano to address 100% of the business on a
direct basis. Over the long term, the company should benefit from
this move as Japan has the largest IVUS market in the world.
However, capital spending by
hospitals has been affected by the weak economy. Moreover, the
company witnesses stiff competition from players such as St
Jude Medical (STJ) and Boston Scientific
Corporation (BSX). The stock carries a Zacks #3 Rank
(“Hold”) in the short term. Over the long term, we maintain our
Neutral recommendation on Volcano Corporation.
BOSTON SCIENTIF (BSX): Free Stock Analysis Report
JOHNSON & JOHNS (JNJ): Free Stock Analysis Report
ST JUDE MEDICAL (STJ): Free Stock Analysis Report
VOLCANO CORP (VOLC): Free Stock Analysis Report
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