Immucor Moves Ahead of Estimates - Analyst Blog

Immucor Inc. (BLUD) reported an EPS of 30 cents for the second quarter of 2011 (ending in November 2010), surpassing both the Zacks Consensus Estimate of 27 cents and the year-ago quarter's 28 cents. The company reported a 1% decline in revenues to reach $81.5 million. However, revenues were marginally higher than the Zacks Consensus Estimate of $80 million. Currency fluctuations had a negative impact of $1 million during the quarter.

Gross margin increased marginally to $58.4 million compared with $58.1 million in the year-ago period. Moreover, as a percentage of sales, it improved 120 basis points (bps) to 71.6%. The second quarter of fiscal 2010 included $1.8 million of costs related to the company's Quality Process Improvement Project, targeted at establishing a better quality system, which was completed in the third quarter of fiscal 2010. While the year-ago quarter's gross margin was negatively impacted by costs related to the quality improvement project, the latest quarter witnessed negative impact primarily due to unfavorable manufacturing variances and currency fluctuations.

While research and development expenses remained unchanged at $3.9 million, lower general and administrative, and selling and marketing expenses led to a 4% decline in operating expenses. Consequently, operating margin was higher by 210 basis points to 39.2%.

Immucor's main products -- traditional reagents, capture reagents and instruments -- accounted for 61%, 23% and 14%, respectively, of total revenues. Immucor earns the most by manufacturing traditional reagents which also carries the highest gross margin of 81%. Gross margin of capture reagents and instruments were 79.1% and 22.6%, respectively. While instrument revenues increased 15% annually to reach $11.6 million, revenues from both traditional reagents ($49.6 million) and capture reagents ($19 million) decreased 3% and 5%, respectively.

Immucor's fourth generation automated instrument, Neo, was recently launched globally. The instrument recorded 26 orders during the quarter (7 in North America, 11 rest of the world). The company's Echo recorded 29 orders during the quarter.

Outlook

Immucor reiterated its guidance for fiscal 2011. During the first quarter, the company had projected a 3%-4% decline in industry volume driven by less elective surgeries and better blood utilization by hospitals. The company's outlook for the US market remains unchanged with industry weakness expected throughout 2011. This is impacting reagent revenue and instrument orders. Immucor maintained its revenue, EPS and gross margin guidance at $320−$332 million, $1.08−$1.18 and 69.5%−71.0% respectively. With respect to instrument orders, the company still expects to place 140-180 Echo orders globally and 80-120 Neo orders during fiscal 2011.

Recommendation

Although Immucor had begun fiscal 2011 on a disappointing note, the scenario improved with the second quarter. While the company expects the industry to be weak throughout the fiscal, the situation should improve with gradual recovery in the economy. During the last quarter conference call, Immucor had stated that despite elective surgeries being deferred by people, this situation is short-lived because 51% of the transfusions are for the cardiovascular and spinal diseases such as joint and hip replacements. As a result, the industry demand is likely to improve with the ageing population as these surgeries are typically associated with old age.

We are currently ‘Neutral' on the stock.