C.R. Bard's Mixed 4Q, Profit Zooms - Analyst Blog

Leading medical devices maker C. R. Bard (BCR) reported fourth-quarter fiscal 2010 results after the closing bell on January 31, with an adjusted earnings per share of $1.54 topping the Zacks Consensus Estimate of $1.48 while surpassing the year-ago earnings of $1.39. For fiscal 2010, adjusted earnings of $5.60 a share beat the Zacks Consensus Estimate of $5.54 and exceeded the year-ago earnings of $5.09. Adjusted earnings exclude one-time items including charges associated with acquisition and restructuring. 

Net income (as reported) for the fourth quarter shot up 29% year over year to $136.2 million (or $1.47 per share) on the back of higher sales and lower tax. For the full year, profit soared 11% to $509.2 million (or $5.32 per share).

Revenues

Revenues for the quarter grew 6% year over year to $717.1 million, but fell short of the Zacks Consensus Estimate of $718.7 million. Barring foreign exchange translation, sales rose 7%. Revenue growth was supported by sustained healthy performance by the Vascular franchise and strong contributions from the emerging markets.

Geographically, U.S. sales increased 6% to $490.3 million while international sales rose 5% to $226.8 million. For fiscal 2010, revenues climbed 7% to roughly $2,720 million, also missing the Zacks Consensus Estimate of $2,723 million.  

Segment Analysis

C.R. Bard's core vascular segment revenues surged 13% year over year in the quarter to $205.3 million, boosted by healthy sales from both domestic and international operations (especially emerging markets). The company's endovascular, biopsy and stent businesses had yet another strong quarter, partly offset by lower vena cava filter sales. Electrophysiology (“EP”) revenues increased 4% helped by higher sales from the diagnostic catheters business.

Oncology sales rose 6% to $189.2 million driven by growth in peripherally inserted central catheters (“PICC”), ports and vascular access ultrasound products, with emerging markets meaningfully contributing to the growth.

Urology sales were essentially flat year over year at $185.1 million, impacted by sluggish drainage products sales in the U.S. as hospitals continue to cap Foley catheter utilization. Within urology, continence products as well as urology specialty products sales dipped in the quarter while revenues from slings improved year over year.

Revenues from the Surgical Specialties unit increased 5% to $114.6 million. The surgical division is benefiting from strong performance of the soft tissue repair business, boosted by healthy growth in natural tissue products. Moreover, the company's hernia fixation business continues to grow at a double-digit rate driven by the success of the SorbaFix product. 

Margins

Gross margin for the quarter edged up to 63.2% from 62.3% a year ago owing to higher sales. Marketing, selling and administrative expenses as a percentage of sales increased to 28.5% from 27.2%. Research and development expenses (as a percentage of sales) declined to 7.3% from 8.6% a year ago. Operating margin improved to 24.7% from 24.1% a year ago.

Financial Condition

C.R. Bard exited fiscal 2010 with cash and short-term investments of $641.4 million (down 4.9% year over year) with total debt of $977.4 million. The company repurchased 8.3 million shares during the fourth quarter.

Outlook and Recommendation

Moving forward, C.R. Bard expects its first-quarter fiscal 2011 sales to grow 6%-8% in constant currency. The adjusted EPS target for the quarter has been pegged in the band of $1.43 to $1.47 as against the current Zacks Consensus Estimate of $1.45.

C.R. Bard specializes in medical, surgical, diagnostic and patient care devices. The company faces a mix of competitors ranging from large manufacturers with multiple business lines like Boston Scientific Corporation (BSX) and Johnson & Johnson (JNJ) to smaller manufacturers that offer a limited selection of products like Angiodynamics Inc. (ANGO).

C.R. Bard's well-diversified end-markets and vast product portfolio (used in life-saving less invasive surgical procedures) insulate it from fluctuations in any single therapeutic category. The acquisition of medical devices maker SenoRx Inc. in July 2010 has expanded the company's product portfolio beyond its existing product range meant for ultrasound imaging.

We expect new product flow and an expanded sales force to drive organic revenues growth and help C.R. Bard to meet its sales objective. However, the company contends with heightened competition and pricing pressure and its aggressive acquisition strategy has inherent integration risk. Currently, we have a Neutral recommendation on C.R. Bard. The stock currently retains a Zacks #2 Rank, which translates into a short-term Buy recommendation.

 
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