Hi-Tech Pharmacal Q4 Misses - Analyst Blog

Hi-Tech Pharmacal Co. Inc.’s (HITK) fiscal 2010 fourth-quarter earnings grew 27% to $6.5 million or 50 cents per share from $5.1 million or 45 cents in the year-ago period. However, quarterly earnings still missed the Zacks Consensus Estimate of 55 cents.

The earnings miss surprised investors as the company has topped the Zacks Consensus Estimate by significant margins in the previous three quarters. Shares of Hi-Tech are slipping after hours after falling 1.5% today, which followed the more than 6% drop in the stock before the closing bell yesterday.

Hi-Tech is a specialty manufacturer of generic and branded prescription and over-the-counter (OTC) products. The company manufactures liquid and semi-solid dosage forms and produces a range of sterile ophthalmic, otic and inhalation products. Hi-Tech’s Health Care Products (HCP) division develops and markets branded prescription and OTC products for diabetes, while the company’s ECR Pharmaceuticals subsidiary markets branded prescription products.

Hi-Tech’s net sales recorded a growth of 5.8% in net sales to $40.5 million from $38.3 million in the prior-year quarter. The growth was primarily driven by sales of ECR, which more than doubled year-over-year to $6.5 million aided by a 15% growth in HCP division’s sales to $2.7 million. However, overall sales growth was partially offset by a 5.4% year-over-year decline in generic products to $31.4 million mainly due to sluggish sales of cold and flu products and discontinuation of certain unapproved products.

Gross profit during the quarter grew 4.8% year-over-year to $20.9 million, while gross margin slipped 50 basis points (bps) to 51.5%. The lower margin was mainly caused by reduced prices in Dorzolamide ophthalmic solution and suspension of sales of certain products after a Food and Drug Administration (FDA) warning.

Selling, general and administrative expenses increased 3.2% year-over-year to $10.3 million, mainly due to cessation of royalty payments on Dorzolamide with Timolol ophthalmic solution. Research and development expenses rose 22% to $2.4 million as Hi-Tech ramped up development work on new projects.

Looking ahead, Hi-Tech targets sales of over $1 billion from sixteen products currently awaiting FDA approval. The Zacks Consensus Estimate on the company’s earnings for the fiscal year ending April 2011 has dipped by 5 cents to $2.07 per share in just the past week, as 1 of 3 covering analysts have reduced expectations. For the next fiscal year, the Zacks Consensus Estimate is currently pegged at $2.53 per share, which remained constant over the past month.
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