HAE Beats on EPS, Ups EPS Guidance - Analyst Blog

Haemonetics Corporation (HAE) reported an EPS of 85 cents in the second quarter of fiscal 2011 compared with 69 cents in the year-ago quarter. However, after adjusting for certain one time items, EPS came in at 80 cents, surpassing the Zacks Consensus Estimate by 4 cents.

The adjusted EPS was 16% higher than the year-ago quarter. The company reported revenues of $166.8 million in the quarter, up 6% compared with the year-ago period. However, revenues were lower than the Zacks Consensus Estimate of $173 million. At constant exchange rates (CER), revenue was up 7% annually.

Haemonetics earns about 82% of its revenues from the sale of disposables – plasma disposables, blood bank disposables and hospital disposables. Barring blood bank disposables which recorded a year-over-year sales increase of 4.7% to $51.0 million, plasma and hospital disposables declined 4.9% ($56.5 million) and 0.4% ($28.9 million), respectively.

The remaining 18% of revenues is derived from software solutions and equipment which recorded sales of $16.1 million (up 77.2% from the year-ago quarter) and $14.2 million (up 32.1%), respectively. The acquisition of Global Med Technologies was primarily responsible for the increase in software revenues.

Although plasma revenues declined 5% annually, the company expects the plasma business to return to mid single digit growth in the third quarter, rising to low double digit growth in the fourth, with full year Plasma revenue growth in the range of 0%−3%.

Within blood bank disposables, revenues from platelet disposables increased 6.7% ($39.7 million), driven by strong sales in emerging markets. However, revenues from red cell disposables were down 1.7% ($11.3 million) due to a decline in demand for red cells as a result of declining surgical volumes.

The declining trend of surgical volumes also impacted surgical disposables (under hospital disposables) by 3.7% to $16 million. In addition, revenues derived from OrthoPAT declined 4.6% to $8.3 million while diagnostics disposables (consists principally of TEG Thrombelastograph Hemostasis Analyzer) recorded a 24.1% rise in revenues to $4.6 million.

Sales increased in all the markets, with the highest growth recorded by Asia (27%). This was followed by North America (5%), Europe (4%), and Japan (3%).

Outlook

Subsequent to the announcement of the second quarter results, Haemonetics lowered its revenue guidance for 2011. Revenue is now expected to grow at 6%−9% from the earlier guidance of 9%−12%.

The company has to lower its revenue growth guidance due to slower than expected recovery in plasma collections and lower surgical procedures. However, Haemonetics raised its adjusted EPS guidance to $3.18−$3.28 from the previous level of $3.15−$3.25.

Recommendation

Haemonetics derives 34% of its revenues from plasma disposables. However, revenue derived from this segment has been declining for the past few quarters.

Although the company expects some improvement on this front, the expected growth at the end of fiscal 2011 has been reduced. Based on these factors, the company has also reduced its revenue guidance. Additionally, the economic uncertainty which is impacting surgical procedures is another concern for the company. Based on these factors, the company has a Zacks #4 Rank (Sell) in the short term.

However, low worldwide penetration combined with demand outstripping supply makes a positive long-term thesis for investing in the blood processing and supply chain management industry. We believe that Haemonetics is well positioned to tap this under-penetrated market. Acquisitions have played a major part in the evolution of the company.

A stable cash balance coupled with strong free cash flow generation has enabled Haemonetics to look for suitable acquisitions, which should further drive its top line. We are also encouraged by the company's long-term outlook, based on which investments are being made in automated whole blood collection system and Arryx blood typing technology, both of which hold immense potential.

Based on the long-term potential of the company, we are currently Neutral on the stock.