Haemonetics Beats on EPS - Analyst Blog

Haemonetics Corporation (HAE) reported an EPS of 77 cents in the third quarter of fiscal 2011 compared with 71 cents in the year-ago quarter. However, after adjusting for certain one time items, EPS came in at 89 cents, surpassing the Zacks Consensus Estimate of 82 cents and the year-ago quarter's 72 cents.

The company reported revenues of $176.8 million in the quarter, up 7% compared with the year-ago period. However, revenues were marginally lower than the Zacks Consensus Estimate of $178 million. At constant exchange rates (CER), revenue was up 6% annually. Revenues from both domestic and international markets increased 6.5% and 7.5%, respectively.

Haemonetics earns about 82% of its revenues from the sale of disposables – plasma disposables, blood bank disposables and hospital disposables. Barring hospital disposables which recorded a year-over-year sales decline of 1.5% to $31.6 million, plasma and blood bank disposables increased 1.1% ($59.8 million) and 1.8% ($52.7 million), respectively.

The remaining 18% of revenues is derived from software solutions and equipment which recorded sales of $16.6 million (up 100.7% from the year-ago quarter) and $16.1 million (up 16.1%), respectively. The acquisition of Global Med Technologies was primarily responsible for the increase in software revenues.

It is encouraging to note that plasma revenues again got into the growth trajectory during the third quarter. Moreover, average weekly shipment of plasma disposables was up 17% from the average daily shipments in the fourth quarter of fiscal 2010, which was the lower end of the recent plasma downturn. Haemonetics expects full year plasma revenue growth in the range of 0%−2%.

Within blood bank disposables, revenues from platelet disposables increased 3.2% ($41.1.7 million), driven by strong sales in emerging markets. However, revenues from red cell disposables were down 2.9% ($11.7 million) due to a decline in demand for red cells as a result of declining surgical volumes. While Haemonetics expects platelet revenue to grow 1-3% for the full year, revenue from red cell disposables is expected to be lower at 3-5%.

The declining trend of surgical volumes also impacted surgical disposables (under hospital disposables) by 4.2% to $17.1 million. In addition, revenues derived from OrthoPAT declined 6.2% to $9.2 million while diagnostics disposables (consists principally of TEG Thrombelastograph Hemostasis Analyzer) recorded a 20.5% rise in revenues to $5.2 million.

Outlook

Subsequent to the announcement of the third quarter results, Haemonetics narrowed its revenue guidance for 2011. Revenue is now expected to grow at a rate of 6%-7% from the earlier guidance of 6%-9%.

In addition, the company increased the lower end of its adjusted EPS guidance by 2 cents to $3.20-$3.28. The free cash flow guidance was increased to more than $90 million from the previous guidance of $85 million.

Recommendation

Low global penetration and demand outstripping supply provides a positive long-term thesis for investing in the blood processing and supply chain management industry. 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 revival in plasma revenues in the reported quarter. However, we remain cautious about the decline in surgical procedures. 

We are currently Neutral on the stock.