Kinetic Concepts Inc. (KCI) reported second-quarter fiscal 2010 EPS of 75 cents, down 9% from 82 cents in the second quarter 2009. However, adjusted EPS (excluding the charges related to TSS portfolio rationalization and employee separation costs) was $1.01, beating the Zacks Consensus Estimate of 97 cents. EPS increased 3% from the year-ago quarter’s 98 cents.
Kinetic’s net sales (including rental income) increased 1.3% to $497.8 million, but missed the Zacks Consensus estimates of $506 million. Rental income declined 3.1% to $283.1 million. The North American revenue growth of 2.7% was offset by a decline in the EMEA/APAC revenue by 3.5% due to unfavorable currency movements.
Barring Regenerative Medicine (LifeCell) division’s revenue increase of 17.8% to $83.7 million, revenue for the other two segments, Active Healing Solutions (AHS) and Therapeutic Support Systems (TSS) declined 5% to $347.7 million and 6.4% to $66.3 million, respectively.
The Regenerative Medicine division’s revenue growth was influenced by the sales from the regenerative tissue matrix, Strattice ($33.2 million, representing 40% of total division’s revenue), and 2% contribution from the newly launched products in the European markets. Moreover, sales in North America increased 16.1% to $82.2 million and sales in EMEA/APAC were consistent with the prior quarter at $1.6 million.
The AHS and TSS divisions’ revenue from North America came in at $266.7 million and $44.6 million, up 0.1% and down 3.2%, respectively. However, divisions’ revenue from the European regions declined 2.5% and 12.4% year over year, respectively, impacted by the competitive environment and lower rental volumes.
Gross profit in the second quarter increased 3% year over year to $279.8. Gross margin expanded 110 bps to 56.2%.
Operating earnings declined 11% year over year to $101.4 million. Excluding one time items, operating earnings were $123.6 million, consistent with the year-ago quarter. Selling, General and Administrative expenses (including the charges) and Research and development expenses (representing 4.4% of total revenue) increased 17% and 2% year over year to $21.4 and $12.7, respectively.
Kinetic exited first-half fiscal 2010 with cash and cash equivalents of $247.1 million, a 6.1% decrease from $263.2 as of December 2009. The company had a long-term debt of $1.03 billion at the end of the period compared with the debt burden of $1.17 billion as of December 2009. The company generated $137.9 million of cash flow from operation in first half of fiscal 2010, a decrease of 14% year over year. Free Cash Flow decreased by $26.6 million to $99 million as of June 2010.
Guidance
For fiscal 2010, KCI revised its revenue and EPS guidance range downwards due to continued weakness in TSS rental business globally and delay in the launch of new AHS products as well as the concerns related to currency movements headwinds expected in the second half of fiscal 2010.
KCI lowered its net sales guidance to $2.00 billion– $2.03 billion from the prior range of $2.05 billion − $2.09 billion. Adjusted EPS guidance range was lowered to $4.19 −$4.29 from the prior range of $4.32−$4.46, while, GAAP EPS is now expected to range $3.40−$3.50 as compared with the previous range of $3.56−$3.66. The Zacks Consensus Estimate for revenue and EPS are $2,043 million and $4.13, respectively.
Kinetic’s net sales (including rental income) increased 1.3% to $497.8 million, but missed the Zacks Consensus estimates of $506 million. Rental income declined 3.1% to $283.1 million. The North American revenue growth of 2.7% was offset by a decline in the EMEA/APAC revenue by 3.5% due to unfavorable currency movements.
Barring Regenerative Medicine (LifeCell) division’s revenue increase of 17.8% to $83.7 million, revenue for the other two segments, Active Healing Solutions (AHS) and Therapeutic Support Systems (TSS) declined 5% to $347.7 million and 6.4% to $66.3 million, respectively.
The Regenerative Medicine division’s revenue growth was influenced by the sales from the regenerative tissue matrix, Strattice ($33.2 million, representing 40% of total division’s revenue), and 2% contribution from the newly launched products in the European markets. Moreover, sales in North America increased 16.1% to $82.2 million and sales in EMEA/APAC were consistent with the prior quarter at $1.6 million.
The AHS and TSS divisions’ revenue from North America came in at $266.7 million and $44.6 million, up 0.1% and down 3.2%, respectively. However, divisions’ revenue from the European regions declined 2.5% and 12.4% year over year, respectively, impacted by the competitive environment and lower rental volumes.
Gross profit in the second quarter increased 3% year over year to $279.8. Gross margin expanded 110 bps to 56.2%.
Operating earnings declined 11% year over year to $101.4 million. Excluding one time items, operating earnings were $123.6 million, consistent with the year-ago quarter. Selling, General and Administrative expenses (including the charges) and Research and development expenses (representing 4.4% of total revenue) increased 17% and 2% year over year to $21.4 and $12.7, respectively.
Kinetic exited first-half fiscal 2010 with cash and cash equivalents of $247.1 million, a 6.1% decrease from $263.2 as of December 2009. The company had a long-term debt of $1.03 billion at the end of the period compared with the debt burden of $1.17 billion as of December 2009. The company generated $137.9 million of cash flow from operation in first half of fiscal 2010, a decrease of 14% year over year. Free Cash Flow decreased by $26.6 million to $99 million as of June 2010.
Guidance
For fiscal 2010, KCI revised its revenue and EPS guidance range downwards due to continued weakness in TSS rental business globally and delay in the launch of new AHS products as well as the concerns related to currency movements headwinds expected in the second half of fiscal 2010.
KCI lowered its net sales guidance to $2.00 billion– $2.03 billion from the prior range of $2.05 billion − $2.09 billion. Adjusted EPS guidance range was lowered to $4.19 −$4.29 from the prior range of $4.32−$4.46, while, GAAP EPS is now expected to range $3.40−$3.50 as compared with the previous range of $3.56−$3.66. The Zacks Consensus Estimate for revenue and EPS are $2,043 million and $4.13, respectively.
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