Cooper Profit Grows, Lifts View - Analyst Blog

Eye-care and surgical product maker Cooper Companies Inc. (COO) reported better-than-expected third-quarter fiscal 2010 (ended July 31, 2010) results with adjusted earnings per share of 91 cents outshining the Zacks Consensus Estimate of 71 cents and the year-ago earnings of 54 cents.

Adjusted earnings exclude litigation settlement charges, restructuring costs and acquisition expenses. Net profit zoomed 81% year-over-year to $39.7 million (or 86 cents a share) boosted by healthy performance at the company’s CooperVision (CVI) eye-care division and lower sales costs.

The healthy results coupled with management’s upbeat guidance pushed up Cooper’s shares that leapt $1.74 (or 4.22%) to $43 in after-hours trading on Sep 2.

Revenues

Revenues rose 4% year-over-year to $295.6 million as the company gained market share in its CVI business. However, sales missed the Zacks Consensus Estimate of $297 million.

Sales at the CVI division grew 3% year-over-year to $249 million on the back of higher sales from toric lenses (up 9% year-over-year) and single-use sphere lenses (up 10%), partly offset by declines in multifocal lenses (down 7%) and non-single-use sphere lenses (down 2%). Revenues from the CooperSurgical (CSI) surgical division increased 5% year-over-year to $46.6 million boosted by higher sales of hospital products (up 18%).

Margin Analysis

Gross margin improved to 60% from 51% a year-ago, supported by higher revenues and manufacturing efficiency gains at the CVI unit. Higher gross margin helped the company to improve operating margin in the quarter which rose to 17% from 12% a year-ago.

Financial Condition

Cooper ended the third-quarter with cash and cash equivalents of roughly $3.2 million, down 14% year-over-year. The company de-leveraged its balance sheet in the quarter as total debt declined by $66.3 million sequentially to $646.7 million. Cooper generated $75.3 million cash from operation and spent $16.9 million on capital expenditures, resulting in a free cash flow of $58.4 million.

Outlook

Based on strong third-quarter results, Cooper raised its outlook for fiscal 2010. The company lifted its adjusted earnings per share guidance for the year to $2.83-$2.91 from the prior forecast of $2.50-$2.60. This compares favorably with the current Zacks Consensus Estimate of $2.56. Revenues for the year are now expected to range between $1.14 billion to $1.15 billion, up from the prior view of $1.11 billion to $1.17 billion. Cooper also hiked its free cash flow expectation to $177-$187 million from $140-$160 million.

For fourth-quarter fiscal 2010, the company expects revenues in the range of $292-$307 million. Adjusted earnings have been forecasted between 82 cents and 90 cents while free cash flow is expected in the range of $15-$25 million.

Cooper is a global medical products company specializing in a wide range of contact lenses for the vision correction market. The worldwide contact lens market is poised for accelerated growth. Higher prices, international expansion and increase in contact lens utilization rates in developed markets (given the declining drop-out rates) will act as tailwinds for this market expansion.

However, Cooper faces significant competition across each of its product segments from well-established contact lens manufacturers such as Johnson & Johnson (JNJ) and Novartis (NVS). Depressed levels of consumer spending have exacerbated competitive pressures on the company.

Nevertheless, Cooper’s healthy margin is expected to be sustainable driven by increased manufacturing capacity utilization and further leverage of the high-volume plants in the U.K. and Puerto Rico. Further, the impact from the Norfolk contact lens manufacturing plant closure is expected to be visible in fourth-quarter fiscal 2010.
 
COOPER COS (COO): Free Stock Analysis Report
 
JOHNSON & JOHNS (JNJ): Free Stock Analysis Report
 
NOVARTIS AG-ADR (NVS): Free Stock Analysis Report
 
Zacks Investment Research