Haemonetics Corporation — Form 10-Q Summary
Business context and reporting period
Haemonetics provides blood-management devices, disposables, software and services. This unaudited report covers the 13 weeks ended July 3, 2010, the first quarter of fiscal 2011, and compares results with the 13 weeks ended June 27, 2009. The company operates as one reportable segment.
Key financial metrics
| Metric | Q1 FY2011 | Prior comparable quarter | Change |
|---|---|---|---|
| Revenue | $163.0 million | $154.1 million | +5.8% |
| Gross profit / margin | $86.5 million / 53.0% | $82.9 million / 53.8% | +4.2%; margin down 0.8 percentage points |
| Operating income / margin | $24.2 million / 14.8% | $26.3 million / 17.1% | -8.1% |
| Net income / margin | $17.9 million / 11.0% | $18.1 million / 11.7% | -0.9% |
| Diluted earnings per share | $0.70 | $0.69 | +1.0% |
| Operating cash flow | $13.5 million | $25.7 million | Down $12.2 million |
Revenue excluding the reported unfavorable foreign-exchange effect increased 7.7%, according to management. Software solutions revenue rose 94.6% to $16.5 million, primarily reflecting the Global Med acquisition; disposables revenue declined 0.9% to $133.6 million. Plasma disposables fell 5.0%, while platelet disposables increased 5.9% and diagnostics revenue increased 23.5%.
At July 3, cash and cash equivalents were $83.5 million, working capital was $221.5 million, and the current ratio was 3.2. Total debt was approximately $10.8 million, giving a reported net cash position of $72.7 million. Cash declined $58.1 million during the quarter, including $50.0 million used to repurchase shares. Capital expenditures were $15.2 million; operating cash flow less capital expenditures was approximately negative $1.7 million.
Material changes versus the prior comparable period
- Revenue growth reflected acquisitions, strong Russian distribution and Asia performance; foreign exchange reduced reported revenue growth by 1.9 percentage points.
- Gross margin fell 0.8 percentage points, with management attributing the decline to foreign exchange, despite improved product mix excluding currency effects.
- Operating expenses increased 10.0%, including costs from acquired businesses, Global Med integration and restructuring, and development of an automated whole-blood collection device.
- Reported operating income declined, although management said it increased 9.4% excluding foreign-exchange effects. Lower taxes and a discrete $0.8 million Swiss tax benefit supported earnings.
- The company repurchased 907,310 shares for approximately $50.0 million at an average price of $55.08 per share; diluted weighted-average shares declined year over year.
Outlook, management commentary, risks and unusual items
Management stated that available cash, internally generated cash flow, borrowing capacity and option exercises were expected to fund requirements for at least the next 12 months, including capital spending, product development, working capital and repurchases. The filing provides no specific full-year revenue or earnings guidance and cautions that quarterly results are not necessarily indicative of full-year results.
Management expects near-term plasma disposable growth to moderate as source-plasma collections adjust to supply and demand, while anticipating growth supported by contractual price increases, new products and market-share gains. Hospital capital spending remains constrained. The company expects $6.4 million of additional cash restructuring costs and $1.5 million of integration costs in fiscal 2011.
Foreign exchange is a significant exposure: approximately 51% of sales were generated outside the United States. The company uses forward contracts but stated that hedging does not eliminate currency volatility. Other identified risks include product demand and acceptance, regulation, competition and pricing, healthcare funding, industry consolidation, customer ordering patterns, and economic and political conditions in international markets.
In patent litigation involving Fenwal’s ALYX system, an appellate court reversed the trial court’s claim construction, vacated the infringement verdict and remanded the case. The company said it believes the products infringe; the ultimate outcome remains uncertain. The filing also reports various other legal actions, which management did not believe would materially affect financial position or results.
Global Med’s approximately $60.3 million acquisition closed shortly before the quarter. Its purchase-price allocation remained preliminary, including $47.3 million of recorded goodwill that was not tax deductible and could be adjusted. The company reported no material recognized subsequent events.
Important facts for investors to verify
- Whether revenue growth persists excluding foreign exchange and acquisitions, particularly given declines in plasma and certain hospital disposables.
- Whether Global Med integration and restructuring deliver expected synergies, and the final acquisition accounting and resulting amortization or goodwill adjustments.
- Whether operating cash flow improves after the quarter’s working-capital outflows and substantial share repurchase.
- Developments in the Fenwal patent litigation and the potential consequences of the vacated infringement verdict and remand.
- Actual restructuring and integration costs, foreign-exchange effects, and any future management guidance; the filing gives no specific full-year earnings outlook.