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Haemonetics (HAE) Lags Q4 Earnings, Sales; Margins Drop

Haemonetics Corporation HAE reported adjusted earnings per share (EPS) of 37 cents in the fourth quarter of fiscal 2016, missing the Zacks Consensus Estimate by 19.6%. Moreover, adjusted EPS dropped 21% from the year-ago quarter.

On a reported basis, Haemonetics posted net loss of $8.8 million or 17 cents per share, substantially wider than the year-ago quarter’s net loss of $2.9 million or 6 cents per share.

Fiscal 2016 adjusted EPS came in at $1.63, down 11.9% from the comparable year-ago period.

 

Total Revenue

Revenues grew 7% year over year (up 10% at constant exchange rate or CER benefiting 6.8% from the inclusion of a 53rd week) to $243.2 million in the reported quarter, but missed the Zacks Consensus Estimate of $245 million. According to management, the year-over-year improvement was primarily driven by strong performance of the company’s growth franchises of Plasma and Hemostasis Management, or TEG. These two business franchises delivered $17 million of revenue growth in the fourth quarter.

Full-year revenues came in at $910 million, flat year over year (up 3% at CER).

Revenues by Product Categories

In the Disposables product category (86.3% of revenues), which comprises Plasma, Blood center and Hospital Disposables, Haemonetics reported revenues of $209.7 million, up 7.7% year over year. This improvement is primarily attributable to the strong performance of Plasma disposables (up 19.7%), which outweighed the sluggish performances in Blood center disposables (up 0.2%) and Hospital disposables (down 0.7%).

Software Solutions revenues were up 8.6% at $19.7 million (up 10% at CER).

Equipment and Other revenues increased 1.5% (up 2% at CER) year over year to $13.9 million.

Margins

Haemonetics’ fourth-quarter adjusted gross margin was 41.1%, a 760 basis-point contraction. The quarter witnessed huge margin deterioration primarily due to currency headwinds, Italian rebate and inventory-related charges that impacted gross margin negatively by 490 basis points. The balance of the decline is attributable to the donor inventory valuation reserves.

Adjusted operating income was $26 million in the fourth quarter, down $9 million, including a $4 million headwind attributable to currency. Adjusted operating margin was 10.6% in the quarter, a contraction of 490 basis points.

Financial Position

Haemonetics exited fiscal 2016 with cash and cash equivalents of $115.1 million, compared with $160.7 million at the end of fiscal 2015. Capital expenditure was $102.4 million for the fiscal year, down from $122.2 million in the comparable year-ago period.

Haemonetics generated operating cash flow of $121.9 million at the end of fiscal 2016, compared to the year-ago figure of $127.2 million. At the end of fiscal 2016, Haemonetics reported free cash flow (before transformation, restructuring costs and VCC capital expenditures) of $58 million, compared to $97.1 million in the comparable year-ago period. In the fiscal fourth quarter, management bought back shares worth $61 million in the open market.

Fiscal 2017 Guidance

Haemonetics expects to provide its fiscal 2017 guidance in its annual Investor Day event on May 10, 2016.

Our Take

Haemonetics delivered a dismal fourth-quarter fiscal 2016 performance with both EPS and revenues failing to meet the mark. The year-over-year decline in earnings also adds to our disappointment. Unfavorable foreign currency fluctuations primarily played spoilsport. However, on a brighter note, Haemonetics witnessed positive top-line improvement across all geographies at CER, except in Europe.

Product category-wise, while the Plasma disposables business retained its strong growth during the reported quarter, a continued challenging blood center disposable market added to our concerns. Going forward, in fiscal 2017, management still expects currency to be a significant dampener for growth; while the Plasma and TEG business are expected to deliver significant growth. Alongside, the company should continue generating strong balance sheet and free cash flow figures. 

Zacks Rank

Haemonetics currently carries a Zacks Rank #4 (Sell). Some better-ranked medical stocks are Baxter International Inc. BAX, Cardiovascular Systems Inc. CSII and NuVasive, Inc. NUVA. All the three stocks hold a Zacks Ranks #2 (Buy).

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