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COO's Square Miss Sours Y-Y Rise - Analyst Blog

Friday, December 07, 2012

The Cooper Companies’ (COO) fourth-quarter fiscal 2012 (ended October 31) adjusted earnings per share improved 0.7% year over year to a record high of $1.47. However, it missed the Zacks Consensus Estimate of $1.53. Profit soared almost 27% on a year-over-year basis to $71.9 million ($1.46 per share) in the fourth quarter.

Cooper’s adjusted earnings per share in fiscal 2012 surged 14.7% year over year to $5.16, trailing the corresponding Zacks Consensus Estimate of $5.22. Profit came in at $248.3 million ($5.05 per share) in fiscal 2012, depicting an annual rise of 41.6%.

Revenues

Revenues in the fourth quarter increased 10% (up 7% in constant currency, barring acquisitions) year over year to $396.3 million, falling short of the Zacks Consensus Estimate of $398 million. Growth was led by robust sales of offerings from CooperSurgical (CSI), higher revenues from CooperVision (CVI), acquisition synergies and newer products.

Fiscal 2012 revenues also came in 9% higher (up 8% in constant currency, barring acquisitions) at $1,445.1 million, trailing the corresponding Zacks Consensus Estimate of $1,447 million. Solid performance across both operating platforms contributed to sales growth.

Segment Analysis

Revenues from Cooper’s mainstay contact lens division (80.3% of company-wide revenues), CVI edged up 5% (up 7% in constant currency) year over year at $318.1 million. Sales were higher for all categories of lenses. Sales for the mainstay toric lenses increased 2% (up 5% in constant currency) to $91.4 million and multifocal lens sales surged 31% (up 34% in constant currency) to $26.6 million. Revenues from single-use sphere lenses improved 8% (up 10% in constant currency) to $72.4 million while revenues from non single-use sphere lenses increased 1% (up 4% in constant currency) on a year-over-year basis to $127.7 million.

On a geographical basis, revenues from EMEA and Americas were up 11% and 3%, respectively, in constant currency, and increased 12% in the Asia Pacific. On a material based analysis, sales of silicone hydrogel contact lenses were up sharply 24% in constant currency to $124 million while Proclear contact lens sales edged up 4% to $80.4 million.    

The smaller women’s health segment (19.7% of company-wide revenues) CSI performed well with revenues soaring 37% year over year (up 2% barring acquisitions) to $78.2 million. Cooper witnessed mixed contributions from operating units under its CSI segment. Surgical procedures revenues increased 15% year over year to $23.8 million, revenues from fertility sub-division jumped 489% to $22.9 million whereas office sales decreased 3% to $31.5 million.

Margin Trends

Adjusted gross margin was 63.8% in the fourth quarter, higher than the 63.4% a year ago. The gross margin improved due to increased operational efficiencies for both CVI and CSI divisions as well as favorable mix.

Adjusted gross margin for CVI was 63.7% compared with 63.1% in the prior-year quarter. Production efficiency coupled with favorable product mix towards higher margin offerings was responsible for margin expansion. Adjusted gross margin for CSI was 64.1% versus 66.3% in the year-ago quarter owing to Origio buyout.

Selling, general and administrative expenditure increased 9.1% year over year to $152.4 million while research and development expenses shot up 20.3% to $14.1 million in the reported quarter. This led to contraction of adjusted operating margin from 22.9% in the year-ago quarter to 20.1% in the reported quarter.

Financial Health

Cooper exited fiscal 2012 with cash and cash equivalents of $12.8 million, up 148.1% year over year. Long-term debt increased 6.4% year over year, to $348.4 million in the quarter.

The company generated $114.8 million of operating cash flow in the quarter and spent $32.6 million on capital expenditure, yielding free cash flow of $83.5 million, upon exclusion of acquisition costs of $1.3 million.

Outlook

For fiscal 2013, Cooper envisages revenues in the range of $1,565 million to $1,625 million (implying a mid-point growth of about 10%), comprising CVI sales of $1,250 million to $1,290 million and CSI sales of $315 million to $335 million.

The company expects reported as well as adjusted earnings per share in the band of $5.70 and $6.00 for fiscal 2013. The current Zacks Consensus Estimate of $5.83 for fiscal 2013 lies within Cooper’s guidance range. Free cash flow is expected in the range of $200 million to $230 million.  

Our Take

We currently have a long-term ‘Outperform’ recommendation on Cooper. The stock carries a short-term Zacks #2 Rank (Buy).

We are positive on Cooper as it reported a record performance in the reported quarter. Moreover, this contact lens and women health focused company continues to expand margins, synergize acquisitions and expand geographical reach.

However, the company faces formidable competition in each of its major product lines. Its peer in the contact lenses market Johnson & Johnson (JNJ) also carries a short-term Zacks #2 Rank (Buy).
 


 
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