BRAINTREE, Mass., Oct. 31, 2011 /PRNewswire/ -- Haemonetics Corporation (NYSE: HAE) today reported second quarter 2012 GAAP net revenues of $179.4 million, up 8%, net income of $13.9 million, down 35%, and earnings per share of $0.54, down 36%. Excluding transformation costs and contingent consideration income, adjusted second quarter net income was $18.7 million, down 7%, and adjusted earnings per share was $0.72, down 9%. Excluding currency impacts, net revenue was up 6% in the quarter.(1)
Year to date, Haemonetics reported GAAP net revenues of $350.0 million, up 6%, net income of $30.8 million, down 22%, and earnings per share of $1.18, down 23%. Excluding transformation costs and contingent consideration income, adjusted first half net income was $35.8 million, down 9% and adjusted earnings per share was $1.37, down 11%. Excluding currency impacts, first half fiscal 2012, net revenue was up 4%.(1)
Brian Concannon, Haemonetics' President and CEO, said: "The quality issues with the OrthoPAT® device recall and HS Core Bowl continued to negatively impact our operating income and earnings per share in the second quarter. We have determined the root cause for both products, and remediation and recovery plans are well underway. However, we have now concluded that we underestimated the costs to remediate and the impact that dealing with the quality issues had on elements of our business. Our revised guidance fully reflects our learning. We expect to put these issues behind us by the end of the fiscal year."
STRATEGIC AND SEGMENT GROWTH HIGHLIGHTS
Haemonetics continues to make progress expanding its business. The Company reported the following second quarter fiscal 12 highlights:
- 14% revenue growth in plasma disposables, as increasing collection volumes drives revenues.
- 7% revenue growth in the software business, a key enabler of blood management solutions.
- 22% revenue growth in diagnostic disposables products, with rapid uptake by leading US hospitals.
- IMPACT® accounts increasing to 226 as more customers embrace the value of blood management.
- The OrthoPAT recall remains on track with over 500 devices replaced to date.
In the quarter Haemonetics reported adjusted gross margin of 50.9%, down 170 basis points, and adjusted operating margin of 14.2%, down 270 basis points. The Company's adjusted operating expenses were $65.8 million, up 10%. Gross and operating margins were significantly impacted by the recall of OrthoPAT devices. The negative impact on operating results associated with the OrthoPAT recall and other product quality initiatives was approximately 180 basis points of gross margin, $4 million of operating earnings or $0.12 per share in the quarter and 170 basis points of gross margin, $7 million of operating earnings or $0.20 per share year to date.
Mr. Concannon added: "Despite the quality issues, the fundamentals of this business remain strong. With the exception of OrthoPAT disposables, where the recall impacted revenues, we saw continued growth across all other product categories. We continue to see a growing demand for our products and services as more customers seek economic savings and improved clinical outcomes using our blood management solutions."
As noted, in the quarter revenues were $179.4 million, up 8%. A break-down vs. the prior year quarter follows:
Plasma
Plasma disposables revenue was $64.4 million, up 14%. Momentum continued in Haemonetics' plasma business in the quarter following a cyclical adjustment in the commercial Plasma business last year. Plasma revenues are still being negatively impacted by a change in collection practices in Japan.
Blood bank
Platelet disposables revenue was $42.2 million, up 6%. Platelet revenues continue to benefit from strong sales in emerging markets.
Red cell disposables revenue was $11.6 million, up 3%. Red cell revenues grew due to increasing demand for red cells as the Company leveraged its IMPACT selling approach in the market.
Hospital
Surgical disposables revenue was $16.2 million, up 1%. The Elite® product launch is expected to accelerate in the second half of fiscal 12. OrthoPAT orthopedic perioperative autotransfusion system disposables revenue was $7.3 million, down 12% and remains impacted by the voluntary recall of pre-2002 devices.
Diagnostics revenue was $5.7 million, up 22%. Revenue growth related to the TEG® Thrombelastograph® Hemostasis Analyzer business was also driven by the Company's IMPACT initiative.
Software Solutions revenue was $17.2 million, up 7%. The enhanced offering of software products for Blood Bank and Hospital customers continues to drive revenue growth.
Equipment and other revenue was $14.8 million, up 4% following a first quarter in which a 13% decline occurred. Equipment revenues are influenced by the timing of tenders and capital budgets.
Haemonetics reported second quarter fiscal 12 revenue growth in all regions with sales up 10% in North America, 9% in Japan, 13% in Asia and 1% in Europe.
Cash Flow and Share Repurchase Activity
The Company reported continued strong cash flows. Excluding transformation costs in fiscal 12 and 11 and deal costs in fiscal 11, adjusted first half operating cash flow was $57.1 million, up 8%, and free cash flow was $33.4 million, up 15%. During the second quarter of fiscal 12, the Company repurchased approximately 852,400 of its common shares in the open market, completing its authorized $50 million repurchase program.
Guidance
The company now expects fiscal year 12 revenue growth of 6-7%, slightly above the high end of its previous guidance range. Plasma is now expected to grow 11-12% and hospital products 0-2% due to the quality remediation. Full year adjusted gross margin is now expected to approximate 52%, operating income $110 - $112 million, earnings per share $3.00 - $3.10 and free cash flow in excess of $70 million.
These new estimates reflect an increase in the estimated full-year impact of the OrthoPAT and HS Core quality issues. The impact on operating income due to lost sales and gross margin and increased quality and regulatory expenses, is now expected to be approximately $13 million or $0.37 per share, up from our previous estimate of $9 million or $0.25 per share.
Full year guidance also includes revised estimates of operations cost savings delays and hospital product sales delays other than OrthoPAT, enumerated in the table which follows:
$ million, except per share | |||||||||
Adjusted Operating Income | Adjusted EPS | ||||||||
Low | High | Low | High | ||||||
Previous Guidance | $ 124 | $ 125 | $ 3.35 | $ 3.45 | |||||
Cost of quality - increase | $ (4) | $ (4) | $(0.12) | $(0.12) | |||||
Operations cost savings delays | $ (3) | $ (3) | $(0.08) | $(0.08) | |||||
Hospital product sales delays | $ (4) | $ (4) | $(0.10) | $(0.10) | |||||
Other, net | $ (2) | $ (2) | $(0.05) | $(0.05) | |||||
Current Guidance | $ 110 | $ 112 | $ 3.00 | $ 3.10 | |||||
More information on the impact of the cost of quality on our adjusted operating results and our outlook for the full year can be found on our web site at http://www.haemonetics.com.(1)
CONFERENCE CALL
Haemonetics will host a webcast on Monday, October 31, 2011 at 10:00 am Eastern to discuss these results. Interested parties can participate at http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=72118&eventID=4204617.
Haemonetics (NYSE: HAE) is a global healthcare company dedicated to providing innovative blood management solutions for our customers. Together, our devices and consumables, information technology platforms, and consulting services deliver a suite of business solutions to help our customers improve clinical outcomes and reduce the cost of healthcare for blood collectors, hospitals, and patients around the world. Our technologies address important medical markets: blood and plasma component collection, the surgical suite, and hospital transfusion services. To learn more about Haemonetics, visit our web site at http://www.haemonetics.com.
