PALO ALTO, Calif., July 23 /PRNewswire-FirstCall/ -- Varian, Inc. (NasdaqGS: VARI) today reported third fiscal quarter 2008 revenues of $244.4 million, representing an increase of 7.6% over revenues of $227.1 million in the third quarter of fiscal year 2007. Sales grew for both industrial (which includes environmental, food and energy) and life science applications. The company continued to experience solid sales growth in Europe, Asia Pacific and Latin America, while sales in North America remained essentially flat.
Non-GAAP (adjusted) net earnings for the third quarter of fiscal year 2008 decreased 6.7% to $17.7 million, or $0.60 diluted earnings per share, compared to $19.0 million, or $0.61 diluted earnings per share, in the third quarter of fiscal year 2007. On a GAAP basis, net earnings in the third quarter of fiscal year 2008 were $11.4 million, or $0.38 diluted earnings per share, compared to $14.6 million, or $0.47 diluted earnings per share, in the third quarter of fiscal year 2007.
Adjusted operating earnings decreased 6.0% to $25.9 million in the third quarter of fiscal year 2008, compared to $27.5 million in the third quarter last year. Adjusted operating profit margin was 10.6% in the third quarter of fiscal year 2008, compared to 12.1% in the prior-year quarter. On a GAAP basis, operating earnings were $17.4 million and operating profit margin was 7.1% in the third quarter of fiscal year 2008, compared to $20.7 million and 9.1% in the same quarter a year ago.
Although the company started the quarter with a strong backlog and then experienced solid orders, revenues were $11 million to $13 million lower than the company expected, which significantly impacted earnings and operating margins. The revenue shortfall was primarily due to delayed deliveries and installations of a few large systems and delayed shipments resulting from transitioning manufacturing locations for certain products. Were it not for these delays, the company would have achieved its revenue objective for the quarter.
The revenue shortfall was the most significant factor contributing to the company’s lower than expected earnings and operating margins. Margins were also negatively impacted in the quarter by higher transition costs related to relocating the manufacturing activities described above, the continued weakening of the U.S. dollar, which was favorable to revenue but unfavorable to operating margins, and to a lesser extent the transition effect of acquisitions completed in the quarter.
“During the third quarter, the company experienced an unusual confluence of events which impacted revenues, and as a result our profitability. Most significantly, we experienced delivery and installation delays on several large systems,” said Garry W. Rogerson, President and Chief Executive Officer. “We made progress in our efforts to consolidate factories and to transition manufacturing to lower cost locations or outsourcing partners. Although these initiatives are having a short-term negative impact on revenues and margins, we continue to believe they are critical to achieving our long-term strategic goals.”
“The company generated almost $30 million in cash flow from operations in the quarter,” said Rogerson. “Our ability to generate substantial cash flow demonstrates the continued fundamental strength of our business.”
For a complete reconciliation of non-GAAP (adjusted) financial information used in this press release to the most directly comparable GAAP financial information, please refer to the attached Reconciliations of GAAP to Adjusted Results, Actual and Projected.
Results by Segment
Scientific Instruments revenues for the third quarter of fiscal year 2008 were $200.7 million, representing an increase of 7.3% over revenues of $187.0 million in the third quarter of the prior fiscal year. Adjusted operating profit margin was 9.6% in the third quarter of fiscal year 2008 compared to 12.2% in the third quarter of the prior fiscal year. On a GAAP basis, operating profit margin was 6.1% in the third quarter of fiscal year 2008, compared to 9.3% in the same quarter a year ago. The decrease in operating profit margins was primarily the result of the factors described above.
Vacuum Technologies revenues increased 9.0% to $43.7 million in the third quarter of fiscal year 2008, compared to $40.1 million in the third quarter of fiscal year 2007. Adjusted operating profit margin was 18.3% in the third quarter of fiscal year 2008, compared to 19.8% in the third quarter of the prior fiscal year. On a GAAP basis, operating profit margin was 17.7% in the third quarter of fiscal year 2008, compared to 19.5% in the prior-year quarter. The decrease in operating profit margins was primarily the result of the continued weakening of the U.S. dollar.
Outlook
“We remain pleased with the continuing customer demand for our products. We’re also making progress toward our long-term goals with respect to our manufacturing strategy, although we expect the initiatives underway in this area to have some residual negative impact on revenue and profitability in the fourth quarter,” said Rogerson. “As we look to fiscal 2009, we remain encouraged by the momentum of our new products in our focused applications of environmental, energy and pharmaceutical, and the expected benefits of our manufacturing strategy.”
Varian, Inc. revised its guidance for fiscal year 2008. Adjusted diluted earnings per share are now expected to be $2.74 plus or minus $0.05 for fiscal year 2008, compared to prior guidance of $2.84 to $2.98. On a GAAP basis, diluted earnings per share are expected to be $2.05 plus or minus $0.09 for fiscal year 2008, compared to prior guidance of $2.23 to $2.41.
The company’s GAAP diluted earnings per share for the full fiscal year 2008 are expected to include the following items:
Webcast Conference Call
Varian, Inc. will be providing a live webcast (in listen-only mode) of its investor conference call to review its third quarter results later today, July 23, 2008, at 2:00 p.m. Pacific time. The call may be heard via the Internet by going to http://www.varianinc.com and clicking on the Live Webcast link at the top of the right side of the page.
Non-GAAP (Adjusted) Financial Measures
This press release includes non-GAAP (which we refer to as “adjusted”) financial measures for cost of sales, selling, general and administrative expenses, research and development expenses, purchased in-process research and development, operating earnings, operating profit margins, impairment of private company equity investments, income tax expense, net earnings and diluted earnings per share. These non-GAAP financial measures exclude share-based compensation expense, impairment of private company equity investments, acquisition-related intangible and inventory write-up amortization and in-process research and development charges, and restructuring and other related costs. Reconciliations of each of these non-GAAP financial measures to the most directly comparable GAAP financial measures are detailed in the Reconciliations of GAAP to Adjusted Results attached to this press release. We believe that presentation of these non-GAAP financial measures provides useful information to investors regarding our results of operations.
We believe that excluding acquisition-related intangible and inventory write-up amortization and in-process research and development charges provides supplemental information and an alternative presentation useful to investors’ understanding of the company’s core operating results and trends. In addition, investors have indicated to us that they analyze the benefits of acquisitions based on the cash return on the investment made, and thus consider financial measures excluding acquisition-related intangible and inventory write-up amortization and in-process research and development charges as important, useful information.
We similarly believe that excluding share-based compensation expense, restructuring and other related costs (principally related to facility closures and employee terminations to improve operational efficiency), and impairment of private company equity investments provides supplemental information and an alternative presentation useful to investors’ understanding of the company’s core operating results and trends, especially when comparing those results on a consistent basis to results for previous periods and anticipated results for future periods. Investors have indicated that they consider financial measures of our results of operations excluding share-based compensation expense, restructuring and other related costs, and impairment of private company equity investments as important supplemental information useful to their understanding of our historical results and estimating of our future results.
We also believe that, in excluding share-based compensation expense, acquisition-related intangible and inventory write-up amortization and in-process research and development charges, restructuring and other related costs, and impairment of private company equity investments, our non-GAAP financial measures provide investors with transparency into what is used by management to measure and forecast our results of operations, to compare on a consistent basis our results of operations for the current period to that of prior periods, to compare our results of operations on a more consistent basis against that of other companies, in making financial and operating decisions and to establish certain management compensation.
Although we believe, for the foregoing reasons, that our presentation of non-GAAP financial measures provides useful supplemental information to investors regarding our results of operations, our non-GAAP financial measures should only be considered in addition to, and not as a substitute for or superior to, our financial measures prepared in accordance with GAAP.
Caution Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on management’s current expectations, are not guarantees of future performance, and involve certain risks and uncertainties that could cause the company’s actual results to differ materially from management’s current expectations and the forward-looking statements made in this press release. Those risks and uncertainties include, but are not limited to, the following: whether we will succeed in new product development, commercialization, performance and acceptance; whether we can achieve continued growth in sales for industrial and/or life science applications; whether we can achieve continued sales growth in Europe and Asia Pacific and/or stronger growth in sales in the U.S.; risks arising from the timing of shipments, installations and the recognition of revenue on certain research products, including nuclear magnetic resonance (NMR), magnetic resonance (MR) imaging and fourier-transform mass spectrometer (FTMS) systems and superconducting magnets; the impact of shifting product mix on profit margins; competitive products and pricing; economic conditions in the company’s product and geographic markets; whether we will see continued and timely delivery of key raw materials and components by suppliers; foreign currency fluctuations that could adversely impact revenue growth and earnings; whether we will see continued investment in capital equipment, in particular given global liquidity and credit concerns; whether we will see reduced demand from customers that operate in cyclical industries; the impact of any delay or reduction in government funding for research; our ability to successfully evaluate, negotiate and integrate acquisitions; the actual costs, timing and benefits of restructuring activities (such as our Northern California facility consolidation) and other efficiency improvement activities (such as our global procurement and outsourcing initiatives); the timing and amount of discrete tax events; the timing and amount of share-based compensation; and other risks detailed from time to time in the company’s filings with the Securities and Exchange Commission. We undertake no special obligation to update any forward-looking statements, whether in response to new information, future events or otherwise.
About Varian, Inc.
Varian, Inc. is a leading worldwide supplier of scientific instruments and vacuum technologies for life science and industrial applications. The company provides complete solutions, including instruments, vacuum products, laboratory consumable supplies, software, training and support through its global distribution and support systems. Varian, Inc. employs approximately 4,000 people worldwide and operates manufacturing facilities in North America, Europe and Asia Pacific. Varian, Inc. had fiscal year 2007 sales of $921 million, and its common stock is traded on the NASDAQ Global Select Market under the symbol “VARI.” Further information is available on the company’s Web site: http://www.varianinc.com.
CONTACT: Investor Relations of Varian, Inc., +1-650-424-5471,
ir@varianinc.com
Web site: http://www.varianinc.com/
