Haemonetics third quarter net income decreases 8% to $18.3M

Haemonetics Corporation (NYSE: HAE) today reported third quarter 2012 GAAP net revenue of $191.2 million, up 8%, net income of $18.3 million, down 8%, and diluted earnings per share of $0.72, down 7%. Excluding restructuring and transformation costs, adjusted third quarter net income was $22.0 million, down 3%, and adjusted earnings per share were $0.86, down 2%.  Excluding currency impacts, net revenue was up 7% in the quarter.

Year to date, Haemonetics reported GAAP net revenue of $541.2 million, up 7%, net income of $49.1 million, down 17%, and diluted earnings per share of $1.90, down 18%.  Excluding restructuring and transformation costs and contingent consideration income, adjusted year to date net income was $57.7 million, down 7%, and adjusted earnings per share were $2.24, down 8%.  Excluding currency impacts, year to date fiscal 2012 net revenue was up 5%.

Brian Concannon, Haemonetics’ President and CEO, commented: “This marks the third quarter of solid revenue performance with Plasma growth continuing and blood management solutions gaining traction as blood collectors and hospitals continue to focus increased efforts to reduce costs under the mounting pressures of healthcare reform. Blood Center disposables grew once again and Hospital disposables improved quarter over quarter as we recover from the OrthoPAT® recall and resolve our quality issues.  We expect Hospital disposables to return to growth in Q4.”  

STRATEGIC AND PRODUCT GROWTH HIGHLIGHTS

Haemonetics continues to make progress expanding its business.  The Company reported the following third quarter fiscal 2012 highlights:

• Extension of several key plasma contracts representing 75% of our existing commercial plasma business through Q3 of fiscal 2017.
• 15% revenue growth in plasma disposables, as collection volume remains robust.
• 7% revenue growth in Blood Center disposables, as Blood Management Solutions drives revenues.
• 9% revenue growth in diagnostic disposables products, with leading US hospitals driving growth.
• 18% growth in equipment sales, giving confidence that revenue growth will continue.
• IMPACT® accounts increased to 237 as more customers embrace the value of blood management.
• The OrthoPAT device recall remains on track with the new device build complete and nearly 900 devices replaced to date.

Haemonetics recently signed multi-year extensions of its comprehensive equipment and disposables supply agreements with several of its major plasma collection customers.  These agreements provide for continued use of Haemonetics’ plasma collection devices and single-use disposable supplies to separate plasma from donor blood at plasma collection facilities.  With these key contract extensions in place, 75% of Haemonetics’ current commercial plasma business is under contract through Q3 of fiscal 2017 and over 90% is under contract through Q3 of fiscal 2015.

Mr. Concannon added: “These contract extensions serve as validation that our plasma collection customers are realizing economic and operational benefits from our product and service offerings. We appreciate their confidence in our ability to continue supporting their needs well into the future. With these key contract extensions in place, we and our customers can confidently plan for and accommodate the growth in demand that is expected in the plasma collection market.”    

Revenue was $191.2 million in the quarter, up 8% and $541.2 million year to date, up 7%. Details of the prior year quarter and year to date period follow:

Plasma

Plasma disposables revenue was $69.0 million for the quarter, up 15%, and $196.2 million year to date, up 14%.  In the quarter, momentum continued in Haemonetics’ North America plasma business while revenue was flat in Japan as the amount of plasma recovered from whole blood appears to be reaching its limit.  The company expects its plasma business to remain robust in 4Q fiscal 2012 and then to return to mid-single digit percentage growth in fiscal 2013 consistent with end market growth rates for plasma derived biopharmaceuticals.

Blood Center

Platelet disposables revenue was $44.4 million for the quarter, up 8% and $123.9 million year to date, up 6%. Platelet revenue continues to benefit from strong sales in emerging markets.

Red cell disposables revenue was $12.2 million for the quarter and $35.7 million year to date, both up 4%. Though the clinical demand for blood remains flat, red cell revenue grew due to increased collections on the Company’s devices as the Company leveraged its IMPACT selling approach to advance Blood Management Solutions.

Hospital

Surgical disposables revenue was $17.3 million for the quarter, up 1% and $49.3 million year to date, flat with the prior year.  Notably 3% growth was realized in North America, representing the second consecutive increase after eight consecutive quarters of decline, as the product launch of the Cell Saver Elite® device began to accelerate as expected. OrthoPAT orthopedic perioperative autotransfusion system disposables revenue was $7.8 million for the quarter, down 16%, and $22.8 million year to date, down 14%, as the effects of the voluntary recall of pre-2002 devices continued to impact disposables usage by our customers. With nearly 900 devices replaced, the Company is well on its way toward its target of completing the replenishment of its OrthoPAT fleet by the end of fiscal 2012.  

Diagnostics revenue was $5.7 million for the quarter, up 9%, and $17.0 million year to date, up 16%, as the company’s IMPACT initiative continues to drive growth in disposables utilized in the TEG® Thrombelastograph® Hemostasis Analyzer business. TEG equipment sales were especially strong toward the end of the quarter, a key indicator for near-term future disposables revenue growth. TEG disposables sales increased 194% in the quarter in China. Strong equipment sales and additions to clinical resources should provide continued TEG disposables growth.  

Software Solutions revenue was $15.8 million for the quarter, down 4%, and $51.2 million year to date, up 4%.  The enhanced offering of software products for Blood Center and Hospital customers continues to drive revenue growth in North America, but was offset by a decline in Europe where the business has not yet achieved the size and scale needed for quarter-to-quarter revenue stability.

Equipment and other revenue was $19.0 million in the quarter, up 18% following a first half decline of 4%.  Equipment and other revenue finished at $45.2 million year to date, up 4%. Equipment revenue is influenced by the timing of tenders and capital budgets.  Sales of TEG analyzers and Cell Saver Elite devices in North America were particularly strong in the quarter.

Haemonetics reported third quarter fiscal 2012 revenue growth of 15% in North America, 13% in Japan, 7% in Asia and a decline of 5% in Europe.  Year to date, North America revenue was up 11%, Japan revenue was up 9%, Asia revenue was up 9% and Europe revenue was down 3%.

In the quarter, Haemonetics reported adjusted gross margin of 50.2%, down 270 basis points, and adjusted operating margin of 15.5%, down 280 basis points.  The Company’s adjusted operating expenses were $66.2 million, up 8%.  Gross and operating margins continued to be significantly impacted by the recall of OrthoPAT devices and the quality issues associated with our HS Core disposable in Europe.  The negative impact on operating results due to our product quality initiatives was approximately 170 basis points of gross margin and $4 million of operating earnings, which equates to $0.11 per share in the quarter; and 170 basis points of gross margin and $11 million of operating earnings, which equates to $0.31 per share year to date.

Balance Sheet and Cash Flow

Cash on hand was $205 million, an increase of $22 million during the quarter.  The Company reported continued strong cash flows, though at somewhat reduced levels from the prior year due to the impact of the OrthoPAT recall and other quality-related issues.  The cash balance on hand is after completing a $50 million share buy back in the second quarter of fiscal 2012.

Guidance

Fiscal 2012 revenue growth is expected to be approximately 6-7%. For the full year, Plasma is now expected to grow 13-14%, Blood Center 3-4%, Hospital products 0-2% and Software Solutions 5-7%.  Full year adjusted gross margin is expected to finish in a range of 51-52%, operating income of between $108 - $110 million, earnings per share of $3.00 - $3.10 and free cash flow in excess of $70 million.