CareFusion Corp. (NYSE: CFN), a leading, global medical technology company, today reported financial results for its fiscal second quarter, growing revenue in every business line and major geography and increasing adjusted EPS by 83 percent from the prior year period.
"Our team remained disciplined in their execution and saw the benefit from investments we've made during the past four years, with record quarterly results across the company," said Kieran T. Gallahue, chairman and CEO. "In what will likely be the last reported quarter before our merger with BD, we have good momentum in all businesses, our customers see clear value in what we offer today and we have an even stronger vision for the future as part of BD.
"Results in the Medical Systems segment were again highlighted by the strength of our medication management offering, anchored by another quarter of strong committed contracts for our industry leading Pyxis® dispensing technologies and Alaris® infusion systems. In the Procedural Solutions segment, we continued to grow faster than the market due to the strength of our clinically differentiated products and the impact of our Vital Signs acquisition. Outside the U.S. – where we have been actively refining our offerings and go-to-market models -- we recorded double-digit revenue growth in Europe, Asia, Canada and Latin America.
"I want to thank CareFusion employees around the world for the results they deliver every day for customers and patients. We have built a unique company, and I know I speak for our entire leadership team when I say how proud we have been to work alongside such a dedicated group of individuals."
On Oct. 5, 2014, CareFusion and BD announced a definitive agreement under which BD will acquire CareFusion in a cash and stock offer valued at more than $12 billion. The transaction is expected to close by March 31.
Second Quarter Results
For the quarter ended Dec. 31, 2014, consolidated revenue grew 16 percent to $1.07 billion compared to $922 million in the second quarter of fiscal year 2014, an 18 percent increase in constant currency. Growth in every business line and the impact of the Vital Signs acquisition contributed to strong revenue during the quarter.
Gross profit increased 15 percent from the prior year period to $535 million, with gross margins declining 50 basis points to 50 percent primarily due to expected changes in product mix associated with the acquisition of Vital Signs and installation costs for capital equipment. These pressures offset gross margin improvements from the Infusion Systems business line.
Operating income was $178 million, up 17 percent from $152 million in the prior year period. Excluding nonrecurring items, adjusted operating income grew 27 percent to $229 million.
Operating expenses totaled $360 million. Excluding nonrecurring items, adjusted operating expenses were $309 million, an increase of 7 percent over the prior year period, primarily driven by acquired selling, general and administrative costs from the Vital Signs acquisition and an increase in the accrual for incentive compensation.
The company reported net income of $173 million, or $0.83 per diluted share. Adjusted net income increased 78 percent from the prior year period to $206 million, or $0.99 per diluted share. As previously disclosed, CareFusion settled a tax audit with the Internal Revenue Service during the second quarter that had a positive impact on adjusted EPS for the quarter.
Second quarter revenue for the Medical Systems segment was $645 million, a 10 percent increase from the prior year period on a reported basis, led by strong growth in all three business lines. The quarter was highlighted by growth in the Dispensing Technologies and Infusion Systems business lines where the CareFusion medication management offering continues to gain momentum with U.S. hospitals. In addition, the segment grew capital equipment sales in all major sales regions outside the U.S.
Segment profit for the quarter increased 15 percent to $125 million from $109 million in the prior year period. Adjusted segment profit increased 16 percent to $144 million.
Second quarter revenue for the Procedural Solutions segment was $424 million, a 27 percent increase from the prior year period on a reported basis, driven by growth in all three business lines and the addition of the Vital Signs products to CareFusion's Specialty Disposables portfolio. Excluding the impact of acquisitions and planned discontinuation of certain contract manufacturing revenue, segment revenue increased 8 percent during the quarter led by growth of the company's clinically differentiated products.
Segment profit increased 23 percent to $53 million from $43 million in the prior year period. On an adjusted basis, second quarter segment profit grew 49 percent to $85 million.
For the first six months of fiscal 2015, revenue increased 14 percent to $1.99 billion compared to $1.75 billion in the first half of fiscal 2014. Operating income totaled $304 million and income from continuing operations was $249 million, or $1.20 per diluted share. Adjusted operating income grew 22 percent to $395 million compared to $323 million in the first half of the prior year, with adjusted EPS growing 53 percent to $1.50 per diluted share.
Operating expenses in the first six months totaled $693 million, or $604 million on an adjusted basis.
Segment results for the six months ended Dec. 31, 2014 and 2013 are as follows:
Additional second quarter and recent highlights include:
- Approval by CareFusion stockholders of the merger with BD by voting a majority of outstanding shares in favor of the transaction at a special meeting held Jan. 21. The companies received clearance in November from U.S. antitrust authorities, leaving antitrust approval in the European Union as the primary remaining closing condition.
- Expanding CareFusion's industry leading medication management offering with the introduction of new products and partnerships at the 49th annual American Society of Health-system Pharmacists (ASHP) Midyear Clinical Meeting and Exhibition in December. These introductions included the new Pyxis® Mini system for use in outpatient settings such as ambulatory care centers; a relationship with Medacist to offer its RxAuditor anti-diversion software with the CareFusion Knowledge Portal; and a relationship with Kit Check to help enable medication tracking for kits and trays in the central pharmacy and operating room through radio-frequency identification (RFID) technology.
- Strong performance outside of the U.S., with double-digit revenue growth in Europe, Asia, Canada and Latin America, led by infusion capital sales, clinically differentiated products and contributions from the Vital Signs acquisition.
Conference Call and Outlook
Given the announcement that CareFusion and BD have entered into a definitive merger agreement, CareFusion will no longer hold conference calls for quarterly earnings or update its financial guidance.