Varian (VAR) Earnings And Revenues Surpass Estimates In Q4

Varian Medical Systems, Inc. (NYSE:VAR) reported fourth-quarter fiscal 2019 adjusted earnings per share (EPS) of $1.21, in line with the Zacks Consensus Estimate. Adjusted EPS surged 4.3% year over year.

This Zacks Rank #2 (Buy) company reported revenues of $878.9 million, which surpassed the consensus mark of $853.3 million. On a year-over-year basis, revenues rose 9.6% and 12% at constant currency (cc).

FY19 at a Glance

For fiscal 2019, Varian’s adjusted EPS was $4.63, in line with the Zacks Consensus Estimate and up 4.8% from fiscal 2018.

Revenues totaled $3.23 billion, outpacing the Zacks Consensus Estimate of $3.20 billion. Revenues increased 10.5%.

Varian reports through three major segments — Oncology Systems, Proton Solutions and Other.

For fiscal 2019, revenues at the Oncology unit totaled $3.06 billion (representing 94.9% of net sales). Revenues at Proton Solutions totaled $143.9 million (4.5%) while that at Other unit grossed $19.4 million (0.6%).

Segment Details

Oncology Systems: Revenues totaled $819.6 million, up 8.5% year over year and 11% at cc. Operating earnings at the segment were $820 million, up 8% year over year.

Varian’s worldwide net installed base had 8,496 units, up by 366 units on a year-over-year basis. As a whole, gross orders grew 7% from the year-ago quarter to $1.1 billion.

Orders in the United States shot up 11% year over year. In EMEA, orders rose 10% year over year, driven by orders for 13 TrueBeam systems as part of the Tata Trusts framework agreement. In APAC, orders fell 9% year over year with softness in Japan. However, China, East Asia and Korea witnessed growth in the quarter.

Proton Solutions: Revenues at the segment dropped 8.9% to $41.9 million.

Other: Revenues at this segment grossed $17.4 million. For investors’ notice, the segment comprises interventional oncology business, including cryoablation, embolic microspheres, and microwave ablation, as well as the company’s cardiac radioablation assets.

Margins

Total gross profit in the reported quarter was $384.6 million, up 13.6% year over year. Gross margin in the reported quarter was 43.8% of net revenues, up 150 basis points (bps).

Research and development expenses rose 9.4% year over year to $65.2 million. Selling, general and administrative expenses increased 26.8% year over year to $181.6 million.

Adjusted operating income in the fiscal fourth quarter totaled $159.2 million, up 12.7% year over year. As a percentage of revenues, operating margin was 18.1%, up 50 bps.

Guidance

For fiscal 2020, Varian expects revenues within $3.52 billion-$3.61 billion, representing year-over-year growth of 9-12% and organic growth of 7-9%. The Zacks Consensus Estimate stands at $3.52 billion, the lower end of the guided range.

Adjusted EPS is projected between $5.30 and $5.45. The Zacks Consensus Estimate is pegged at $5.23, lower than the projected band.

Our Take

Varian exited the fiscal fourth quarter on a solid note. The company continues to gain from its core Oncology Systems segment, which saw solid overseas growth, especially in EMEA and China. In fact, management foresees tremendous opportunities in China owing to recent tariff exclusions. Gross orders surged in the quarter. Management is optimistic about the recently-closed acquisitions of CyberHeart, Cancer Treatment Services International, Endocare and Alicon. A solid guidance for fiscal 2020 paints a bright picture as well. Expansion in gross and operating margins is an added positive.

On the flip side, the Proton Solutions unit saw softness in the quarter. Moreover, Varian saw headwinds in Japan which impacted its APAC revenues.

Key Picks

A few better-ranked stocks in the broader medical space are Mckesson (NYSE:MCK) , ResMed (NYSE:RMD) and Syneos Health (NASDAQ:SYNH) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for McKesson’s second-quarter fiscal 2020 revenues is pegged at $54.94 billion, suggesting 3.5% growth from the prior-year reported figure. The same for adjusted EPS stands at $3.60.

The Zacks Consensus Estimate for ResMed’s first-quarter fiscal 2020 revenues is pegged at $657.2 million, calling for a year-over-year increase of 11.7%. The same for adjusted EPS stands at 87 cents, indicating an increase of 7.4% from the year-ago reported figure.

The Zacks Consensus Estimate for Syneos’ third-quarter fiscal 2019 revenues is pegged at $1.18 billion, suggesting 6.03% growth from the prior-year reported figure. The same for adjusted earnings per share stands at 83 cents, implying a 10.7% improvement from the year-ago reported number.

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