Varian Medical (VAR) Beats Q1 Earnings & Revenue Estimates

Varian Medical Systems VAR reported first-quarter fiscal 2018 adjusted earnings of $1.06 per share, which beat the Zacks Consensus Estimate of 98 cents. Adjusted earnings also improved 112% on a year-over-year basis.

Revenues totaled $678.5 million, which beat the Zacks Consensus Estimate of $639.47 million. On a year-over-year basis, revenues increased 12.8%.

The company has strengthened its foothold in the radiation therapy as the market grew 4.5% on an order basis in the trailing 12 months.

Varian Medical Systems, Inc. Price, Consensus and EPS Surprise

 

Varian Medical Systems, Inc. Price, Consensus and EPS Surprise | Varian Medical Systems, Inc. Quote

 

Segment Details

Oncology Systems: In the said quarter, oncology revenues totaled $649 million, up 14% on a year-over-year basis.

Gross orders were $620 million, up 7% from the year-ago quarter. Gross orders in Americas inched up 2% on a yearly basis. In EMEA, gross orders rose 19% year over year to $190 million. In APAC, gross orders increased 6% year over year with strong orders growth in Greater China and Japan. Operating earnings for the segment rose 19%.

Particle Therapy: Revenues in this segment declined 4% on a year-over-year basis to $29 million. However, the company booked two new proton orders — at the University of Alabama, Birmingham and at the Sylvester Comprehensive Cancer Center, University of Miami.

The company will install a Varian ProBeam Compact single-room proton therapy system in the New University of Alabama Birmingham Proton Therapy Center. Additionally, the company will also provide its ARIA information management system and Eclipse treatment planning system.

HyperArc and Halcyon Drive Revenues

HyperArc, a high definition radiotherapy technology, continues to gain prominence. The platform witnessed 57 new orders in the 2017. More than 60% of those orders are upgrades.

Notably, HyperArc is designed to treat multiple metastases brain cancer cases and continues to witness strong demand. The number of unique Varian software customers grew 4% in the first quarter. The installed bases of RapidPlan Double and Velocity also grew high double-digits. Revenues for these services grew 8% in the oncology business, which includes performance obligations for installation, training and warranty.

In the first quarter, the Halcyon platform witnessed 62 total orders since its inception in 2017. This reflects solid demand for the platform in the quarters ahead. The anticipated growth will be driven by solid new-scaled configurations optimized for different customer segments and with advanced capabilities.

Margins

Gross margin in the reported quarter is 44.6%, which expanded 20 basis points (bps) on a year-over-year basis.

Operating margin was 17.9%, expanding 1500 bps on a year-over-year basis.

Oncology gross margin was 46.5%, up 36 bps. Particle therapy gross margin was down to $2 billion in the quarter, due to a mix of lower margin deals.

Financial Condition

The company exited the first quarter with cash and cash equivalents of $823 million and debt of $340 million.

Moreover, cash flow from operations is $179 million.

FY18 View

For 2018, the company expects revenues in the range of 4-7%. Adjusted earnings per share are expected in the band of $4.24-$ 4.36, while cash flow from operations are projected in the range of $475-$550 million.

Our Take

Varian Medical exited the first quarter of fiscal 2018 with an impressive performance, rebounding from dismal performance in the last quarter.

Solid revenues and segmental support buoys optimism. Further, an expanding foothold in the global market space is likely to leverage the company’s technical expertise.

However, declining revenues in proton therapy and cutthroat competition in niche space are a concern.

Price Performance

Over the last six months, Varian Medical’s stock has been performing below the broader industry.

Zacks Ranks & Key Picks

Varian Medical currently carries a Zacks Rank #4 (Sell).

A few better-ranked medical stocks in the broader medical space are Bio-Rad Laboratories BIO, Centene CNC and BIOVERATIV BIVV. Each of these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank Stocks Here.

Bio-Rad has an estimated growth rate of 141.5% for the next quarter. It has a positve average earnings surprise of 61.2% in the trailing four quarters.

Centene has a long-term expected growth rate of 14%. It has a positve average earnings surprise of 10.6% in the trailing four quarters.

BIOVERATIV has a projected long-term growth rate of 14%. It has a positve average earnings surprise of 17.1% in the trailing four quarters.

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