Advertisement
U.S. markets closed
  • S&P Futures

    5,304.25
    -4.00 (-0.08%)
     
  • Dow Futures

    40,140.00
    -36.00 (-0.09%)
     
  • Nasdaq Futures

    18,465.00
    -38.75 (-0.21%)
     
  • Russell 2000 Futures

    2,145.20
    +6.80 (+0.32%)
     
  • Crude Oil

    83.11
    -0.06 (-0.07%)
     
  • Gold

    2,254.80
    +16.40 (+0.73%)
     
  • Silver

    25.10
    +0.18 (+0.74%)
     
  • EUR/USD

    1.0790
    -0.0003 (-0.03%)
     
  • 10-Yr Bond

    4.2060
    +0.0100 (+0.24%)
     
  • Vix

    13.01
    +0.23 (+1.80%)
     
  • GBP/USD

    1.2623
    +0.0001 (+0.01%)
     
  • USD/JPY

    151.4780
    +0.1060 (+0.07%)
     
  • Bitcoin USD

    70,758.11
    +980.12 (+1.40%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • Nikkei 225

    40,386.35
    +218.28 (+0.54%)
     

Why Is Varian Medical (VAR) Down 2.8% Since the Last Earnings Report?

A month has gone by since the last earnings report for Varian Medical Systems, Inc. VAR. Shares have lost about 2.8% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Varian Medical (VAR) Misses on Q1 Earnings and Revenues

Palo Alto, CA-based leading manufacturer of medical devices and software Varian Medical Systems, Inc. reported adjusted earnings of $0.75 per share in the first quarter of fiscal 2017.

Despite having a streak of positive earnings surprises in the last four quarters with an average beat of 3.47%, adjusted earnings missed the Zacks Consensus Estimate of $1.05 in the first quarter. Furthermore, adjusted earnings declined 24.2% on a year-over-year basis.

Meanwhile, revenues of $763.3 million increased 0.8% year over year on the back of strong growth at the oncology segment. However, revenues missed the Zacks Consensus Estimate of $769 million.

Coming to backlog, Varian reported a backlog of $3.4 billion at the end of the fiscal first quarter, up 2% on a year-over-year basis.

Revenue Details

Varian Medical has been addressing both the tier 1 and mid-tier markets through its Edge, Truebeam and VitalBeam products. Varian also won contracts in the American and international markets, which is a huge positive.

We believe China and Japan present significant top-line growth opportunities in the near term. The company is also on track to open new offices in Africa and the Middle East, which reflects its awareness about the growth opportunities in the region.

Oncology Systems: In this segment, revenues totaled $581.1 million, down 1.4% year over year. Per management, despite the year-over-year decline, the oncology segment witnessed a favorable product mix, stable pricing and product cost reductions in the first quarter.

Coming to gross orders, first gross orders were $585.6 million, up 10% from the year-ago quarter. In the U.S., gross orders increased 5%. In EMEA and APAC, gross orders jumped 8% and 29%, respectively, on a year-over-year basis. 

Imaging Components:  Revenues at the segment totaled $151.9 million in the reported quarter, up 7.4% from a year ago. The upside was fueled by gains in both the medical and industrial platforms. Notably, Medical revenues increased by almost 8%, buoyed by strong growth in CT tubes and dynamic detectors. Also, industrial revenues grew 6%.

Per management, this segment had quite a ‘busy quarter’, courtesy of the spinoff of the Varex Imaging platform and the acquisition of the medical imaging business from Waltham, MA-based PerkinElmer, Inc.

Meanwhile, gross orders at the segment totaled $131.8 million in the reported quarter, up 3.7% from the year-ago quarter.

Other segment: The other segment includes Varian’s flagship Particle Therapy business. The company's Particle Therapy business platform recorded first-quarter revenues of $30 million. Varian made good progress in the platform with 13 installations in the quarter.

Margin Details

In the first quarter, Varian Medical had a gross margin of 43.8%, up 290 basis points (bps) on a year-over-year basis.

Expenses on research and development (R&D) in the quarter were 63 million or 8% of revenues, increasing 30 bps year over year.

Coming to the selling, general and administrative expenses (SG&A), this accounted for 23.6% of revenues in the first quarter, compared to 17.6% in the year-ago quarter.

Financial Condition

As of Dec 31, 2016, Varian Medical had $815 million in cash and cash equivalents and $607 million in debt. During the reported quarter, cash flow from operations increased 6% on a year-over-year basis to $82 million.

Guidance

Varian Medical announced that its Imaging Components segment will be considered as a discontinued operation for the first four months of fiscal 2017. For the rest of the year, Varian’s revenues from continuing operations are expected to multiply in the range of 4% to 5%, bringing in net revenue growth for the year of 3% to 4%.

For Varex Imaging, the company expects revenues for fiscal 2017 to increase 3% to 4%, compared with $620 million recorded in fiscal 2016.

For the second quarter of fiscal 2017, Varian Medical’s revenues are expected to increase in the band of 4% to 5%. Furthermore, adjusted earnings per share are forecasted in the range of $0.84 to $0.90 per share for the second quarter.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

Varian Medical Systems, Inc. Price and Consensus

 

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

VGM Scores

At this time, Varian Medical's stock has an average Growth Score of 'C', though it is lagging a bit on the momentum front with an 'D'. However, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

The stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Varian Medical Systems, Inc. (VAR): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research

Advertisement