This summary is based on the third quarter fiscal 2008 earnings call conducted by The Cooper Companies, Inc. (COO) on September 4, 2008.
Management:
Vice President of Investor Relations: Albert White
Chief Executive Officer, Director: Robert S. Weiss
Chief Financial Officer, Senior Vice President: Eugene J. Midlock
Key Investors Issues
- GAAP earnings per share were 39 cents, up from 18 cents in last year''s third quarter.
- Gross margin 53% compared with 58% in the third quarter of 2007.
- Revenue increased 14% year-over-year to $285.9 million.
Third Quarter Highlights
Operating cash flow was $44 million and it brought free cash flow to $19 million.
- Earnings per share GAAP wise were 39 cents and excluding call-outs 67 cents.
- Biofinity revenue reached $15 million and now is annualizing at around $60 million.
- 1- day Proclear had revenue up 47% and in cost and currency 32%. The Proclear family is performing well, up 35% and in cost and currency 28% and that brings its revenue to 28% of total Cooper Vision revenue.
- In the United States silicone hydrogel is now 47% of total patient fits and 51% of total new patient fits. For torics these numbers in the US are 45% total patient fits and 47% for new patient fits.
- US CLI data contact lens institute data showed continued growth of the 1-day modality up 15% above the prior year and 1-day now accounts for 11% of the US market, yet it counts for 46% of the rest of the world.
- Debt was reduced from $941 million to $928 million.
- Revenue was $285.9 million, up 14% above the third quarter of 2007, 8% in cost and currency.
- Cooper Vision had revenue of $243.2 million, 15% above last year, 8% in cost and currency.
Cooper Surgical earned $42.7 million of revenue, an increase of 7% over the prior year and strong sales of its surgical business unit which markets directly to hospitals, which grew 20% over last year and is now 31% of CSI’s total revenue.
- Gross margin on a consolidated basis was 54% compared to 58% in last years third quarter and excluding call outs non-GAAP results were gross margin 57% versus 63% last year.
- Cooper Visions gross margin was 53% versus 58% last year and excluding the call outs it was 57% versus 64%. This decrease was partially attributable to currency, 3 percentage points as well as a change in product mix more towards the single-use spheres which have a lower gross margin percent, but that particular business increased, it represents 19% of revenue, up from 15% last year.
- Cooper Surgical’s gross margin was 59%, which is unchanged from last year; on a non-GAAP basis it was 60% which is also the same as last year.
- Consolidated GAAP SG&A increased by 6% over last year to $110.6 million, but decreased as a percentage of sales from 41% to 39%. In the components of this, selling expenses increased 11% over 2007 and are 30% of revenue and that is primarily due to costs supporting increased sales levels, higher commissions and so forth, as well as increased lens distribution used in marketing programs for new products.
- G&A expenses on the other hand decreased by 8% from last year and are 9% of revenue and the decrease is generally attributable to a reduction in litigation costs and enhanced leveraging of certain of administrative services.
- On a non-GAAP basis SG&A increased by 13% over last year and are 38% of revenue. Selling expenses increased 19% and G&A decreased by 1%.
- GAAP R&D expense decreased by $2.4 million from last year to $9 million, which represents 3% of sales.
- CVI’s R&D actually increased by 10% year-over-year to $7.9 million which is 3% of sales and on a GAAP basis CSI’s R&D decreased by $3.2 million from last year, but note in there is $3 million of IP R&D or in process research and development in the third quarter of 2007 from an acquisition of technology.
- Interest expense increased to $15.3 million, however included in there is approximately $3 million of charges related to the repurchase of converts.
- Effective tax rate on a GAAP basis is 2% and non-GAAP is a positive rate of 3%. This is largely attributable to the adoption of Fin 48. That particular accounting pronouncement is going to cause major fluctuations in effective rates from quarter to quarter because of the requirement to more finely identify and recognize discreet items in the tax provision calculation.
- Call outs were $13.3 million net of tax.
- Consolidated operating margin was 11% versus 9% last year. Excluding call outs it was 15% versus 20% and the decrease is generally attributable to various items.
Fourth Quarter 2008 Outlook
- The company expects interest to decrease to $12.3 million which is increase over the prior quarters, reflecting an increase in borrowing for capital expenditures and use of revolver to retire the debt.
- Effective rate will be 26.5%.
- Converts should be around 2% accretive because of the overhang of the 2.6 million shares being gone.
- There will be no call outs.
- The company is expecting operating margins of around 17% to 18%.
- EPS will be between 58 cents per share to 64 cents per share.
- The company is expecting gross margins of around 60%.
