Cooper Cos. (COO: chart), a developer and manufacturer of healthcare products and medical devices, reported fiscal second quarter earnings of 30 cents per share, down from 59 cents per share a year ago. The company earned $13.7 million in Q2, down from $27.8 million a year ago. Revenue for Q2 was $211.4 million down 2% from $215.6 million a year ago. Analysts had expected earnings of 70 cents a share on revenues of $221 million. On January 6th, 2006, the company completed the acquisition of Ocular Sciences and the results from that company are included from the acquisition date forward.

The company’s adoption of SFAS 123R reduced the Q2 results by $3.3 million. This is a reduction of 6 cents a share. Also, the company’s non-GAAP guidance excludes 25 cents to 35 cents a share for stock option expenses in 2006 and 35 cents to 40 cents a share in 2007.

Revenue for Q2 declined 2% to $211.4 million from $215.6 million in the year-earlier period. The Q2 revenue rose 1% in constant currency from $209.3 million a year ago. Revenue was below the company’s expectations due to its inability to meet demand for new products in Japan. Recently acquired subsidiary, CVI, with worldwide revenue of $181.7 million declined in the second quarter compared to a year ago by 4% from $189 million. The company revenue declined 1% in constant currency. Operating income was 12% of sales in the quarter. The company’s inability to meet demand for new packaging for its single-use lenses caused most of its weakness in sales. However, the company now expects its second half revenue growth in Japan to improve since they are now able to ship single-use lenses in the new packaging.

The company reported gross margin of 62% compared to 61% year ago. Disruptions in manufacturing associated with the conversion of single-use lenses to improved packaging costs amounted to $2.7 million in Q2 which was 1% of sales. In 2005, these costs were $84 million, which was 4% of sales.

Selling, general, and administrative expenses, which included $3.1 million for stock option expenses in 2006, grew 11%. It was 42% of sales up from 37% a year ago. These results also include costs associated with the rationalization of CVI’s distribution centers in Europe and in the US, from 21 to 5 locations. These costs, which included stock option expenses, amounted to 3% or $6.7 million of sales.

Corporate expenses, which included a stock option expense and $0.3 million of securities litigation expense, increased to $7.2 million for Q2, up from $3.4 million a year ago. These combined costs amounted to 1% or $2 million of sales. Research and development expense was $13.9 million, and includes a charge for acquired in-process R&D associated with the acquisition of NeoSurg Technologies in Q1 of 2006. These costs amounted to $8.7 million of sales.

Capital expenditures were $39.6 million in Q2, which was primarily due to an expansion expense for manufacturing capacity, as well as consolidation of distribution centers from 21 to 5 and to continue the rollout of new information systems in selected locations.

The company’s interest expense declined 3% from the year-earlier period, which reflected terms of the amended credit agreement that began in Q1 of this year. This reduced interest expense by $2 million annually and increased the company’s borrowing capacity by $250 million. Additional expenses of $1.1 million included $0.9 million of foreign exchange losses. Depreciation and amortization was $15.1 million for the quarter.

As mentioned earlier, the company is in the process to reduce its 21 distribution centers in Europe and the US to only five. The savings from the recently announced staff reductions and the initial consolidation of distribution centers will begin in Q3 and is expected to result in annual savings of $14 million.

The company expects to end 2007 with $50 million of annualized savings, with an additional $10 million plus of annualized savings from a lowered effective tax rate, which is the result of the integration of Ocular and CVI.

Expected guidance for the full year 2006 revenue is $878 million to $911 million. This is lower than the previous guidance of $908 million to $936 million. The company expects GAAP earnings per share of $1.82 to $2.90 and non-GAAP earnings per share of $2.85 to $3.20. Again, this is lower than previous guidance of $3.40 to $3.60. The company also expects capital expenditures in fiscal 2006 of about $150 million to $160 million. These expenses are divided to about 70% for expanded manufacturing capacity, about 20% for Gen II conversion and distribution center consolidation, and about 10% for information technology.

Guidance for full year 2007 revenue is expected to be between $948 million to $1 billion, down from previous expectations of $988 million to $1.05 billion. The reduction in previous guidance of $50 million is from expected lower CVI new product sales in Japan and lower sales in the US before the company reaches full capacity.