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Varian Medical Systems Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 8, 2012 04:36PM
Varian Medical Systems Inc. (VAR) filed Quarterly Report for the period ended 2012-03-30. Varian Medical has a market cap of $7.19 billion; its shares were traded at around $63.48 with a P/E ratio of 18 and P/S ratio of 2.8. Varian Medical had an annual average earning growth of 17.9% over the past 10 years. GuruFocus rated Varian Medical the business predictability rank of 4.5-star.
Highlight of Business Operations:For the second quarter of fiscal year 2012, Oncology Systems product gross margin was 38.2%, compared to 43.6% in the second quarter of fiscal year 2011. For the first half of fiscal year 2012, Oncology Systems product gross margin was 39.5%, compared to 44.2% in the first half of fiscal year 2011. The decreases in gross margins between the quarters and the year-to-date periods were primarily due to a significant geographic shift of product revenues away from higher margin countries to lower margin countries, which typically demand lower-priced products compared to developed markets. Our Oncology Systems product gross margins for the quarter and for the year-to-date period were further impacted by stiffer pricing pressure in our international region, particularly in higher-growth emerging market countries. Oncology Systems service contract gross margin was 51.6% in the second quarter of fiscal year 2012, compared to 50.3% in the second quarter of fiscal year 2011. Oncology Systems service contract gross margin was 52.1% in the first half of fiscal year 2012, compared to 51.4% in the first half of fiscal year 2011. The increases in service contract gross margin were primarily due to higher service contract volume, which lowered the costs per contract. We believe the shift of Oncology Systems revenues towards emerging markets, which typically demand lower-priced products compared to developed markets, will generally continue and may negatively impact Oncology Systems gross margins.
The $11.9 million increase in selling, general and administrative expenses for the second quarter of fiscal year 2012 compared to the second quarter of fiscal year 2011 was primarily attributable to: (a) a loss of $1.4 million, versus a gain of $2.0 million in the year-ago quarter, recognized on our equity investment in dpiX Holding LLC; (b) a $2.8 million overall increase in legal expenses relating to ongoing litigation; (c) a $2.5 million restructuring charge for a workforce reduction in North America the accompanied the realignment of resources to support our sales and marketing activities in emerging market countries; (d) a $1.9 million net increase in employee-related costs, in part for increased headcount to support our growing sales, marketing and other business activities particularly in international countries; and (e) a $1.1 million increase in selling, general and administrative expenses associated with the recently acquired Calypso. These increases were partially offset by a $1.2 million decrease in expenses associated with product promotion and certain commission arrangements in our Oncology Systems business.
Our effective tax rate was 25.3% for the three months ended March 30, 2012, compared to 31.8% in the same period of fiscal year 2011. For the six months ended March 30, 2012, our effective tax rate was 27.6%, compared to 30.8% in the same period of fiscal year 2011. The decrease in our effective tax rate was primarily due to a shift in the geographic mix of earnings towards jurisdictions with lower tax rates.
The trailing 12 months growth in net orders for Oncology Systems at the end of the second quarter of fiscal year 2012 and at the end of the previous three fiscal quarters were: an 8% total increase, with flat net orders in North America and a 16% increase for the international region, as of as of March 30, 2012; an 8% total increase, with a 1% decrease in North America and a 17% increase for the international region, as of December 30, 2011; an 8% total increase, with a 5% increase in North America and an 11% increase for the international region, as of September 30, 2011; a 10% total increase, with a 14% increase in North America and a 7% increase for the international region, as of July 1, 2011. Consistent with the historical pattern, we expect that Oncology Systems net orders will continue to experience regional fluctuations, even with an overall shift of orders towards international regions and emerging market countries. In addition, the availability of government programs that stimulate the purchase of healthcare products, such as the one in place in 2010 in Japan, has in the past affected and could in the future affect the demand for our products and/or revenues recognized from period to period, and could therefore make it difficult to compare our financial results.
In the first half of fiscal year 2012, we generated net cash from operating activities of $159 million, compared to $206 million in the first half of fiscal year 2011. The $47 million decrease in net cash from operating activities during the first half of fiscal year 2012 compared to the first half of fiscal year 2011 was driven primarily by a net decrease of operating cash flows of $43 million related to changes to working capital items between the two periods, a decrease in non-cash items of $3 million and a decrease of $1 million in net earnings. The decrease of operating cash flows related to working capital items was primarily due to changes in accounts receivable, inventories and accounts payables.
Stocks Discussed: VAR,