Medical technologies major CR Bard Inc. (BCR) posted an impressive 28% rise in adjusted earnings per share to $2.15 for the third quarter of 2014 from $1.68 in the prior-year quarter. Earnings per share surpassed the Zacks Consensus Estimate of $2.10 as well as the company’s previously announced guidance of $2.07 to $2.11.

Adjusted earnings rose 22.3% to $166.9 million from $136.5 million in the prior-year quarter. Adjusted earnings exclude one-time items such as acquisition-related expenses, asset impairments, restructuring and litigation charges.

On a reported basis, CR Bard’s net earnings soared 40.9% to $131.3 million from the year-ago level of $93.2 million. On a per-share basis, net earnings increased 47% to $1.69 from $1.15 in the third quarter of 2013. This is quite a turnaround from the net loss of $119.4 million or $1.59 a share reported in the prior quarter.

C R Bard, Inc - Earnings Surprise | FindTheBest

Revenue

CR Bard reported revenues of $830.0 million, up 9.5% from $758.0 million in the third quarter of 2013. On a constant currency basis, revenues during the quarter grew 9.0%. Also, revenues steered past the Zacks Consensus Estimate of $818 million.

Revenues in the U.S. spiked 13.0% to $565.4 million in the third quarter of 2014 while international revenues grew 2.7% (or 1% in constant currency) to $264.6 million, led by healthy sales in emerging markets.

Product Group Results

Revenues from the core Vascular product category improved 10.3% year over year (or 9% in constant currency) to $231.5 million. Excluding the royalty payment from Gore and the impact from the divestiture of the Electrophysiology business, total Vascular sales inched up 2% globally. Sales in the U.S. remained flat whereas international sales were up 5%.

Revenues from surgical graft went down 2% in the quarter. The Endovascular business grew 3% in the second quarter, excluding the royalty payment from Gore. Within the Endovascular business, peripheral PTA line revenues increased 9% driven by robust sales of Lutonix drug-coated balloon in Europe.

Revenues from biopsy products increased 2%, whereas revenues from both the Stent business and the vena cava filter line declined 3% and 1% during the quarter, respectively.

Revenues from the Urology business came in at $209.6 million, up 8.2% (or 8% in constant currency). Revenues from the U.S. increased 5%, while it improved 14% internationally. Sale of products acquired from Rochester Medical contributed significantly to global growth of this business.

Within Urology, revenues from the basic drainage business increased 6% globally, with about 400 basis points (bps) of growth generated from the acquired Rochester medical products. I.C. Foley's revenues were flat globally and declined 2% in the U.S. Revenues from the continence business soared 36% in the quarter, mainly driven by synergies from the Rochester Medical products.

Revenues from neurological specialties grew 6% while that from the StatLock catheter stabilization line declined 2% in the reported quarter.

Revenues from the Oncology category rose 6.6% (or 6% in constant currency) to $229.7 million. Revenues were up 6% in the U.S. and 8% outside the U.S. Revenues from peripherally inserted central catheters (:PICC) grew 10% in the quarter with continued strong performance in the U.S., Europe and the emerging markets.

Meanwhile, revenues from Vascular Access ultrasound product line were up 16%, driven by the launch of CR Bard’s new Site-Rite Vision II system. Lastly, revenues from the dialysis catheter business rose 5% in the quarter under review.

Revenues from the Surgical Specialties business escalated 14.8% (or 15% in constant currency) to $135.6 million. U.S. revenues soared 16% while international revenues were up 11%. The Medofor acquisition, completed during the fourth quarter of 2013, contributed about 12 percentage points of global growth to this category.

Revenues from the soft tissue repair business grew 6%. Within soft tissue, synthetic hernia products revenues posted a double-digit rise from the last-year quarter. However, CR Bard reported declines of 22%, 5% and 11% in revenues from its natural tissue product line, hernia fixation business and performance irrigation business, respectively.

Revenues from Other product line rose 13.5% (or 12% in constant currency) to $23.6 million.

Margins

On an adjusted basis, gross margin stood at $518.5 million or 62.5%, up 100 bps from the prior-year quarter. Gross margin improvement was primarily led by the Gore royalty, partially mitigated by amortization of intangibles and unfavorable pricing.

Marketing, selling, and administrative (SG&A) expenses increased 9.6% to $241.7 million on an adjusted basis. However, as a percentage of sales, SG&A expenses remained flat with the year-ago level of 29.1%.

Research and development (R&D) expenses declined 0.3% to $65.9 million on an adjusted basis. As a percentage of sales, R&D expenses fell 80 bps to 7.9% in the third quarter.

Adjusted operating earnings increased 20.7% to $200.2 million while adjusted operating margin expanded 220 bps to 24.1% in the third quarter.

Financial Position

CR Bard exited the third quarter with cash, restricted cash and short-term investments of approximately $1.04 billion, up 30% from $800.7 million as of Sep 30, 2013. Total debt stood at $1.4 billion, down 6.7% from $1.5 billion as of Sep 30, 2013. The debt-to-capital ratio stood at roughly 43% as of Sep 30, 2014.

Capital expenditures totaled $34.4 million in the third quarter.

Guidance

For the fourth quarter of 2014, CR Bard expects adjusted earnings in the range of $2.22 to $2.26 a share. The current Zacks Consensus Estimate of $2.23 lies within the guided range. The company also expects constant currency sales growth between 8.5 and 9.5% in the quarter.

On the back of better-than-anticipated third-quarter results, CR Bard raised its full year-2014 adjusted earnings per share guidance to the band of $8.34–$8.38 from the prior range of $8.25–$8.35. The current Zacks Consensus Estimate of $8.31 lies below the guided range.

Our Take

CR Bard’s third-quarter earnings and revenue beat holds promise, with both increasing on a year-over-year basis and exceeding the company’s previously announced guidance. We are also encouraged by the company’s updated earnings guidance for 2014.

The strategic investment plan announced by the company in the beginning of 2013 has begun to generate returns and CR Bard continues to focus on executing its plans with the objective of improving revenue growth and profitability. Management also expects enhanced revenue growth from the emerging markets which we believe reflect immense potential.

CR Bard currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the medical/dental supply industry include The Cooper Companies Inc. (COO), Cardinal Health, Inc. (CAH) and Henry Schein, Inc. (HSIC). The Cooper Companies sports a Zanks Rank #1 (Strong Buy) while both Cardinal Health and Henry Schein carry a Zacks Rank #2 (Buy).

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