Oncology and X-Ray products company, Varian Medical Systems (NYSE:VAR) reported first-quarter fiscal 2012 earnings per share of 79 cents, beating the Zacks Consensus Estimate of 76 cents but missing the year-ago earnings of 80 cents per share. Net earnings for the quarter slipped 6.5% year over year to $90.2 million (or 79 cents a share).

First Quarter Highlights

Varian’s top line witnessed a 9% increase to $625 million in the quarter, but trailed the Zacks Consensus Estimate of $633 million. Varian experienced delays in orders in the North American oncology segment while sales of X-Ray products were hit by inventory adjustments by Japanese customers. Order backlog increased 14% year over year to $2.5 billion at the end of the quarter.

Revenues from the Oncology Systems segment rose 8% year over year to $488 million, backed by healthy demand for the company’s TrueBeam radiotherapy and radiosurgery system. Net orders went up 6% to $485 million as an 11% decline in North America was more than offset by 22% growth in international markets.

Varian’s X-Ray Products business ended the first quarter with sales of $113 million, up just 1% year over year. Net orders slipped 2% to $110 million.

Revenues from the “Other” category shot up about 56.3% year over year to $25 million in the quarter. Sales were driven by revenues from the setting up of the Scripps proton system.

We have discussed the quarterly results at length here: Varian’s EPS Beats, Profit Drops

Agreement – Estimate Revisions

Estimate revisions for fiscal 2012 are weighted on the negative side since the release of the first quarter results. Over the past month, only 2 analysts (out of 13) revised their estimates in the upward direction while there were 7 instances of downward revision. There were no changes in the previous 7 days.    

Among the 12 analysts, 5 revised their estimates in the upward direction and 2 made downward revisions for fiscal 2013, in the preceding month. There were no changes in the past 7 days.

Magnitude – Consensus Estimate Trend

Predominantly downward revisions have resulted in a drop of a penny in the estimate for fiscal 2012. For fiscal 2013, on the other hand, predominantly upward revisions have led to an increase of 3 cents in the estimate, over the last 30 days. The magnitude of change reached a plateau over the past week, for both fiscal years 2012 and 2013.

The current Zacks Consensus Estimates for 2012 and 2013 are $3.95 and $4.50, respectively, reflecting an estimated 14.74% and 14.08% year-over-year growth.

Varian Stays at Neutral

Moving ahead, Varian expects revenues to grow 10% for fiscal 2012. Net earnings per share for the fiscal have been projected to rise by roughly 15%.

For second-quarter fiscal 2012, the company envisions sales to grow roughly 8% year over year. Net earnings per share have been forecast to grow 12% to 13%.

Varian is a leading manufacturer of integrated radiotherapy systems for treating cancer and a premier supplier of X-ray tubes for diagnostic imaging applications. The company operates in a technology-driven environment where success depends on the use of new technology, product development and upgrades. In the radiation oncology market, Varian competes with Accuray (NASDAQ:ARAY).

Varian is poised to increase its market share in radiation oncology. It is currently enjoying a healthy demand for its coveted TrueBeam technology, which is meaningfully contributing to its net order oncology growth.

Moreover, Varian enjoys a strong balance sheet marked by minimal debt and sizeable cash. The company uses a part of its healthy cash flows for share repurchases.

However, Varian competes with larger players in a technology-intensive industry. Further, uncertainties stemming from health care reform and a still weak hospital capital spending environment across many developed countries, especially in Europe, are significant challenges. We currently have a long-term Neutral rating on Varian supported by a short-term Zacks #3 rank (Hold).

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/

 
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