Update: Haemonetics Earnings-Revenue Growth And Shrinking Loss As Restructuring Progresses

Aug. 5.14 | About: Haemonetics Corp (HAE)


HAE reported 2% revenue growth, smaller GAAP loss of $0.07 and $0.38 non-GAAP EPS, down 17% Y/Y, but showing first signs of improving trends in its turnaround.

I reiterate my long thesis with a target price of $45, offering a 25% upside within two years. But the turnaround is still uncertain and downside should be protected.

The long thesis has worked well until HAE lost a large contract from the American Red Cross, sending the stock down ~10%.

Haemonetics Corporation (NYSE:HAE) reported promising earnings for the first quarter fiscal 2015 ended June 28, 2014 (SEC filing, earnings call, press release). Revenue of $224.5M was up 2% Y/Y. GAAP net loss was $3.6M, or $0.07 per share versus a loss of $0.14 a year ago. Adjusted EPS was $0.38, down 17% Y/Y. Total revenue in most revenue segments came in above where HAE expected as it and we saw robust growth in identified growth drivers. Plasma, TEG and emerging markets which represented 58% of disposables revenue in the first quarter, grew in constant currency at combined 19% with Plasma up 22%, TEG up 24% and emerging markets growing 11%. Whole blood business was down as expected. HAE continued in a strong share repurchase program that still has ~5% of outstanding shares in the pipeline. The company also modified its credit terms to gain more flexibility and liquidity while not borrowing additional amounts.

Fiscal 2015 guidance (the next three quarters) was confirmed with revenue expected to decline 0% to 2% Y/Y as continued sales volume and pricing headwinds in the whole blood segment and Japanese Yen currency weakness will negatively impact benefits from growth drivers. Adjusted earnings per share should be between $1.85 and $1.95 and free cash flow at approximately $120-$130M before restructuring costs. The fiscal 2015 is still a transitory period for Haemonetics, with revenue and EPS expected to be down Y/Y. Preliminary fiscal 2016 outlook guides for renewed top line growth at single digits and double digit operating income and EPS growth.

The loss of The American Red Cross long-term contract in March will hurt HAE's annual EPS to the tune of ~$0.15. This one-time event has now been priced in by the market and I reiterate my long turnaround thesis on Haemonetics based on expectations of a successful restructuring and renewed sales growth which should materialize within two years. HAE is an investment for patient investors as it may be a rough ride until it is clear whether the turnaround is successful and whether the whole blood segment troubles continue to outweigh other areas. The transformation is still only in its second year of the three-year strategic plan and the company has a long way to go. My target price is ~$45 per share, offering a ~25% upside within two years. However, downside should be fully protected at ~20% below the current price via put options or a stop-loss as this is still a risky and uncertain turnaround

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.