Cooper Outshines, Profit Doubles

Mar. 4.11 | About: The Cooper (COO)

Cooper Companies (NYSE:COO) reported healthy first-quarter fiscal 2011 (ended January 31) results with adjusted earnings per share of 85 cents handily surpassing both the Zacks Consensus Estimate of 68 cents and the year-ago earnings of 49 cents.

Adjusted earnings exclude a net gain of $5.1 million (or 11 cents per share). Net income for the quarter roughly doubled year over year to $45.3 million (or 96 cents a share), boosted by double-digit growth, in both reported and constant currency terms, at the company’s CooperVision (“CVI”) eye-care division and CooperSurgical (“CSI”) unit coupled with higher margins.

The forecast-topping results coupled with management’s buoyant outlook pushed up California-based Cooper’s shares to $66.50, a leap of $2.88 (or 4.53%), in after-hours trading on March 3.

Revenue Analysis

Revenues for the quarter were up 13% year over year to $293.2 million, exceeding the Zacks Consensus Estimate of $283 million, driven by healthy growth across the board.

Sales from the CVI division in the quarter spiked 13% year over year to $243.6 million riding on higher revenue from toric lenses (up 19%), single-use sphere lenses (higher 13%) and non-single-use sphere lenses (up 11%), while multifocal sales were flat. Geographically, revenues from Americas and Asia-Pacific rose 12% and 25%, respectively, and grew a more modest 7% in EMEA. A material-based analysis reveals that silicone hydrogel sales rose 53% to $62.6 million.

The CSI division remains on growth track with revenues surging 12% year over year (7% excluding acquisitions) to $49.6 million, buoyed by higher sales across all product categories. Revenues from surgical procedures climbed 23% to $18.4 million.

Margin Trends

Copper continues to successfully expand margins with composite gross margin improving to 60% in the quarter from 58% a year ago, backed by higher revenues and manufacturing efficiency gains at its CVI and CSI units. Higher gross margin, and a one-time gain of $6.1 million, helped the company to improve operating margin in the quarter, which rose to 19% from 14% a year ago.

Financial Health

Cooper ended the quarter with cash and cash equivalents of about $3.3 million, up 82.2% year over year. The company remains committed to de-leveraging its balance sheet as total debt declined $137.5 million in the quarter to $586.7 million (down 19% year over year).

Cooper generated $72.9 million of cash from operation in the quarter and spent $28.8 million on capital expenditures, resulting in free cash flows of $44.1 million (up only 2.1% year over year).


Cooper revised its outlook for fiscal 2011 based on improved prospects for contact lens sales. The company now expects adjusted earnings per share for the year in a higher range of $3.70 to $3.90 vis-à-vis its earlier forecast $3.30 to $3.50. Revenue target for the year has been raised to a range of $1.265 billion to $1.290 billion versus the previous forecast of $1.250 billion to $1.280 billion.

Revenues for the CVI and CSI divisions are expected in the range of $1,070 million to $1,085 million and $195 million to $205 million, respectively. Free cash flow has been forecast in a range of $180 million to $210 million, up from the earlier guidance of $160 million to $190 million.

Cooper is a global medical products company specializing in a wide range of contact lenses for the vision correction market. The worldwide contact lens market is poised for accelerated growth. User preferences are shifting from low-feature commodity lenses to more expensive single-use and specialty lenses including the higher oxygen permeable lenses (silicone hydrogels).

Higher lens prices, international expansion and increase in contact lens utilization rates in developed markets (given the declining drop-out rates) are expected to act as tailwinds.

However, Cooper faces significant competition across each of its product segments from well-established contact lens manufacturers such as Johnson & Johnson (NYSE:JNJ) and Novartis (NYSE:NVS). Depressed levels of consumer spending have exacerbated competitive pressures on the company.