Varian Medical Systems (VAR) is slated to report second-quarter fiscal 2012 results on Wednesday, April 25. The current Zacks Consensus Estimate for the second quarter is 96 cents, representing an estimated year-over-year growth of 11.73%.
First Quarter Recap
Varian reported first quarter earnings per share from continuing operations 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).
Varian's top line witnessed an 8% increase to $625 million in the quarter, but trailed the Zacks Consensus Estimate of $633 million. Order backlog increased 14% to $2.5 billion at the end of the reported quarter.
Oncology Systems' revenues grew 8% year over year to $488 million. Varian benefited from strong demand for its TrueBeam 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. Net orders from overseas markets constituted 60% of net orders received during the first quarter.
Varian's X-Ray Products business had a lukewarm quarter with revenues moving up just 1% year over year to $113 million. Sales in the "Other" category spiked 56.3% year over year to $25 million. Sales were driven by revenues from the setting up of the Scripps proton system.
Estimate Revision Trend
Agreement
Among the 11 analysts covering the stock, there were no estimate revisions, for the current quarter, over the past week. There was one instance of revision, in the downward direction, over the past month.
Of the 11 analysts, there were again no upward estimate revisions, for fiscal 2012, over the past 7 and 30 days. There was only 1 instance of a downward revision, for fiscal 2012, over the past month. The current Zacks Consensus Estimate for fiscal year 2012 is $3.95, reflecting an estimated 14.85% year-over-year growth.
Magnitude
Given the relative shortage of estimate revisions, the magnitude of revision for the second quarter has been static over the last week and month. The consensus estimate for fiscal 2012 has remained stagnant over the past week and dipped by a penny in the past month.
Varian has produced positive surprises in two of the previous four quarters while it met or trailed estimates in the remaining two quarters. We expect that a similar mixed trend might continue. The company produced an average earnings surprise of 1.02% over the prior four quarters, meaning that it beat the Zacks Consensus Estimate by that measure.
Our Take
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 (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 Neutral long-term rating on Varian supported by a short-term Zacks #3 Rank (Hold).
