Thoratec Posts Mixed Bag

Heart devices maker Thoratec Corp’s (THOR) first-quarter fiscal 2011 adjusted (excluding one-time items other than stock-based compensation expenses) earnings per share of 31 cents beat the Zacks Consensus Estimate of 29 cents and exceeded the year-ago adjusted earnings of 27 cents.

Profit (as reported) from continuing operations zoomed 23% year over year to $16.5 million (or 27 cents per share), helped by lower costs. Results in the prior-year quarter exclude the contributions of Thoratec’s former International Technidyne Corporation (“ITC”) unit, which was divested in November 2010.

Revenue Analysis

Revenues were essentially flat year over year at $99.5 million, trailing the Zacks Consensus Estimate of $102 million. While revenues were supported by healthy contribution from the company’s North American operations.

Foreign exchange movements had an unfavorable impact of $0.5 million. Geographically, revenues from North America edged up 1.4% to $85.2 million, while international sales fell 6.5% to $14.3 million given soft market conditions.

The company’s HeartMate product line generated $87.3 million in sales, up 1.4% year over year. Revenues from the Thoratec product line dipped 17% to $7.3 million while CentriMag Blood Pump sales soared 19% to $4.4 million.

Pump revenues were $70.8 million in the quarter, up 1.9%, while non-pump sales fell 3.1% to $28.2 million. Ventricular Assist Device (“VAD”) units surged 13% sequentially in North America.

Margins

Gross margin improved to 70.1% from 68.2% a year ago, supported by  a favorable mix. Operating expenses fell 3.5% year over year to $42.7 million as expenses were higher in the year-ago quarter due to an acquisition. Operating margin increased to 27.2% from 23.6% in the prior-year quarter.

Balance Sheet

The company ended the quarter with cash and investments of $438 million, down 6.7% sequentially, reflecting cash used in share repurchases.

Outlook

Thoratec continues to expect revenues between $410 million and $425 million for fiscal 2011 with the adjusted earnings per share target remaining in the range of $1.35 to $1.45. Earnings per share (on a reported basis) are expected in the band of $1.02 to $1.12.

Gross margin (reported basis) has been projected in a range of 67.5% to 68.5% while operating expenses are forecast to increase 11%-15% year over year, reflecting the company’s sustained investment in product development and market expansion. The current Zacks Consensus Estimates for revenues and earnings per share for 2011 are $418 million and $1.23, respectively.

VAD represents a substantial market opportunity for Thoratec with a significant number of eligible heart failure patients globally. The company is benefiting from the rapid acceptance of HeartMate II on a global basis.

Thoratec ended the first quarter with 265 HeartMate II centers globally (including 142 in North America), up 4% sequentially. Favorable adoption trend of the device is expected to support revenue growth moving forward.

With HeartMate II, Thoratec enjoys a monopoly in the U.S. market having the only device of its kind for the destination therapy indication (for heart failure patients who are not eligible for heart transplants).

However, Australian heart pump maker HeartWare International (HTWR) is expected to close the technology gap with the launch of its next generation VAD product.  Moreover, future VAD adoption is difficult to predict and is contingent on the reimbursement policies of the Centers for Medicare and Medicaid Services (“CMS”).

HEARTWARE INTL (HTWR): Free Stock Analysis Report

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