Cyberonics Posts In-Line Q4 Earnings, Misses on Revs - Analyst Blog

Cyberonics Inc's CYBX fourth-quarter fiscal 2014 earnings per share EPS rose 19.6% year over year to 55 cents. However, results were in line with the Zacks Consensus Estimate. For the full year, adjusted EPS came in at $2.04, up 17.2% from the previous year.

Cyberonics' quarterly results seem to have successfully boosted market sentiments as the stock has gained 4.3% to date, following the earnings release on Jun 4.

Revenues increased 9.5% year over year to $74.8 million in the quarter, but missed the Zacks Consensus Estimate of $77 million. Growth was aided by solid U.S. net product sales and unit sales. Fiscal 2014 total revenue amounted to $282 million, an increase of 10.9% over the previous year.

Quarter in Detail

In the fourth quarter, worldwide unit sales increased 8.3% year over year to 3,723 units. On a geographic basis, Cyberonics recorded 3.7% growth in U.S. net product revenues to $58.2 million. International product revenues grew 36.5% at constant exchange rate with unit growth of 8.3%. Foreign exchange movements favorably impacted sales for the quarter by $400,000, calculated on a year-over-year basis.

The company witnessed healthy sales growth in Europe with excellent performance in the U.K., Germany, Italy and France. Among other international regions, performance in Latin America was also impressive. During the reported quarter, the company initiated a limited market launch of AspireSR generator in Europe, Eastern Mediterranean, Middle East and Africa.

Gross profit climbed 8.8% to $67.4 million in the quarter. However, gross margin contracted 61 basis points (bps) to 90.1%, impacted by the medical device tax and associated costs since Jan 1.

However, despite a 7.6% increase in selling, general and administrative expenses to $32.3 million and a 1.6% rise in research and development expenses to almost $11.7 million, adjusted operating margin expanded 134 bps to 31.3% in the reported quarter. Although Cyberonics' recorded higher expenditure due to product development activities, its focus on operating leverage supported the margin expansion.

The company exited the quarter with cash and cash equivalents and short-term investments of $128.3 million, compared with $135.8 million as of Apr 26, 2013. Cyberonics has no interest-bearing debt on its balance sheet. The company repurchased more than one million shares in fiscal 2014, including 190,000 in the reported quarter itself. It is now left with 740,000 shares under its current buyback program. This program is expected to be completed by the end of fiscal 2015.

Guidance

Cyberonics provided its fiscal 2015 guidance. The company envisages revenues in the range of $300­–$307 million, reflecting annualized growth of approximately 10% (after adjusting for the single country order of $4.7 million and license revenues of $1.5 million for fiscal 2014). The current Zacks Consensus Estimate of $306 million falls close to the higher end of the company's guidance. Cyberonics expects global unit growth of roughly 7%.

Fiscal 2015 EPS is expected in the range of $2.33 to $2.39.The current Zacks Consensus Estimate of $2.38 lies near the upper end of the guidance range. Gross profit is expected to be between 90% and 91%.

Our Take

Cyberonics reported mixed fourth-quarter results, with earnings on par with estimates and a top-line miss. Despite that, share price rallied following the robust growth trend over the past several quarters coupled with a healthy guidance that reflects management's optimism for the ongoing fiscal.

We are encouraged by Cyberonics' solid foothold in the epilepsy market and its international business trends. Even amid a tough macroeconomic backdrop, the company posted strong growth in Europe. Meanwhile, the company continues to reward shareholders with attractive share repurchases.

Currently, the stock carries a Zacks Rank #3 (Hold). Other Medical Instrument stocks such as Edwards Lifesciences Corp. EW, Globus Medical, Inc. GMED and Masimo Corporation MASI are also worth considering. All the three stocks hold a Zacks Rank #2 (Buy).