CareFusion Earnings Call Insights: Contributions from Acquisitions and Procedural Solutions

CareFusion Corp (NYSE:CFN) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Contributions from Acquisitions

Unidentified Analyst: Thanks for taking the question. I guess first question I want to ask was just about the contribution from acquisitions, you did a small Brazilian deal, is that the kind of thing that we should be looking for you to do in terms of extending your footprint geographically, but kind of keeping it under the same umbrellas and any comments you can make on the performance in terms of quantifying that deal will be great.

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Kieran Gallahue – Chairman and CEO: Let me talk to – take the first part and then I’ll defer it over to Jim. So, the internet acquisition is a great example of types of deals we love and it was – it’s in a category in the respiratory space where we’re able to expand geographically, we’re able to get some technology. They’ve got a great team down there that is already interacting extremely well with our global R&D team, so we’re able to share technology and ideas and supply chain et cetera, and it gets us a footprint both from a manufacturing perspective and a distribution perspective in that in the developing markets that’s quite attractive to us. So, that is, I would call an example of a kind of transaction what we do, but I wouldn’t limit your thought process to that. We look at across our businesses, both business segments. We have opportunities in some cases to grow scale, we have opportunities to expand our product portfolio. We have opportunities to expand geographically. The good news is there is over the last couple of years we have been building this foundation for growth. Literally every month that goes by, this organization is better and better prepared to be able accepting acquisitions of different sizes, of different natures and the different geographies. And our success to-date in doing the seven or so acquisitions that we’ve done over the last 24 months has been quite good. We’ve had a very good success at learning how to integrate these acquisitions. How to take advantage of the management teams in a way to integrate them into the CareFusion team and in fact in some cases we’ve even done secondary acquisitions into the original. So we feel very comfortable with the progress we are making that category it’s a good example, but I wouldn’t limit yourself to thinking that as the only kind of acquisition we do.

Jim Hinrichs – CFO: Matt from a contribution standpoint relatively de minimis we closed on this acquisition midway through the quarter and as a result it was a couple of million bucks in the quarter maybe a slightly bigger impact in the future quarters just because we’ll have the full quarters there.

Unidentified Analyst: Then just on the revenues so obviously the biggest change here is some timing with dispensing, but it sounds like you are offsetting now with some strength in procedural care and maybe infusion coming in a little bit better? Is that the right way to think about it and also you called out flu as being a driver, was that a big driver we are also pretty small this quarter?

Kieran Gallahue – Chairman and CEO: So first off you are thinking about it exactly right. You hear our message loud and clear from a flu standpoint. We had a reasonable effect on a business that had been declining. So I would say overall for the corporation it’s not gigantic impact, but certainly for that business it had a meaningful impact and when we got them up into positive territories for the first time in a couple of years.

Procedural Solutions

Michael Weinstein – JPMorgan: Just wanted to touch on your confidence around maybe just two items. Obviously very strong performance in Procedural Solutions and I was hoping you could just spend a few more minutes on that and give your thoughts on sustainability and some of the drivers? And then what you described at Pyxis, could you just actually get into a little bit more detail to give us a sense of the sales process there and what that looks like in terms of why customers are waiting for it rather than just do the normal upgrade process? Why wait and how good is your visibility on what that pipeline looks like?

Kieran Gallahue – Chairman and CEO: I’d be glad to answer both those questions. So, first of all on the Procedural Solution side, the simple answer on sustainability is it is sustainable. If you look fundamentally what is going on in that business Vivek Jain and the team spent last year just doing lot of the hard work of integrating teams of setting up a more efficient sales structure, of creating a very effective and coordinated research and development team, of creating an organization that was communicating and acting in concert with one another and those fundamental elemental elements remain – in fact each day we go along I think they strengthened and they continue to improve. In addition there were some good work across the aisle if you will between the Procedural Solutions and Medical Systems businesses where there was better coordination on the way that we construct certain deals, where we get more pull-through in the process and that again is something that we expect to continue because we’ve got the processes and we’ve been shown why that works and why it’s in the self-interest of everybody in the organization do that. So, I think both those elements were very much foundation setting. We’re making good progress and I would fully expect them to continue. With your question on the Pyxis, yeah I mean it’s a good story when it comes down to. We’re introducing this ES platform and it is the first major platform change in 20 years in this business, and what you’ve seen with the prior generations, the latest one being the 4000, the 4000 itself is still an extremely competitive product. I’d put that product and product series against any product in the marketplace. And in fact if you look at the last quarter, and you look at our win loss ratio, we won far more accounts than we lost over the last quarter. So, I think that’s just a good example of sustainability of the 4000 platform. That being said, as we transition to the ES, we’ve really hit the mark with this thing, and it’s particularly important for hospitals that are becoming hospital systems, so where they are trying to manage pharmaceuticals across a number of different hospitals and they want visibility into that supply chain and to the movement of that and the safety factors inherent into that across the supply chain. And as we’re introducing it, we’re doing it in a very thoughtful way where the first drop of the ES doesn’t have all the functionality of the 20 year old platform on the 4000. It has a core element to it and then over the course of the number of months, building up to some really significant upgrades around the August time frame, you’re seeing increased functionality. As we hit each of those benchmarks, the new platform becomes even more relevant to the operations within certain hospitals. Right, so you get this increasing function ability – functionality and capability. So, what we’re finding with our customers is when they have started to see the ES in particular it started after ASHP in the December timeframe and with a lot of customer visits that we’ve had to our safety centers. They’ve seen the functionality of this ES and they love it. So what we are doing is they are expanding out their leases, so they are staying on the platform that they have today, they are staying on their Pyxis which is fine with us. We continue to get the cash flows et cetera and be able to support those customers and their needs. And they are saying as soon as you get that functionality in the ES that’s what I am waiting for, that’s what I am going to upgrade to, so we have got a lot of visibility and the reason we have the visibility is these customers are coming back to us and they are extending out their leases until that ES platform is right for them. So we feel real good about them.

Michael Weinstein – JPMorgan: So may be just Kieran, what is it that what’s the functionality that they are waiting for that’s not in kind of the early part of the roll out that they want to have in the system?

Kieran Gallahue – Chairman and CEO: It varies by customers in some cases its things like the ability to use barcode scanning when you are taking pharmaceuticals out of the system in some cases. It’s an integration with PHACTS that company that we acquired recently the seamless integration with that, that’s a drop that we are going to have this summer. So it’s really about managing the systems in the hospital. And that’s where customers are going, that’s what they expect and that’s what we can deliver.

Michael Weinstein – JPMorgan: Just one last question for Jim. You reiterated your share count guidance I assume that it’s in that (indiscernible) be buying back the stock and call it the last four five months of the year that you are originally planning over the course of the year?

Jim Hinrichs – CFO: Once we get our filings made our plan is to get back into the market mix.