Varian Medical Systems Inc. Earnings Cheat Sheet: Margins Suffer as Costs Rise, Profit Falls

S&P 500 (NYSE:SPY) component Varian Medical Systems Inc. (NYSE:VAR) reported its results for the fourth quarter. Varian Medical Systems manufactures, designs, services and sells equipment and software products for treating cancer with radiotherapy, stereotactic radiosurgery and brachytherapy.

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Varian Medical Systems Earnings Cheat Sheet for the Fourth Quarter

Results: Net income for the medical appliances and equipment company fell to $100.7 million (95 cents per share) vs. $105 million (87 cents per share) a year earlier. This is a decline of 4.1% from the year earlier quarter.

Revenue: Rose 10.3% to $719 million from the year earlier quarter.

Actual vs. Wall St. Expectations: VAR reported adjusted net income of 87 cents per share. By that measure, the company fell short of mean estimate of 97 cents per share. Analysts were expecting revenue of $730.9 million.

Quoting Management: “Our core businesses in Oncology Systems and X-Ray Products ended the fiscal year on a solid footing with healthy growth in their revenues, net orders and backlogs,” said Tim Guertin, president and CEO of Varian Medical Systems. “Our Varian Particle Therapy business booked a proton therapy equipment order in the quarter. Profit margins were down moderately for the quarter as we began to book revenue for the proton project. Compared to fiscal 2010, the company’s 2011 gross margin increased and the operating margin was flat.” The company ended the fiscal year with $564 million in cash and cash equivalents and $198 million of debt.”

Key Stats:

Last quarter’s profit decrease breaks a streak of four consecutive quarters of year-over-year profit increases. In the third quarter, net income rose 15.3% from the year earlier, while the figure increased 13.1% in the second quarter, 22.5% in the first quarter and 8.2% in the fourth quarter of the last fiscal year.

Gross margin shrank 0.6 percentage point to 41.8%. The contraction appeared to be driven by increased costs, which rose 11.4% from the year earlier quarter while revenue rose 10.3%.

Revenue has risen the past four quarters. Revenue increased 12.3% to $649.4 million in the third quarter. The figure rose 10.7% in the second quarter from the year earlier and climbed 7.2% in the first quarter from the year-ago quarter.

The company fell short of estimates last quarter after being in line with expecations the quarter before with net income of 83 cents.

Looking Forward: For next quarter, analysts have a more positive outlook about the company’s expected results. The average estimate for the first quarter of the next fiscal year is 89 cents per share, up from 88 cents ninety days ago. For the fiscal year, the average estimate has moved down from $3.47 a share to $3.45 over the last ninety days.

Competitors to Watch: Accuray Incorporated (NASDAQ:ARAY), TomoTherapy Incorporated (NASDAQ:TOMO), North American Scientific, Inc. (NASMQ), Hologic, Inc. (NASDAQ:HOLX), Theragenics Corporation (NYSE:TGX), BSD Medical Corporation (NASDAQ:BSDM), iCAD, INC. (NASDAQ:ICAD), DGT Holding corp (DGTCD), IsoRay, Inc. (AMEX:ISR), and General Electric Company (NYSE:GE).

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(Source: Xignite Financials)