The Cooper Companies Reports Second Quarter 2004 Results: Revenue $120.6 Million, Ahead 25% -- 18% in Constant Currency; EPS 64 Cents, Up 33%
The Cooper Companies Reports Second Quarter 2004 Results: Revenue $120.6 Million, Ahead 25% -- 18% in Constant Currency; EPS 64 Cents, Up 33%
Second Quarter Highlights
- Revenue $120.6 million, 25% above the second quarter of 2003, 18% in constant currency.
- Operating income $27.8 million, 32% above the second quarter of 2003.
- EPS 64 cents versus 48 cents, up 33%; trailing twelve months $2.40.
- Cash flow (income before income taxes plus depreciation and amortization) per share 93 cents, up from 73 cents in the second quarter of 2003; trailing twelve months $3.53.
Revenue and Earnings Per Share Guidance
- Cooper now expects fiscal 2004 revenue of $483 million to $493
million, assuming no major changes in exchange rates, and
earnings per share of $2.55 to $2.58. The previous fiscal 2004
guidance was revenue of $480 million to $490 million and earnings
per share of $2.51 to $2.54. The revised guidance assumes an
effective tax rate or ETR (provision for taxes divided by income
before taxes) of 22%, down from 23% in the last guidance Cooper
issued.
Expecting continued strong worldwide sales of specialty contact lenses, CooperVision (CVI) anticipates fiscal 2004 revenue of $383 million to $390 million, assuming no major changes in exchange rates. CooperSurgical (CSI), the Company's women's healthcare medical device business, expects revenue of $100 million to $103 million for fiscal 2004. - For the third fiscal quarter, Cooper expects revenue of $123 million to $128 million--$98 million to $101 million for CVI and $25 million to $27 million for CSI--with earnings per share of 66 cents to 68 cents. Cooper has not previously issued third quarter guidance.
- For fiscal 2005, Cooper now expects revenue of $550 million to $558 million and earnings per share of $3.02 to $3.07 with a 21% effective tax rate. This guidance assumes that Cooper's $115 million of convertible debt reaches its conversion share price resulting in dilution of about 1 cent per share per quarter as shares outstanding increase. Previous guidance was revenue of $535 million to $550 million and earnings per share of $2.97 to $3.04 with a 22% ETR.
Operating Income Highlights ($'s in millions)
---------------------------------------------
Three Months Ended April 30,
-----------------------------------------------------------
Revenue Operating Income
---------------------- -----------------------------------
% Revenue
-----------
2004 2003 % Inc. 2004 2003 % Inc. 2004 2003
------ ------ ------ ------ ------ ------ ---- ----
CVI $ 95.1 $ 78.1 22% $ 25.8 $ 20.2 28% 27% 26%
CSI 25.5 18.3 39% 4.6 4.0 16% 18% 22%
----- ---- ---- ----
Subtotal 120.6 96.4 25% 30.4 24.2 26% 25% 25%
Corporate
expense -- -- -- (2.6) (3.0) -- -- --
----- ---- ---- ----
Total $120.6 $ 96.4 25% $ 27.8 $ 21.2 32% 23% 22%
===== ==== ==== ====
Six Months Ended April 30,
-----------------------------------------------------------
Revenue Operating Income
---------------------- -----------------------------------
% Revenue
-----------
2004 2003 % Inc. 2004 2003 % Inc. 2004 2003
------ ------ ------ ------ ------ ------ ---- ----
CVI $182.1 $150.9 21% $ 48.4 $ 38.5 26% 27% 26%
CSI 48.2 39.5 22% 10.0 7.9 28% 21% 20%
----- ----- ---- ----
Subtotal 230.3 190.4 21% 58.4 46.4 26% 25% 24%
Corporate
expense -- -- -- (5.7) (5.4) -- -- --
----- ----- ---- ----
Total $230.3 $190.4 21% $ 52.7 $ 41.0 29% 23% 22%
===== ===== ==== ====
Second Quarter 2004 Revenue and Expense Summary
Cooper's second quarter revenue of $120.6 million was 25% above last year's second quarter, 18% in constant currency. Gross margin was 65% in both periods.
Selling, general and administrative expense grew 23% and was 41% of revenue, the same as in last year's second quarter. Corporate expense decreased to $2.6 million, down 17% from the previous quarter, and down 13% from the second quarter of 2003, as expenses to maintain Cooper's global trading arrangement declined.
Operating income grew 32% and improved to 23% of revenue versus 22% in last year's second quarter. Total operating expenses were 42% of revenue, down from 43% in last year's second quarter.
Currency fluctuations did not significantly impact operating income in the quarter. Because CVI manufactures the majority of its lenses in the United Kingdom with costs denominated in pounds sterling and CSI imports some of its products from Europe and Canada, the unfavorable currency translation of manufacturing and operating costs tends to offset the currency gains on overseas revenue.
Income before taxes grew 36%, including income from the sale of securities partially offset by several smaller nonrecurring transactions. Interest expense fell 12%, reflecting both a general decrease in interest rates and the Company's refinancing of part of its higher interest debt.
Because accounting principles generally accepted in the United States require the projected fiscal year ETR to be used when reporting year-to-date results, the ETR decreased to reflect the favorable shift of business through jurisdictions with lower tax rates. This resulted in a 21% ETR in the second quarter. Cooper now expects that the ETR for 2004 will be 22%, down from the 23% reported in its first quarter results and 25% used for the second quarter of 2003.
Compared to the second quarter of 2003, the number of shares used to calculate diluted earnings per share increased 7% to 33.9 million shares.
Without the contribution of the cumulative catch-up for the year-to-date lower ETR and nonrecurring items, second quarter earnings per share would have been 62 cents.
Second Quarter 2004 Business Unit Operating Summaries
($'s in millions)
-----------------------------------------------------
CooperVision CooperSurgical
----------------------- -----------------------
% chg % chg
2004 % Rev vs 2003 2004 % Rev vs 2003
----- ----- ------- ----- ----- -------
Net sales $95.1 100% 22% $25.5 100% 39%
Cost of sales 30.8 32% 21% 11.4 45% 34%
----- -----
Gross profit 64.3 68% 22% 14.1 55% 44%
SG&A 37.6 40% 20% 8.7 34% 67%
R&D and
amortization 0.9 1% (18)% 0.8 3% 37%
----- -----
Total operating
expense 38.5 41% 18% 9.5 37% 64%
----- -----
Operating
income $25.8 27% 28% $ 4.6 18% 16%
===== =====
Balance Sheet and Cash Flow Highlights
- At the end of the second fiscal quarter, Cooper's days sales
outstanding (DSO) decreased to 61 days from 71 days a year ago
due to improved collection of CVI international receivables and
the strengthening of the U.S. dollar in April. Cooper expects
future DSO to generally be in the upper 60's to low 70's.
- Inventory months on hand was 7.3 months at the end of the quarter
versus 7.2 months in last year's second quarter, and 7.5 months
at the end of this year's first quarter.
- Capital expenditures were $12.4 million in the quarter, primarily
to expand manufacturing capacity and continue the rollout of new
information systems in selected locations. Cooper expects capital
expenditures in fiscal 2004 of $40 million to $45 million as it
doubles its U.K. manufacturing capacity to meet increasing demand
especially during a favorable cost of capital environment.
- Depreciation and amortization was $3.9 million for the quarter.
CooperVision
"In our second quarter, CVI continued to grow faster than both the worldwide contact lens market and our competitors' results reported for the first calendar quarter," said A. Thomas Bender, Cooper's chief executive officer.
"Our specialty lens franchise-toric, cosmetic, and multifocal lenses and lenses to alleviate dry eye symptoms-continues to gain momentum, while our value-added monthly disposable spherical and aspherical products continue to capture market share from two-week commodity disposable spherical lenses. The Proclear product lines grew 41% and now represent more than 20% of CVI's worldwide business.
"CVI's global toric revenue, about 40% of our soft contact lens business, grew 24% in the quarter and 26% year to date. We believe that during the quarter we increased our market share in each geographic area where we compete.
"The market remains strong. During the first calendar quarter, contact lens revenue worldwide reported by the five leading contact lens manufacturers grew 17%-9% in constant currency-and increased 9% in the United States according to independent market research data."
CVI's operating margin in the second quarter was 27% versus 26% in last year's second quarter.
Second Quarter and Year-To-Date CooperVision Worldwide Highlights
- CVI's worldwide revenue of $95.1 million grew 22% over last year's second quarter--14% in constant currency--and is 21% ahead for the year--13% in constant currency.
- CVI's specialty lenses--toric, cosmetic, multifocal lenses and lenses to alleviate dry eye symptoms--grew 26% in the second quarter and accounted for nearly two-thirds of its soft lens business. Year to date, specialty lens revenue is ahead 27%.
- Sales of toric lenses, which correct astigmatism, increased 24% in the second quarter and accounted for about 40% of CVI's contact lens revenue. Year to date, toric products are up 26%. All disposable toric products, the fastest growing toric lenses, grew 54% in the quarter and now represent about 70% of CVI's worldwide toric sales.
Second Quarter and Year-To-Date Geographic Revenue Highlights
- In the United States, CVI's revenue, 47% of its business, grew 11% and is 14% ahead year to date. Revenue outside of the United States grew 33% in the second quarter and 27% year to date.
- European revenue, about 37% of CVI's total revenue, grew 35% in the second quarter and is 29% ahead for the six-month period.
- Asia-Pacific revenue grew 29% and now represents 5% of CVI's worldwide business. Year to date, Asia-Pacific sales are 22% ahead of last year.
- Revenue in all other markets outside the United States, about 10% of CVI's revenue, grew 29% and is 23% ahead year to date.
CVI New Products
During the second quarter, CVI introduced its two-week disposable toric lens in Japan and Proclear disposable multifocal in major European markets. The Proclear multifocal launch in North American is scheduled in the second half of fiscal 2004.
CVI Second Quarter Expense Highlights
CVI's gross margin was 68% of revenue compared to 67% in the prior year's second quarter. Because CVI manufactures the majority of its lenses in the United Kingdom, the favorable impact of currency on revenue tends to be offset by the unfavorable translation of manufacturing and operating costs outside the United States. The effect of currency on operating income in the quarter was not significant.
CVI's SG&A expense grew 20% during the quarter compared to revenue growth of 22%.
Opti-Centre Acquisition
During the quarter, Cooper acquired all the outstanding shares of Les Laboratoires Opti-Centre, Inc., a Quebec based contact lens manufacturer which holds the patents covering CooperVision's multifocal lens design technology used in its Frequency and Proclear multifocal products. Cooper paid about $11.5 million cash for Opti-Centre which, in addition to royalties from CooperVision, had 2003 revenue of about $1.5 million from sales of contact lenses in Canada.
CooperSurgical
Revenue at CSI, Cooper's women's healthcare medical device business, grew 39% over last year's second quarter to $25.5 million with organic growth of 4%. CSI's operating margin was 18% for the quarter, down from 22% in the second quarter of 2003, reflecting integration expenses of two recent acquisitions - SURx and Milex - and increased marketing expenditures.
CSI plans to increase marketing expenses over the next 12 to 18 months for programs designed to increase the organic growth of its business. These programs will focus on CSI's products in the incontinence, infertility and female sterilization markets using its restructured sales force of 175 independent and direct sales representatives.
Earnings Per Share
All per share amounts in this news release refer to diluted per share amounts.
Non-GAAP Financial Measures
In this news release, we report Cooper's "cash flow per share" as 93 cents for the second quarter of fiscal 2004, 73 cents for the second quarter of 2003 and $3.53 for the 12 months ended April 30, 2004.
Although "cash flow per share" is a non-GAAP financial measure, we disclose it because we think it is the most appropriate measure of our liquidity and financial strength, particularly when calculated consistently over time.
In Cooper's case, cash flow per share is more informative than the more common non-GAAP measure of liquidity called "earnings before interest, taxes, depreciation and amortization" (EBITDA) because unlike most companies, Cooper does not expect to pay federal income taxes until about 2007, when we expect to exhaust the usage of our U.S. net operating loss carryforwards. Cooper has a significant competitive advantage, as most companies expend a large portion of their pretax profits on taxes. Readers should understand this and judge our financial strength accordingly.
To calculate "cash flow per share," we add back non-cash charges for depreciation and amortization to income before income taxes, and then divide the result by the average number of shares used to calculate diluted earnings per share. In the tables below, we reconcile earnings per share (the closest GAAP disclosure) to "cash flow per share" for all periods reported using the same diluted per share figures.
I. For the Three Months Ended April 30,
----------------------------------------
2004 2003
---------------------- ----------------------
$(000) Per Share $(000) Per Share
----------- --------- ----------- ---------
Net income $ 21,699 $0.64 $ 15,211 $0.48
===== =====
Add:
Income taxes 5,818 5,071
Depreciation 3,475 2,578
Amortization 463 399
---------- ----------
"Cash flow" $ 31,455 $0.93 $ 23,259 $0.73
========== ===== ========== =====
Shares (000) 33,931 31,789
========== ==========
II. For the Six Months Ended April 30,
---------------------------------------
2004 2003
---------------------- ----------------------
$(000) Per Share $(000) Per Share
----------- --------- ----------- ---------
Net income $ 40,054 $1.19 $ 29,066 $0.92
===== =====
Add:
Income taxes 11,301 9,689
Depreciation 6,719 5,193
Amortization 808 755
---------- ----------
"Cash flow" $ 58,882 $1.75 $ 44,703 $1.41
========== ===== ========== =====
Shares (000) 33,742 31,696
========== ==========
III. For the Twelve Months Ended April 30, 2004
------------------------------------------------
$(000) Per Share
----------- ---------
Year ended
October 31, 2003:
Net income $ 68,770 $2.13
=====
Add:
Income taxes 21,717
Depreciation 10,990
Amortization 1,535
----------
"Cash flow" $ 103,012 $3.19
==========
Shares (000) 32,274
==========
Plus (minus)
six months ended April 30:
2004 1.75
2003 (1.41)
-----
"Cash flow" per share for
the 12 months ended
April 30, 2004 $3.53
=====
Forward-Looking Statements
This news release contains "forward-looking statements" as defined by the Private Securities Litigation Reform Act of 1995. These include certain statements about our capital resources, performance and results of operations. In addition, all statements regarding anticipated growth in our revenue, anticipated market conditions, planned product launches and results of operations are forward-looking. To identify these statements look for words like "believes," "expects," "may," "will," "should," "seeks," "intends," "plans," "estimates" or "anticipates" and similar words or phrases. Discussions of strategy, plans or intentions often contain forward-looking statements. Forward-looking statements necessarily depend on assumptions, data or methods that may be incorrect or imprecise.
Events, among others, that could cause actual results and future actions to differ materially from those described in forward-looking statements include major changes in business conditions, a major disruption in the operations of our manufacturing facilities, new competitors or technologies, significant delays in new product introductions, the impact of an undetected virus on our computer systems, acquisition integration delays or costs, increases in interest rates, foreign currency exchange exposure, investments in research and development and other start-up projects, dilution to earnings per share from acquisitions or issuing stock, worldwide regulatory issues, including product recalls and the effect of healthcare reform legislation, cost of complying with new corporate governance requirements, changes in tax laws or their interpretation, changes in geographic profit mix effecting tax rates, significant environmental cleanup costs above those already accrued, litigation costs including any related settlements or judgments, cost of business divestitures, the requirement to provide for a significant liability or to write off a significant asset, including impaired goodwill, changes in accounting principles or estimates, including the potential cost of expensing stock options, and other events described in our Securities and Exchange Commission filings, including the "Business" section in our Annual Report on Form 10-K for the year ended October 31, 2003. We caution investors that forward-looking statements reflect our analysis only on their stated date. We disclaim any intent to update them except as required by law.
Conference Call
The Cooper Companies will hold a conference call to discuss its second quarter results today at 2 p.m. Pacific Daylight Time. To access the live call in the United States, dial 1-888-482-0024. From outside the U.S. call, 1-617-801-9702. A replay will be available at 1-888-286-8010 approximately one hour after the call ends and remain available for five days. This call will also be broadcast live on The Cooper Companies' Web site, www.coopercos.com and at www.bestcalls.com and www.streetevents.com.
Corporate Information
The Cooper Companies, Inc. manufactures and markets specialty healthcare products through its CooperVision and CooperSurgical units. Corporate offices are in Lake Forest and Pleasanton, Calif. The World Wide Web address is www.coopercos.com. A toll free interactive telephone system at 1-800-334-1986 provides stock quotes, recent press releases and financial data.
CooperVision manufacturers and markets contact lenses and ophthalmic surgery products. Headquartered in Lake Forest, Calif., it manufactures in Huntington Beach, Calif., Rochester, N.Y., Norfolk, Va., Adelaide, Australia, Hamble, England, Madrid, Spain and Toronto. Its Web address is www.coopervision.com.
CooperSurgical manufactures and markets diagnostic products, surgical instruments and accessories to the women's healthcare market. With headquarters and manufacturing facilities in Trumbull, Conn., it also manufactures in Pasadena, Calif., North Normandy, Ill., Fort Atkinson, Wis., Malmo, Sweden, Montreal and Berlin. Its Web address is www.coopersurgical.com.
Proclear® and Frequency® are registered trademarks of The Cooper Companies, Inc. and its subsidiaries or affiliates and are italicized in this news release.
FINANCIAL STATEMENTS FOLLOW
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Income
-------------------------------------------
(In thousands, except earnings per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
April 30, April 30,
------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net sales $120,552 $ 96,368 $230,286 $190,382
Cost of sales 42,167 33,948 81,945 68,595
-------- -------- -------- --------
Gross profit 78,385 62,420 148,341 121,787
Selling, general
and administrative
expense 48,877 39,590 92,114 77,467
Research and
development expense 1,222 1,279 2,747 2,594
Amortization of
intangibles 463 399 808 755
-------- -------- -------- --------
Operating income 27,823 21,152 52,672 40,971
Interest expense 1,488 1,688 2,979 3,512
Other income, net 1,182 818 1,662 1,296
-------- -------- -------- --------
Income before income
taxes 27,517 20,282 51,355 38,755
Provision for income
taxes 5,818 5,071 11,301 9,689
-------- -------- -------- --------
Net income $ 21,699 $ 15,211 $ 40,054 $ 29,066
======== ======== ======== ========
Diluted earnings
per share $ 0.64 $ 0.48 $ 1.19 $ 0.92
======== ======== ======== ========
Number of shares used
to compute diluted
earnings per share 33,931 31,789 33,742 31,696
======== ======== ======== ========
THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
-------------------------------------
(In thousands)
(Unaudited)
April 30, October 31,
2004 2003
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 20,731 $ 47,433
Trade receivables, net 84,682 84,607
Marketable securities 2,372 5,746
Inventories 103,266 89,718
Deferred tax asset 20,381 14,616
Other current assets 22,819 22,104
-------- --------
Total current assets 254,251 264,224
-------- --------
Property, plant and equipment, net 138,776 116,277
Goodwill 308,448 282,634
Other intangibles, net 26,417 15,888
Deferred tax asset 12,667 22,367
Other assets 4,194 4,174
-------- --------
$744,753 $705,564
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 23,877 $ 20,658
Other current liabilities 89,591 97,656
-------- --------
Total current liabilities 113,468 118,314
Long-term debt 154,872 165,203
-------- --------
Total liabilities 268,340 283,517
Stockholders' equity 476,413 422,047
-------- --------
$744,753 $705,564
======== ========
CONTACT:
The Cooper Companies, Inc., Lake Forest, CA
Norris Battin
ir@coopercompanies.com
888-822-2660