CareFusion Q1 2011 Earnings Call Transcript

CareFusion (CFN)

Q1 2011 Earnings Call

November 02, 2010 8:00 am ET

Executives

Carol Cox - SVP, IR

Dwight Winstead - Chief Operating Officer

David Schlotterbeck - Chairman and Chief Executive Officer

Edward Borkowski - Chief Financial Officer

Analysts

Nikhil Hanmantgad

David Turkaly - Susquehanna Financial Group, LLLP

Michael Weinstein - JP Morgan Chase & Co

Kristen Stewart - Credit Suisse

Ben Andrew - William Blair & Company L.L.C.

Frederick Wise - Leerink Swann LLC

David Lewis - Morgan Stanley

Thomas Kouchoukos - Stifel, Nicolaus & Co., Inc.

Lennox Ketner - BofA Merrill Lynch

Amit Bhalla - Citigroup Inc

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the First Quarter 2011 CareFusion Earnings Conference Call. My name is Stephanie, and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Ms. Carol Cox, Vice President, Investor Relations. Please proceed.

Carol Cox

Thank you, Bethany, and good morning, everyone. Thank you for joining us on today's call as we provide an overview of CareFusion's results for the three months ended September 30, 2010, and provide an update to our guidance for fiscal 2011.

Our press release was issued this morning at 7:00 a.m. Eastern Time and posted on our website at www.carefusion.com, and filed on Form 8-K with the Securities and Exchange Commission. We also filed and posted several slides to accompany today's webcast, which may be found on the Investor Relations homepage with the earnings materials. While we will not review each slide on today's call, these slides should be used as a reference guide by investors. The slides include comparisons of the results for the three months ended September 30, 2010, to the prior year period, as well as financial outlook for full year fiscal 2011 and definitions of our non-GAAP items and reconciliations to GAAP.

Joining me on today's call are Dave Schlotterbeck, our CEO; Ed Borkowski, our Chief Financial Officer; and Dwight Winstead, our Chief Operating Officer. Before I turn the call over, I'd like to make a few remarks.

In today's call, we will be presenting our results on a GAAP and an adjusted basis. Our adjusted results exclude restructuring and acquisition, integration charges, nonrecurring spinoff-related costs, nonrecurring tax items and discontinuing operations. We believe that adjusted financial measures can facilitate a more complete analysis and greater transparency into CareFusion's ongoing results of operations, particularly in comparing underlying results from period to period. Our management team utilizes adjusted financial measures internally in financial planning to monitor business unit performance and in evaluating management performance. We've included reconciliations of these non-GAAP measures with today's release.

I would like to remind investors that during today's call, we will be making statements that are essentially forward-looking and consequently are subject to risks and uncertainties. Examples of these statements include statements regarding our fiscal '11 guidance; our expectations regarding hospital capital spending; expectations related to our restructuring program, including anticipated timing, costs and expected savings; our expectations regarding acquisitions and divestitures and statements regarding business and revenue growth and anticipated foreign fluctuations, as well as any other statements regarding matters that are not historical facts.

You should be aware that certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward-looking statements. Such factors include the risk factors set forth in this morning's press release and those set forth in our Form 10-K and our other filings with the SEC. We urge you to consider these factors, and remind you that we undertake no obligation to update the information contained on this call to reflect subsequent events or circumstances.

With that, I will turn the call over to Dave.

David Schlotterbeck

Thanks, Carol. Let me start by talking about our results in the quarter and then make comments about my planned retirement. Overall, I'm pleased with our performance during the first quarter. Our earnings were in line with our expectations and highlighted a strong quarter for the Infusion, Dispensing, Infection Prevention and Medical Specialties businesses.

These businesses all saw continued momentum from the fourth quarter, giving me confidence to reaffirm our revenue and EPS guidance for the year. With an adjusted EPS for Q1 of $0.30, we are on track with the full year guidance we provided in August of $1.58 to $1.68 and 11% to 18% year-over-year increase, as we indicated when we reported our Q4 results. Earnings were projected to decline in the first quarter due to the strong Q1 we had last year, where we shipped an unusually large amount of infusion pumps following a ship hold and had strong Respiratory sales associated with H1N1.

We continue to expect revenue growth in the mid-single-digit range we provided in August. We overcame nearly all of the $60 million in benefit we saw in the first quarter of last year from H1N1 and our Alaris System coming off a ship hold. Our Respiratory revenue was lighter than we anticipated. We expect this impact through the remainder of the year will be offset by strength in our other businesses and upside to our budgeted foreign currency rates.

Let me take a minute to discuss the factors that affected Respiratory sales during the quarter. Coming off a record year due to H1N1, many hospitals had adequate capital equipment to meet their needs. This was complicated by an overall lower census, including the lowest birthrate in 100 years, according to recent CDC data, and a mild start to the flu season. This combination of what we now understand to include forward buying by our customers during the last fiscal year and lower admissions to start this fiscal year led the softness in Respiratory capital sales and associated disposables.

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