CareFusion's CEO Discusses Q3 2012 Results - Earnings Call Transcript

CareFusion (CFN)

Q3 2012 Earnings Call

May 03, 2012 5:00 pm ET


Jim Mazzola - Senior Vice President of Global Marketing and Communication

Kieran T. Gallahue - Chairman and Chief Executive Officer

James F. Hinrichs - Chief Financial Officer


Lennox Ketner - BofA Merrill Lynch, Research Division

David R. Lewis - Morgan Stanley, Research Division

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Jonathan J. Palmer - Credit Agricole Securities (USA) Inc., Research Division

Joanne K. Wuensch - BMO Capital Markets U.S.

Rajeev Jashnani - UBS Investment Bank, Research Division

Matthew Taylor - Barclays Capital, Research Division

Kristen M. Stewart - Deutsche Bank AG, Research Division

Topher Orr - Goldman Sachs Group Inc., Research Division



Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 CareFusion Corporation Earnings Conference Call. My name is Melanie, and I'll be your coordinator today. [Operator Instructions] As a reminder, today's meeting will be recorded. I would now like to turn the call over to Mr. Jim Mazzola, Senior Vice President of Investor Relations. Please proceed.

Jim Mazzola

Okay, thanks. And thanks, everyone, for joining us on today's call as we discuss CareFusion's results for our third quarter, ended March 31. We issued a news release about an hour ago with our financial results, which is posted on our website at 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 with our earnings materials. While we won't review each slide on today's call, they can be used as a reference with the comparisons of our results to prior year period, a financial outlook for fiscal 2012 and definitions of our non-GAAP items with reconciliation to their GAAP equivalent.

During today's call, we will discuss some of these non-GAAP financial measures, including results on an adjusted basis. We believe these 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.

Joining me on today's call are Kieran Gallahue, our Chairman and CEO; and Jim Hinrichs, our CFO.

Before I turn the call over to Kieran, I'd like to remind you that during today's call, we will be making forward-looking statements. Our actual results could differ materially from those expressed in our forward-looking statements due to the risks and uncertainties, including the risk factors set forth in today's release and our filings with the SEC. We ask that you please refer to these materials for a more detailed explanation of the inherent limitations of such forward-looking statements.

With that, I'll now turn the call over to Kieran.

Kieran T. Gallahue

Great. Well, thanks, Jim. Good afternoon, and thanks for joining our Q3 call. Our global team executed well on the third quarter, delivering strong financial results as we continue to make investments in our future. We are operating the business with balance, becoming more efficient through our efforts to reduce complexity as we channel resources towards investments in longer-term growth. Jim and I will be talking more about the progress we are making on today's call.

So, let me start with our third quarter results. As I said, our team executed well, delivering a strong quarter of 9% growth on the top line and 19% growth in adjusted income from continuing operations. In particular, Medical Systems segment had another standout quarter. Revenue in this segment increased 19%, and adjusted segment profit rose 21%, with each of our 3 businesses in this segment delivering double-digit revenue growth.

There are multiple highlights that collectively reflect a clear strategy, disciplined execution and the strong value we are creating for customers across these businesses.

In Dispensing, our largest business, our team efficiently installed to our Q3 plan and then did a great job working ahead on Q4 installs. With a healthy backlog and large ramp planned in the back half of the year, we did a nice job balancing our install capacity by working ahead during our historically slower Q3. We won't always be able to do this, but when we have the customers ready to install earlier than scheduled, it is more efficient for us to use our resources and avoid the hockey stick we typically see in the fourth quarter.

Our Dispensing customers continue to upgrade at high rate during the quarter, and our new Pyxis ES platform continued to win favorable reviews. We closed on our acquisition of Phacts in April, which further differentiates the end medication management offering we deliver for customers, with new software and analytics capabilities.

This systems approach, pairing hardware, software and services to deliver a more complete and higher-value system for customers, is essential to our bricks-and-mortar strategy and a theme you'll see across our Medical Systems segment. We are pleased to have Phacts as part of CareFusion.

Outside the U.S., our Rowa acquisition continued to perform well and contributed $19 million in revenue during the quarter. With one quarter left in the fiscal year, we now expect Rowa to do better than the $60 million to $65 million in revenue we projected for the year.

Moving on to Infusion. We continue to install the large volume of Alaris infusion pumps we've previously discussed. Jim will talk about our progress in more detail, but this business performed as we expected and is on track for the year. We saw the anticipated volume increases and the associated pressure on gross margin, which will moderate as we enter fiscal '13. We also saw another quarter of disciplined pricing on the sale of new systems.

In Respiratory Technologies, I spoke last quarter about encouraging improvement, a trend that continued into Q3. Our growth came from solid single-digit increases in acute care hospitals and a significant contribution from a government order that we expect will continue to ship through March of next year. This business is benefiting from fresh leadership, with a new focus on the systems approach that I mentioned earlier. Our customers increasingly require the software, services and connectivity to their HIT systems that deliver actionable information or actionable intelligence, as we call it. CareFusion is uniquely qualified to provide this capability.

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