CareFusion Management Discusses Q4 2012 Results - Earnings Call Transcript

CareFusion (CFN)

Q4 2012 Earnings Call

August 09, 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


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

Kimberly Weeks Gailun - JP Morgan Chase & Co, Research Division

Matthew Taylor - Barclays Capital, Research Division

Amit Bhalla - Citigroup Inc, Research Division

Rajeev Jashnani - UBS Investment Bank, Research Division

Lennox Ketner - BofA Merrill Lynch, Research Division

David R. Lewis - Morgan Stanley, Research Division

David H. Roman - Goldman Sachs Group Inc., Research Division



Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 CareFusion Corporation Earnings Conference Call. My name is Tahisha, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Jim Mazzola, Head of Investor Relations. Please proceed.

Jim Mazzola

Great. Thanks, Tahisha, and welcome, everyone. On today's call, Kieran and Jim are going to discuss CareFusion's results for our fourth quarter ended June 30, and we will provide guidance for fiscal 2013. We'll also discuss our long-term outlook through fiscal 2015.

We issued today 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 SEC. We also filed and posted several slides to accompany today's webcast, which may be found on the Investor homepage with our earnings materials. While we will not review each slide on today's call, they can be used as a reference and include definitions that are 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 our ongoing results of operations, particularly in comparing underlying results from period to period.

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, including statements about our FY'13 guidance. Our actual results could differ materially from those expressed in our forward-looking statements due to risks and uncertainties, including the risk factors set forth in today's news release and our filings with the SEC. Please refer to these materials for a more detailed explanation of the inherent limitations of such forward-looking statements.

And with that, I'll turn the call over to Kieran.

Kieran T. Gallahue

Thanks, Jim. Good afternoon, and thanks for joining us. Our team executed well in the fourth quarter, delivering a strong finish to an important year of transition for us.

Our revenue and cash flow results for the year were at the top end of our guidance range, and adjusted earnings per share and adjusted operating margins were right in line with the expectation we set during the past 2 quarters.

I'm pleased with the trend in operating margins, which increased sequentially each quarter during the fiscal year.

For the fourth quarter, revenue rose 3% to $968 million, led by our Medical Systems segment. Each business in Medical Systems had a record or near-record performance in the quarter, contributing to an increase in adjusted segment profit of nearly 16% to $151 million.

We continue to make substantial investments in R&D, even as we reduced operating expenses from Q4 of last year. This provided a leverage to deliver adjusted operating margins of 18.9%, again, our strongest result this year.

Turning to our businesses. We saw a similar trend in the fourth quarter, as in the prior quarters this year. In Medical Systems, our Dispensing business finished a great year by growing revenue 10% and exiting the year with a healthy level of committed contracts that we'll install in fiscal '13.

Infusion grew slightly ahead of our expectations in the quarter to finish a record year. We also continue to see the impact of higher margin consumables pulling through our larger installed base of infusion pumps. This was a contributing factor in our corporate gross margins, moving about 0.5 point higher than in Q2 and Q3.

In Respiratory Technologies, we grew the business nearly 30% in the fourth quarter. About half this growth came from the government contract we told you about last quarter. The other half, coming from organic growth in our core accounts, we feel good about the progress we continue to make in the business.

We're doing a much better job of executing and leveraging the strengths we have across CareFusion for the benefit of our customers. We're also benefiting from our recovery and ventilator sales 2 years after hospital stockpiled for H1N1 preparedness.

In addition to the financial results, the Medical Systems team made good progress hitting internal milestones for our next-generation product platforms and realigning our service organization and in continuing to develop offerings that leverage our strengths across the product portfolio.

Increasingly, we see these cross-business line offerings as key to our growth. We add more value for customers and differentiate CareFusion when we go to market with our medication management and critical care offerings, which cross multiple product lines within Medical Systems.

Our Procedural Solutions segment revenue declined 7% in the fourth quarter, completing a challenging transition year. Adjusted segment profit declined 35% to $32 million, due in large part to the strong Q4 of last year when we had a higher distributor sales in advance of our business model transition. Procedural Solutions exits this year stronger and better positioned with much accomplished and work still to complete in fiscal '13.

Our sales force realignment continues to go well. With more than 6 months behind us, our new surgical and vascular teams are gaining traction in their new territories and putting us in good position to add new clinically differentiated products to our portfolio, something that we intend to capitalize on in future quarters.

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