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July 14, 2010
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The earnings miss surprised investors as the company has topped the Zacks Consensus Estimate by significant margins in the previous three quarters. Shares of Hi-Tech are slipping after hours after falling 1.5% today, which followed the more than 6% drop in the stock before the closing bell yesterday.
Hi-Tech is a specialty manufacturer of generic and branded prescription and over-the-counter (OTC) products. The company manufactures liquid and semi-solid dosage forms and produces a range of sterile ophthalmic, otic and inhalation products. Hi-Tech’s Health Care Products (HCP) division develops and markets branded prescription and OTC products for diabetes, while the company’s ECR Pharmaceuticals subsidiary markets branded prescription products.
Hi-Tech’s net sales recorded a growth of 5.8% in net sales to $40.5 million from $38.3 million in the prior-year quarter. The growth was primarily driven by sales of ECR, which more than doubled year-over-year to $6.5 million aided by a 15% growth in HCP division’s sales to $2.7 million. However, overall sales growth was partially offset by a 5.4% year-over-year decline in generic products to $31.4 million mainly due to sluggish sales of cold and flu products and discontinuation of certain unapproved products.
Gross profit during the quarter grew 4.8% year-over-year to $20.9 million, while gross margin slipped 50 basis points (bps) to 51.5%. The lower margin was mainly caused by reduced prices in Dorzolamide ophthalmic solution and suspension of sales of certain products after a Food and Drug Administration (FDA) warning.
Selling, general and administrative expenses increased 3.2% year-over-year to $10.3 million, mainly due to cessation of royalty payments on Dorzolamide with Timolol ophthalmic solution. Research and development expenses rose 22% to $2.4 million as Hi-Tech ramped up development work on new projects.
Looking ahead, Hi-Tech targets sales of over $1 billion from sixteen products currently awaiting FDA approval. The Zacks Consensus Estimate on the company’s earnings for the fiscal year ending April 2011 has dipped by 5 cents to $2.07 per share in just the past week, as 1 of 3 covering analysts have reduced expectations. For the next fiscal year, the Zacks Consensus Estimate is currently pegged at $2.53 per share, which remained constant over the past month.
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