Zacks_Analysts' Blog : Mixed Bag for Cantel in 4Q - Analyst Blog

Leading infection prevention and control products maker Cantel Medical’s (CMN) fourth-quarter 2011 (ended July 31) earnings of 27 cents per share fell shy of the Zacks Consensus Estimate by three cents, while it matched the year-ago earnings. Profit edged up 1% year over year to roughly $4.7 million as higher costs (including acquisition expenses) neutralized healthy double-digit growth in the top line.

For fiscal 2011, earnings of $1.18 a share also trailed the Zacks Consensus Estimate of $1.22 and were in line with the year-ago earnings. Profit edged up roughly 2% year over year to $20.4 million. Acquisition costs impacted the bottom line in fiscal 2011.

Revenues for the quarter soared 23% year over year to a record $86 million, ahead of the Zacks Consensus Estimate of $82 million. The solid growth was led by the New Jersey-based company’s Endoscope Reprocessing business. Cantel registered growth across its three major businesses in the quarter. For the fiscal, sales spiked 17% year over year to $321.7 million.

The Endoscope Reprocessing business had yet another strong quarter with revenues zooming 53% on the back of healthy shipments of the company’s two new reprocessors (Advantage Plus and DSD Edge). The strong results underscore the company’s successful execution of its three-pronged strategy (new product development, sales and marketing programs and acquisitions) to spur growth.

Gross margin for the quarter fell to 37.1% from 39.7% a year ago due to higher cost of sales, which jumped 28.5%. Operating expenses surged 23% year over year to $24.9 million as the company hiked spending on R&D, selling and marketing. As a result, operating margin slipped to 8.2% from 10.7% a year-ago.

Cantel Medical ended the fiscal year with cash of roughly $18.4 million, down 19% year over year. Total debt increased 14% year over year to roughly $24 million.

Cantel, which operates through six segments, offers its infection prevention and control products to dialysis, dental, endoscope processing, water purification, therapeutic filtration and specialty packaging markets. It competes with Siemens (SI) among others.

Cantel continues to execute its strategy of growth through acquisitions. The company acquired the U.S. water purification business of medical technology firm Gambro Renal Products Inc. in October 2010. Moreover, it bought, in February 2011, the sterilization monitoring business of the leading biological monitoring services provider ConFirm Monitoring Systems.

More recently, Cantel acquired (its largest buyout so far) privately-held disposable infection control products maker Byrne Medical for $100 million, which has enabled it to broaden its gastrointestinal (GI) endoscopy business.

While acquisition-related costs encumbered Cantel’s profits in fiscal 2011, it remains upbeat that the three acquisitions coupled with new products and investment in the sales/marketing infrastructure will significantly contribute to its sales and earnings in fiscal 2012.