Varian Medical Systems’ Profitability Profile
In fiscal 4Q17, Varian Medical Systems (VAR) registered a gross profit margin of 42.3% of its total sales, representing a decline of 50 basis points. However, for fiscal 2017, its gross margin rose 87 basis points. Its 4Q17 gross margin decline included an unfavorable impact of 30 basis points for its proton business project costs.
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In fiscal 4Q17, due to the country and product mix, Varian registered lower product gross margins, which led to a decline in its gross margin rate despite a strong services revenue mix. However, its fiscal 2017 gross margin registered an increase, driven by an increased service mix and supply chain optimization initiatives. SG&A (selling, general, and administrative) expenses in the quarter rose 7% on a YoY (year-over-year) basis. R&D (research and development) expenditures in the quarter rose 5%.
For fiscal 2017, Varian Medical Systems reported operating earnings of $437 million, representing 16.4% of total revenues. Its operating margin fell 8% in fiscal 2017.
In 4Q17, operating earnings fell 11%. The decline was driven by $3 million of customs duty–related charges in Brazil, $5 million of bad debt expenditure, proton business project cost estimates of $2 million, and a lower gross margin for the company’s proton business. Varian’s margins were impacted by a charge of $13 million related to the decrease in cash flows and an increase in financing needs related to the agreement with CPTC (California Proton Treatment Center) in San Diego in September 2017.
The iShares Russell 1000 Growth (IWF) has 0.08% of its total holdings in VAR. Stryker (SYK), Intuitive Surgical (ISRG), and Boston Scientific (BSX), which are other major medical device companies, account for 0.41%, 0.34%, and 0.28%, respectively, of the total portfolio holdings of IWF.