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HAE Expects a Modest Net Profit Margin Expansion in Fiscal 2018

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Mar. 20 2018, Updated 7:34 a.m. ET

Modest rise in net profit margin

On its fiscal 3Q18 earnings conference call, Haemonetics (HAE) increased the guidance for its fiscal 2018 adjusted EPS (earnings per share) by ~$0.12 to the range $1.80–$1.90. This increase implies that the company will report adjusted EPS in the range of $0.36–$0.46 in fiscal 4Q18.

Haemonetics has calculated this EPS guidance by assuming a positive impact from its overperformance in fiscal 3Q18 and a negative impact from its anticipated investments in fiscal 4Q18. Excluding the impact of its restructuring and turnaround expenses, the company expects $125 million worth of free cash flow in fiscal 2018.

Haemonetics expects fiscal 2018 to be a year of strong financial and cash flow performance owing to improving operational and working capital performances, the optimal deployment of assets, and a delay in certain capital expenditures to fiscal 2019.

Wall Street analysts expect Haemonetics’s fiscal 2018 net profit margin to be ~11.1%, a YoY (year-over-year) expansion of ~213 basis points.

Peers Stryker (SYK), Zimmer Biomet (ZBH), and Abbott Laboratories (ABT) are expected to report net profit margins of ~19.9%, 13.5%, and 16.3%, respectively, in fiscal 2018.

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Complexity reduction initiative

In November 2017, Haemonetics launched its complexity reduction initiative program, which aims to achieve $80 million worth of annualized run rate savings by the end of fiscal 2020. Approximately two-thirds of these savings are expected to come from nonpeople-related areas such as general and administrative (or G&A) expenses, plant overheads, direct material–related expenses, indirect spending, freight-related expenses, and capital equipment depreciation.

The remaining one-third of these savings are expected to be people-related and will involve Hamenonetics’s engaging in activities such as restructuring, process redesigning, and strategic outsourcing. The majority of these savings are expected to be realized in fiscals 2019 and 2020.

In the next article, we’ll discuss Haemonetics’s plasma franchise in greater detail.

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