Med-tech company Bard's fourth-quarter earnings report reminded me of a question I was asked recently about my writing perspective: What percentage of articles I write are positive, and what percentage are negative? The company's Q4 results show why this is such a challenging question for writers and investors alike.
Revenue growth for the quarter was strong, with all four of Bard's reporting categories showing double-digit growth. Total revenues were $520.9 million, a 15% jump from last year's Q4. These results are in line with management's long-term goal of double-digit growth.
Operationally, expenses were held in check. The only major uptick was a 110-basis-point increase in R&D spending as a percentage of revenues. Still, operating margins only decreased 70 basis points from last year's Q4, to 23.1%. For the full year, operating margins fared worse, dropping 210 basis points from 2005, to 22.7%. However, if you remove the effect of stock-option expensing, which wasn't included in last year's Q4, the quarter's operating margin actually improved by 90 basis points, and the full year's margin only dropped by 30 basis points.
The problems Bard faces are one-time in nature. Several issues marred the quarter, and when lumped together, they dropped operating earnings by $88 million. The biggest charge, amounting to $49 million, came from settling a lawsuit dating back to 2004 with Rochester Medical Corporation for anti-competitive behavior. The company also discontinued Tegress, a urinary incontinence bulking agent. This was a $46.4 million write-off, which included $45.7 million in other expenses.
With these charges, GAAP earnings were down 73% from last year's Q4. Back these expenses out for a non-GAAP but comparable basis, and net income actually improved 24% to $99.2 million, or $0.93 per diluted share.
This Fool's thoughts
A cup that is half full is also half empty; using a balanced approach to investing is key. Bard's long-term trends have been very positive, and that continues to show in the quarter's results. Investors who've seen the cup as half full have fared much better here than with many other med-tech companies, including Boston Scientific (NYSE: BSX ) , Medtronic (NYSE: MDT ) , and Zimmer (NYSE: ZMH ) . So while the short-term negatives are worrisome, this Fool doesn't see why we should start looking at the cup as half empty anytime soon.
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