In the aftermath of a bumbled effort to exchange rapidly devaluing rubles for a "new and improved" version in 1993, Viktor Chernomyrdin, former prime minister of Russia, famously said: "We were hoping for the best, but it turned out the way it always does."
Chernomyrdin's words echoed in my ears as I reviewed this morning's first-quarter 2007 earnings report from cord-blood storage specialist ViaCell
Do I even have to say it? I hoped for the best, but it turned out the way it always does.
Specifically, it turned out like this:
- Sales rose 20%, thanks almost entirely to the firm's highly profitable cord-blood storage business.
- ViaCell gained leverage in this business, as processing and storage costs rose only 13%. Thus, ViaCell seems to have expanded its gross margin.
- Thanks to ViaCell's termination of clinical testing of its umbilical-cord-blood transplant therapy, "CB001," research and development costs actually declined 6%. Coup.
- General and administrative expenses (which usually means "payroll") rose just 4%. Also good.
- And the bad news: Sales and marketing expenses leapt 40% year over year -- twice the rate of growth in the sales they were supposed to be generating.
Now, I know ViaCell bulls argue that these costs are less "costs" than "investments" in the firm's future. To which I reply: "bull hockey." Investments are expenses that pay off in future profits. Expenses that don't are just expenses -- in this case, wasted money, presumed guilty of being such until proven innocent of the charge (pun intended).
Given that ViaCell has been ramping up its sales and marketing spending for about a year, it's about time ViaCell start showing some results from this "investment." Unfortunately, according to the company's own press release, real growth isn't expected to kick in until the second half of fiscal 2007. In the meantime, "ViaCell now expects sales growth in the first half of 2007 to be lower than previously projected."
What did we expect when we last put ViaCell under the microscope, and what did we see? Find out in:
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Fool contributor Rich Smith does not own shares of any company named above.