MDS (MDZ) reports, missing expectation by four cents. However, share price hung in there, IMO, because margins improved, and because their outlook was somewhat less cautious than that of other trickle companies. And also because of a one time charge (taxes going up in Ontario) of two cents that does not imply slowing earnings growth. I note that the analytical instruments business did pretty well.
>>TORONTO, March 4 /PRNewswire-FirstCall/ - MDS Inc. (TSX: MDS, NYSE: MDZ), the global health and life sciences company, today reported its first quarter results, delivering growth in all key metrics.
First Quarter Year-over-Year Highlights:
- Revenues of $462 million, up 6% from $436 million
- Operating income of $58 million, up 18% from $49 million
- Operating margin of 13%, up from 11%
- Basic earnings per share of $0.20, up 18% from $0.17
Earnings per share for the quarter reflect a $0.02 charge associated with the revaluation of future income tax balances arising from tax rate increases in Ontario.
"I am pleased with the progress we made in the quarter. Revenues normalized for foreign currency and sale of businesses last year grew by 11%, and basic earnings per share grew by 18%," said John Rogers, President and CEO of MDS Inc. "Last year we worked hard to position our businesses to operate more effectively and efficiently and it is reflected in the quarter. While I am pleased with the solid start to the year, our focus on enhancing our performance will continue as we move through 2004 and 2005," he added.
Life Sciences
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Revenues in the Life Sciences segment increased 10% to $285 million from $259 million for the same period last year. Excluding the impact of divested businesses, revenues in the segment grew 13%. Operating income increased 21% to $57 million from $47 million for the first quarter in 2003. Operating margin grew from 18% to 20% in the segment. Each business within this segment contributed to improved performance.
Revenues in the isotopes business increased 16% to $86 million as a result of increased cobalt supply and solid performance in the nuclear medicine business. During the quarter, our isotope business received $32 million from Biogen Idec in lieu of minimum purchase commitments. This payment was booked as deferred revenue and will be amortized over the remainder of the contract period.
The analytical instruments business continued to deliver solid growth with a 12% increase in revenue to $73 million. Demand for all products remained strong with an order from the Centers for Disease Control and Prevention and a reduction in the 4000 Q TRAP(TM) backlog driving performance in the first quarter.
On a currency neutral basis, revenues in our pharmaceutical research business grew 12%. Reported revenues in this business were negatively affected by the declining value of the US dollar leading to $126 million in revenues. In our early stage businesses, the early clinical research and drug safety businesses performed particularly well. In our late-stage business, we continued to build our backlog while at the same time increasing our revenues.
Health
Revenues in the Health segment were $177 million, level year-over-year. The weaker US dollar reduced our reported revenues from US-based operations, and offset otherwise good performance from our Canadian labs and Source Medical. Operating income and operating margin were also level at $12 million and 7% respectively, compared to the same period last year.
Our Canadian diagnostics business was negatively impacted by fee reductions in our British Columbia operations. We continue to be dissatisfied with the performance of our US laboratory business and are implementing a plan to reposition this laboratory business in Q2 of this year.
Proteomics
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Efforts are underway at MDS Proteomics as we work to redefine the business model, with a view to revenue generation and cost management in this business. Operating losses in the quarter were $11 million, compared with $10 million for the same quarter last year.
Corporate
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After the quarter, the Company announced a tax reorganization that will provide tax shelter benefits to MDS Inc. over the next several years. MDS will pay Hemosol Inc. $16 million cash and other consideration to access approximately $55-$60 million in present value benefit over the next several years. The transaction, which is subject to Hemosol shareholder approval, is expected to close near the end of our second quarter.
We began expensing stock options on a prospective basis this quarter in accordance with amendments made by the Canadian Institute of Chartered Accountants. The impact of stock options granted during the quarter was insignificant.
Currency fluctuations, especially the weakness in the US dollar, remain an important risk factor for our Life Sciences businesses. Our current portfolio of hedges extends part way into 2005 and we expect our average realized conversion rate on US-dollar exports to decline moderately over the balance of this year. While we continue to monitor the forward markets and hedge when appropriate, should rates remain at current levels we do not expect to be able to fully mitigate the impact on our results in 2005 and beyond.
Outlook
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"We have made significant strides in our performance this quarter. We are focused on delivering on our financial targets and will continue to deal with our lower-performing businesses, to allocate capital to our higher-performing businesses, to look for new growth opportunities and to operate more effectively and efficiently. Looking at the remainder of the year, we are fully committed to achieving our targets of 10%-15% growth in earnings, 1% improvement in return on equity and a 1% improvement in operating margin." added John Rogers.
The MDS Board of Directors has approved the declaration of a cash dividend of $0.05 per share on the Common shares, payable on April 1, 2004 to shareholders of record as of March 18, 2004.
MDS will hold its Annual Shareholder Meeting at 4:00 pm EST today at the Glenn Gould Studio, Canadian Broadcasting Centre, 250 Front Street West, Toronto, Ontario, Canada. This meeting will also be broadcast live on the Internet at www.mdsintl.com at 4:00 pm EST.
MDS will be holding a conference call today at 11:00 am. This call will be webcast live at, www.mdsintl.com, and will also be available in archived format at www.mdsintl.com/news_present.asp after the call.
At MDS Inc., our more than 10,000 highly skilled people provide enabling products and services for the development of drugs and the diagnosis and management of disease. We focus on helping discover and test new drugs, assisting doctors to diagnose and treat patients and preventing the spread of disease. Find out more about MDS Inc. (TSX: MDS - News; NYSE: MDZ - News), at www.mdsintl.com or by calling 1-888-MDS-7222, 24 hours a day.
This document contains forward-looking statements. Some forward looking statements may be identified by words like "expects", "anticipates", "plans", "intends", "indicates" or similar expressions. The statements are not a guarantee of future performance and are inherently subject to risks and uncertainties. The Company's actual results could differ materially from those currently anticipated due to a number of factors, including, but not limited to, successful integration of structural changes, including restructuring plans, acquisitions, technical or manufacturing or distribution issues, the competitive environment for the Company's products, the degree of market penetration of the Company's products, and other factors set forth in reports and other documents filed by the Company with Canadian and US securities regulatory authorities from time to time.
Management's Discussion and Analysis of Operating Results and Financial
Position
Introduction
This section of the quarterly report contains management's analysis of the financial performance of the company and its financial position and it should be read in conjunction with the consolidated financial statements. Readers are cautioned that management's discussion and analysis ("MD&A") contains forward-looking statements and that actual events may vary from management's expectations. Readers are encouraged to consult the MDS Annual Report and Annual Information Form for fiscal 2003 for additional details regarding risks affecting the business.
In our MD&A and elsewhere we refer to measures such as backlog and unusual items that are not defined by generally accepted accounting principles ("GAAP"). Our use of these terms may not be consistent with the way these terms are used by others. Where possible, in particular for earnings per share measures, we provide tables or other information that enables readers to reconcile between such non-GAAP measures and standard GAAP measures. While these measures are not defined by or required by GAAP, we provide this information to readers to help them better understand the significant events, transactions, and trends that affect our businesses.
All financial references in this document exclude the discontinued generic radiopharmaceutical operation, and therefore reflect our continuing operations, unless otherwise noted. The results for prior periods have been restated to conform to this presentation.
Overview
Revenue and operating income for the first quarter increased by 6% and 18% respectively, compared to the same quarter last year. Revenues grew at an 11% rate, normalized for the impact of currency fluctuations and the sale of Oncology Software Solutions last year. Our isotopes and analytical instruments businesses led overall growth from their positions of strength in their marketplaces.
This solid performance resulted in an 18% increase in basic earnings per share to $0.20 compared to the $0.17 reported in the first quarter of last year. Earnings per share for the quarter include a $0.02 charge associated with the revaluation of future tax liabilities arising from tax rate increases in Ontario. <<
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Cheers, Tuck |
