Cantel Medical Corp. says new products and acquisitions will spur growth
On a midday Monday conference call, Cantel Medical Corp. (NYSE: CMN) executives said the medical products maker will continue to grow through new product introductions and company acquisitions.
“We have an active pipeline of potential acquisitions and we’re committed to further enhancing our existing platforms,” CEO Scott Jones said on the call. “We’re focusing on some near-term smaller acquisitions and aggressively evaluating some larger deals for fiscal 2008.”
Cantel, which has a net debt of about $43.7 million, will use its borrowing capacity and banking support to purchase companies, Jones said. The Little Falls, N.J.-based company’s primary focus is water purification and healthcare disposables businesses that will expand market channels and product lines, Jones said. Cantel has $26 million left of revolving credit, but the company is still looking at deals larger than the revolver, he said.
Cantel acquired General Electric’s (NYSE: GE) water purification business in early April. Cantel’s largest segment is water purification after the GE addition boosted segment revenue by 50%, Jones said.
“By adding GE’s install base of 1,800 dialysis centers, we now work with over 70% of U.S. dialysis centers,” Jones said. “We have a growing national network with which to continue our expansion of the water business and other areas of health care, life sciences, and commercial and industrial segments.”
About 20,000 square feet of space in the company’s Minnesota facility is being converted into a medical equipment manufacturing facility in which to house the GE addition, Jones said. He said all manufacturing and former GE employees will be implemented by Cantel’s new fiscal year, which begins Aug. 1. Jones warned that analysts should not expect the recent performance of the GE acquisition - $1.9 million in sales and $0.3 million in operating earnings during the third quarter – to be routine.
“I would caution that I wouldn’t take one month of revenues and operating income [from the GE unit] and annualize those numbers and expect those kinds of numbers in the future,” Jones said.
Jones reported on the call Cantel has been granted regulatory clearance for sales of the company’s new disinfection system. Based on communication with the FDA, Jones expects Cantel will be able to sell the disinfection systems in the United States during the next fiscal year, which begins Aug. 1.
“Regarding the [disinfection system], proper product testing, regulatory approval and introduction are essential and, on occasion, subject to delays,” Jones said. “Frankly, we face some challenges in this area which have had an adverse affect on the earnings in the segment for this year’s third quarter versus the prior year, including continued losses in the Netherlands operations as we complete this product.”
Before Monday’s opening bell, the company reported income of $2.2 million, or $0.14 per share, for the third quarter ended April 30, up from $1.6 million, or $0.10 per share, a year earlier. The healthcare products maker reported third-quarter revenue of $54.4 million, up from $46.8 million in the year-ago period.
At $0.10 a share, the company missed analysts’ expectations of $0.16 per share, but beat Wall Street predictions of $52.6 million in revenue. In midday trading, shares in the company were up 0.71% at $17.03.
Also on the call, Jones said:
• About 85% of Cantel’s third-quarter sales occurred in the United States
• Approximately 80% of the company’s revenue is recurring
• Cantel is recruiting marketing and sales professionals to increase sales of disinfection products under the CrossTex brand
• The company predicts about 5% to 7% growth in the healthcare disposables segment
• As Cantel eliminates losses in the Netherlands business, the company expects its tax rate to normalize at around 40%
• The company’s stock repurchase program begun in April 2006 has concluded. The program resulted in the repurchase of 464,800 shares at an average price of $14.02
• Cantel has a number of technologies and therapeutic advancements it’s looking at. These new technologies are mid to longer-term initiatives but “we are focusing very strongly on all of those particularly in our budget for fiscal 2008”
• The company will be filing its form 10-Q for the third quarter with the SEC by the close of business Monday
