Cooper Companies Earnings Call Insights: Avaira and Proclear, Currency Value

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On Thursday, Cooper Companies (NYSE:COO) reported its second quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.

Avaira and Proclear:

Jeffrey Johnson – Robert W. Baird: Bob, just one question I guess in multi parts, well it qualifies as one question, but on the revenue side we’ve been hearing from a lot of our consumer companies whether that contact lenses or dental or what have you, that April looked somewhat slow, you’re talking about the same thing. Is that all that’s in the comments you made about April being slow and May picking back up, was there anything specific to your business or the way your products are bought and how sustainable then do you think the May pick up is? That’s the first part, and then Avaira, I think, you had a very tough comp this quarter. If I remember, last year Avaira did extremely well in the fiscal Q1, last quarter it sounds like Avaira was up year-over-year even after the recall, this quarter my guess is, it’s down year-over-year, but could you give us any color there, and then why was Proclear down on a constant currency basis in the quarter, just trying to understand that a little bit better, thanks.

A Closer Look: Cooper Companies Earnings Cheat Sheet>>

Robert S. Weiss – President and CEO: Alright. You got your money’s worth there, Jeff. The softness on the market in April, you are right. We went through February and March feeling pretty good about things, actually started off pretty good in April and then it just slowed. Typically you would expect strong finish towards the end of a quarter, but it just didn’t happen, it flat-lined. The good news is when we did get into May, it normalized. We had a very respectable May, and kind of felt good on a year-to-date basis and I might point out when you look at the first quarter numbers in CLI data, our last page of the release, it was a very robust quarter for both the industry and for Cooper, 6% and 12%. So, we’ve had a sustained market growth, probably not, was – so was April a little bit of a correction, maybe, but no hard – nothing hard on that, but the feedback you’ve got seem to be universal. There was a lot of softness for whatever reason towards – throughout the April month, if you will. As far as Avaira year-over-year, your memory is excellent. A year ago, we were of course launching Avaira Toric, and so the Avaira product family was doing fine. This year, it doesn’t really have any of the benefits of a launch. Getting Avaira Toric back on the market did not influence our top line. It in fact took a lot of energy. Once we got the approval to relaunch Avaira Toric that meant a lot of time and energy went into putting together fitting sets, which we have to do with a toric lens, it entails a lot of energy upfront because it’s an RX product and thousands and thousands of fitting sets have to be eventually put together refreshed and put back out into the marketplace over time. So, the comp is that Avaira year-over-year did not grow unlike the first quarter, it declined. Proclear family was down. It was down as much as anything because we’re pretty aggressively doing the trading up of silicone hydrogel. Of course, a lot of Proclear is in the monthly category and Biofinity continues to rule. So, that’s a factor. I would say that the Proclear 1 Day, which is really the catalyst of our growth within Proclear right now, continues to do very well. We are up 13% worldwide. Let me just check. On constant currency I think it was up 15% in constant currency. So, we’re happy with that. When we look at our portfolio, you have the one day and that’s going to be Proclear 1 Day, you have the two-week and that’s now going to be the Avaira family and you have Biofinity in the monthly. So, it would not be unusual for – even the Proclear family they get caught up in a market that is shifting out of hydrogels and in aggregate into silicone hydrogels.

Currency Value:

Kimberly Gailun – JPMorgan: So, first question is on currency, you talked through the impact in quarter and then what your expectations are for the back half of the year, but hoping you could just talk a little bit more on that piece. By my math it looks like you guys are implying about a 70% drop-through from that revenue line down to EPS line from currency. So, hoping you could talk through that, why that’s so high and maybe bring the yen in there too? Why at this point in the year didn’t you look to kind of know that EPS guidance range?

Robert S. Weiss – President and CEO: Let me first try and then I’ll ask Greg if you want to add anything to it. On currency, that model in the past we’ve always kind of said, look, if currency drops or increases 1% worldwide against the dollar, that means basically around $0.04 a year on a worldwide basis, assuming everything moves in parity. What didn’t happen at all by far is parity. The euro, if you think of our model, if you want to build a better model you would think of about almost 30% of our revenue comes through in European currencies, ex the pound. So, when that moves against us as much as it now is, 13% year-over-year, then there’s a huge hit there, unless it’s offset by the pound going the same way. In this case the pound didn’t go the same way and also keep in mind that what goes on with the pound happens on a six-month lag basis. So, quite frankly the pound was very strong in the third quarter a year ago that came in and it hit the first quarter. So, when I talked about a $0.04 foreign exchange hit in the first quarter, it didn’t show up on the revenue line. That entire $0.04 showed up in cost of goods. Then you moved to the second quarter and now we have the impact really of no meaningful benefit of the pound, but a meaningful hit of the euro and since we’re so weighted there, you’ll end up with a funky, if you will, ratio of bottom line to top line. But if we did that calculation in the first quarter, it would be even more quirky, because there would’ve been no foreign exchange on the revenue line, it would have all showed up on cost of goods. When you think of the model, if you try to develop a global model, the key things you really have to remember is we have about 30% of our revenue generated in euros. We have about 20% of it generated in yen, which is kind of a yarn, but it’s going to be slight negative in the back half of this year and that actually was a minimize, it went the other way for us, minimizing the euro in the first quarter. Then think about half of our cost is pound related, our cost of goods. You know our gross margins are basically – you could pretty much model how the world is moving if you think of pounds, euros and yen against the dollar and you can get pretty close to the bottom line by doing that. Greg, I don’t know if you want to add anything to that.

Gregory W. Matz – VP and CFO: Nothing, Bob. I think you nailed it. Basically with the way our structure is and Kim, you picked up on it too, that about 30% or so is in the OpEx side and the rest of it did flow down to the bottom in our current calculations. And the fact that with the way how stable the pound has been has basically left us very little impact in the first three quarters, really, our expectation of on the production side.

Kimberly Gailun – JPMorgan: My follow-up was just on the guidance range and kind of the temptation to hold the width of the guidance range?

Robert S. Weiss – President and CEO: The guidance range and that’s a question. We actually debated do you narrow or don’t you narrow it, and I think given where things are in the marketplace given the uncertainty of currencies, granted our guidance is basically assuming constant currency where we are today. So, we don’t attempt to say it’s going to go up, or down from this point, it is where it is today, but there is a lot of volatility associated with what’s going on in the market right now, and that’s why we left it broad.

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