CooperVision, the contact lens division of the Cooper Companies, considers 2010 to be a stellar year, with a solid top line, improving margins and outstanding free cash flow. CVI had a 3 percent increase in turnover to $249.0 million for the third quarter ended July 31, or a 6 percent increase on a currency-neutral basis, allowing the company to gain market share.
Furthermore, improved manufacturing efficiencies within the segment helped the Cooper Companies' overall gross margin to jump by 9 percentage points to 60 percent. The gross margin of CVI alone increased by 9 percentage points to 58 percent, and its operating margin jumped by 7 percentage points to 19 percent. Better manufacturing efficiencies were only partly offset by the shutdown of a production facility in Norfolk, Virginia, which will be completed by the end of the fiscal year. The company also saw a $900,000 benefit from currency rates, though management doesn't think foreign exchange affected the gross margin by much.
According to the Contact Lens Institute, the global contact lens market grew by 5 percent in constant currencies in the three months ended last June 30, reaching a level of $1,612 million. CVI says it beat that, expanding by 8 percent in the same period. For the six months ended June 30, its growth was double the 5 percent growth of the market.
Market share gains were recorded in various product segments. CVI's sales of toric lenses grew by 9 percent to $76.1 million in the latest quarter, a 12 percent rise on a currency-neutral basis. For the first six months of 2910, CVI had a 16 percent increase in torics, better than the global market's rise of 10 percent.
CVI's sales of multifocal lenses fell by 7 percent to $18.4 million for the quarter, a 4 percent drop in constant currencies; and here CVI underperformed the market, which grew by 21 percent worldwide. Single-use spherical lenses were up by 10 percent for CVI to $53.5 million in the quarter (8 percent in constant currencies), while other spheres fell by 2 percent to $101.0 million (positive 4 percent). The global market for spheres rose by 4 percent in the first half, while that category at CVI was up by 7 percent.
Silicone hydrogel lenses now make up about 40 percent of the worldwide soft contact lens market, with sales of $648 million in the second quarter of this year and $1,264 million for the six months ended on June 30. At CVI, that category has an annualized run rate of $235 million. Even its non-silicone hydrogel product, Proclear, continued with its solid growth, gaining market share.
CVI's sales of Proclear products rose by 3 percent to $70.8 million (6 percent in constant currencies), while its silicone hydrogel offerings ? led by Avaira and Biofinity ? jumped by 89 percent to $58.7 million (94 percent currency-neutral). Silicone hydrogels rose by 116 percent at CVI for the first six months of 2010, outperforming the 21 percent increase of the global market. Biofinity remains the company's star, up by 114 percent in constant currencies, and Biofinity torics continued to fuel market share gain. Avaira grew by double digits. Hydrogels by CVI fell by 5 percent year to date, and by 3 percent in the market.
In Europe, the Middle East and Africa, CVI's sales fell by 1 percent in the latest to $89.6 million, but grew by 10 percent in constant currencies. The increase was 6 percent in the Americas to $112.4 million (7 percent). In the first six months of this year, both of those regions had an 11 percent increase at CVI, compared with gains of 6 percent in the market according to the Contact Lens Institute. CVI's 5 percent gain in Asia-Pacific to $47.0 million was a 2 percent decrease excluding currency effects. CooperVision's 3 percent increase year-to-date was just under the 4 percent increase recorded for the market in general.
In the European market, CVI's sales of torics rose by 6 percent, while its multifocals were up by 26 percent and its silicone hydrogels grew by 20 percent.
The company's roll-out of Biofinity multifocal products has been put on hold because of a lack of capacity, which the company anticipates for the coming 12 to 15 months. During the same period it will slowly ramp up its capacity for Avaira torics. Both products are expected to have aggressive roll-outs in the second half of the 2011 fiscal year, when capacity will catch up with demand. The company cannot speed up the increase in capacity because the production machines are complicated pieces of equipment with many different vendors. Slow vendors and long lead times mean longer waits.
The Cooper Companies as a whole had a sales increase of 4 percent to $295.6 million in the quarter, or by 6 percent in constant currencies. The operating margin rose by 5 percentage points to 17 percent. Net income almost doubled to $39.7 million from $21.9 million in the third quarter last year. Total debt dropped by $66.3 million from the previous quarter to $646.7 million. Under the company's $650.0 million revolver, $365.0 million was available. Free cash flow was $58.4 million.
For the full year, CVI's sales guidance has been shifted upward to $952-962 million, from $925-975 million previously. Cooper Companies is expected to book revenues of $1,137-1,152 million, compared with previous expectations of $1,110-1,170 million before.