High Expectations Still Hurting Volcano
NEW YORK ( TheStreet) -- For all the talk about how management of certain companies will lowball guidance just to beat those expectations, some companies just can't seem to set the bar low enough. And that seems to be the case for cardiovascular imaging company Volcano Corp.
Volcano's top executives have never been shy about how great they believe their company is. Nor have they ever gone the "conservative route" with respect to future growth targets. The problem has been the execution. And these bold visions -- as much as I appreciate them -- have never manifested into meaningful results.
Consequently, investors have grown frustrated, sending the stock lower by 17% year to date due to (among other things) slowing growth and compressing margins. Complicating matters even more, is that investment fund Engaged Capital, which owns a 5% stake in Volcano, has taken the activism route, trying to force the company's hand to enact a share buyback worth an estimated $200 million. But following another disappointing quarter, it's anyone's guess when Volcano shares will ever erupt -- as attractive as they may appear.
Ahead of the earnings release, Volcano management had warned that the third quarter was going to be another disappointment. As noted, this has become a trend. Not only did this imply the company's sixth earnings miss out of the last seven quarters, but management also pointed to weaker-than-expected fiscal 2014, which immediately sent the stock plummeting 22%. But there were also some particulars in the report that pointed to an ominous future.
The company posted third-quarter revenue of $95.8 million, which represented year-over-year growth of just 2%. For the weak results, management cited (among other things) foreign currency exchange rates. I don't necessarily have a problem with that. To management's credit, on a constant-currency basis, Volcano's intravascular imaging and fractional flow reserve business did perform better, posting growth of 8%.
Likewise, revenue for the company's medical segment, which posted 3% year-over-year reported growth, advanced 9% on a constant currency basis. When digging deeper, the disparity between the reported results and when adjusting for currency rates continues, including the 14% increase in console revenue (constant currency), which was down 1% on a reported basis. But that's the extent to which management deserves a pass for this performance.
What the report also showed was a third-quarter decline of 41% in Volcano's blend of integrated consoles. This compares to combined 60% decline in the August and May quarters. Now I don't want to make more out of this than their needs to be, especially since management is still posting strong results in the IVUS business, especially in the U.S. and Europe.