Lake Forest-based Cooper Cos. may be in for a long, hot summer.
The maker of contact lenses and women’s surgical equipment has seen its shares lose nearly half their value since October, fueled by earnings bombs, lost market share and lowered guidance in recent months.
“These repeated cuts to guidance have clearly damaged management’s credibility and frustrated investors,” R.W. Baird & Co. analysts Suey Wong, Jeff Johnson and Richard Tepe wrote shortly after Cooper reported quarterly results in June.
It wasn’t supposed to be this way.
Hopes were high after Cooper bought rival Ocular Sciences Inc. for $1.2 billion in early 2005. The deal boosted Cooper from the middle to the top ranks of contact lens makers and honed the company’s focus on specialty lenses.
“We believe we will continue to grow faster than the market, which we have been doing on the Street for quite a few years,” Chief Executive A. Thomas Bender said shortly after acquiring Ocular.
Instead, Cooper has seen tough going.
In January, Cooper said it planned to restate results for part of 2004 and 2005 because of accounting related to its buy of Ocular.
Then last month Cooper delivered disappointing results for the quarter ended April 30. Profits tumbled 51% to $13.7 million from a year earlier. Revenue was up 1% to $212 million.
Analysts had expected Cooper to earn $32 million on revenue of $221 million.
Cooper also cut its profit and sales forecast for 2006 and 2007.
It was the second time Cooper cut its outlook in the past year. In November, the company lowered its guidance on soft sales of contact lenses that are worn for two weeks at a time. Cooper also cited foreign exchange issues and hurricane-related disruptions.
Adding insult to injury, Cooper attracted the attention of Milberg Weiss Bershad & Schulman LLP, the former firm of San Diego-based class-action king William Lerach. The firm sued after the company’s shares fell some 33%.
Some have wondered whether Cooper might be an acquisition target itself.
“In this case, Alcon (Laboratories Inc.) just might be a potential suitor, though other companies could be in the picture as well,” Motley Fool columnist Stephen Simpson wrote recently.
Key Product
Cooper has a lot riding on a new product, its Biofin-ity silicone hydrogel contact lens acquired from Ocular. The lenses are the current buzz of the industry. They allow more air to reach the eye, cutting the risk of infection.
Steve Hamill of US Bancorp Piper Jaffray said he sees Cooper at a “critical period.”
The company plans to install three production lines for Biofinity in the next three months, which “appears somewhat ambitious to us given the company’s challenges,” Hamill said.
Rivals Bausch & Lomb Inc. and Novartis AG’s Ciba Vision saw delays with their silicone hydrogel lenses, according to Hamill.
A setback at Cooper could “harm both investor and (doctor) confidence given the high expectations for Biofinity,” the analyst said.
Cooper has one production line in place for Biofinity and said last month it’s on track to launch the lenses by “midyear.”
Market leader Johnson & Johnson also has jumped into the silicone hydrogel lens market. Cooper and Bausch & Lomb generally battle for No. 3 in the market, behind J & J; and Novartis.
Bright Spot
A bright spot for Cooper: toric lenses for patients with astigmatism.
Sales of those “could be stronger than we thought,” wrote analyst Milton Hsu, who covers Cooper for Bear, Stearns & Co.
Optometrists like Cooper’s toric lenses because they’re easy to fit, “which reduces chair time, visits and patient complaints,” Hsu said.
Overall, optometrists like Cooper because the company “has tried to keep profits with optometrists by selling many of their lenses through optometrist practices/offices rather than retail chains,” Hsu said.
