Lake Forest-based Cooper Cos. starts the year hoping to put a difficult 2006 behind the company. It won’t be easy.
The maker of contact lenses and women’s surgical devices has seen its stock lose more than half of its value during the past year or so in the wake of earnings shortfalls, lost market share and several downward guidance revisions.
The company’s market value was $2 billion last week.
Cooper disappointed investors in the quarter ended Oct. 31. Profits were up 55% to $14.1 million, but well short of Wall Street’s expected $35 million. Sales were down 2% to $216 million.
The company also cut its outlook for the 12 months through next October, saying it now expects to earn $129 million to $135.8 million on sales of $920 million to $960 million.
Earlier, Cooper projected 30% more in profits and 4% more in sales.
The problems: shipping delays, sluggish contact lens sales and a critical lag in coming out with a new type of lens already being sold by rivals.
“Is there currently a more hated stock in this market than Cooper?” The Street.com analyst David Peltier wrote in a recent column.
Analysts Pessimistic
Analysts have cut their ratings on Cooper six times since the latest earnings revision, according to Peltier.
Among those downgrading Cooper were R.W. Baird & Co.’s Suey Wong, Jeff Johnson and Richard Tepe.
“While we still believe in (Cooper’s) long-term potential, we see few near-term catalysts and believe investors are going to need proof,not just hope.”
Cooper’s big hope is Biofinity, a silicone hydrogel contact lens it picked up in its 2005 buy of rival Ocular Sciences Inc.
Silicone hydrogel contact lenses are the industry buzz.
They allow more air to reach the eye, cutting the risk of infection.
Rivals, including Johnson & Johnson, Bausch & Lomb Inc. and Novartis AG’s Ciba Vision, already are selling silicone hydrogel lenses, albeit after some delays.
The lenses, which can be worn for 30 days, now make up 40% of the U.S. contact lens market.
But Cooper isn’t in on the action. It’s shipped a small number of Biofinity lenses but doesn’t expect a full rollout into late next year after processing and shipping delays in September and October amid a consolidation of distribution.
Chief Executive A. Thomas Bender was candid about what’s been going on.
“The distribution consolidation in the U.S., just quite frankly, didn’t go on as smoothly as planned,” he said on a recent conference call. “In fact, it was somewhat of a disaster.”
Cooper is working to boost production of silicone hydrogel lenses, cut production costs and expand research and development, Bender said.
The company also hopes to see more sales of single-use daily contacts. They now make up about 8% of the total U.S. lens market, according to Bender.
Single-use daily contacts are more common in Asia, at about 60% of the market, and in Europe at about 40%.
“The single-use product for the patient and the practitioner, quite frankly, makes much more sense than the two-week or the monthly spherical products that are used in this country,” Bender said.
Getting more single-use lenses eventually could mean more to the company than Biofinity, Bender said.
Analysts Wong, Johnson and Tepe cast a dim eye toward Cooper’s plans for daily disposable lenses.
The plan “appears fraught with challenges,” they wrote.
Daily disposable lenses make up less than 10% of the U.S. market after more than a decade of sales, they said.
Cooper’s plan suggests that the potential for success in other segments, including silicone hydrogels, “must be even lower than what we believe is limited daily disposable potential,” they wrote.
One analyst, Larry Biegelsen of Prudential Equity Group, said he thinks another guidance bomb could be in the offing. The reasons:
n Cooper’s basing its current sales guidance on a growth rate of 8% for the worldwide contact lens market, though current trends suggest that market is growing more slowly.
n Cooper is likely to lose more market share in the toric, or astigmatism-correcting, lens market than the company is assuming in its guidance.
Toric lenses account for 35% of Cooper’s contact lens sales, according to Biegelsen.
Takeover Target?
The analyst’s report also touched on a familiar subject: Cooper possibly being snapped up by a rival.
“Cooper is the only major independent contact lens manufacturer, so if the industry were to consolidate further, Cooper would be a likely acquisition target,” Biegelsen wrote.
The big three players,J & J;, Bausch & Lomb and Ciba Vision,could face regulatory hurdles buying Cooper.
Other eye products companies, including Santa Ana-based Advanced Medical Optics Inc. and Nestle SA unit Alcon Inc., which employs more than 500 people in Irvine, have expressed interest in contact lenses, according to Biegelsen.
“We believe the potential for one of those companies to make an offer for Cooper will keep a floor on the stock,” Biegelsen said.
