Morningstar | Varian Finishes the Fiscal Year With Strong Gross Order Intake in All Geographies
Varian Medical Systems finished fiscal 2018 on a strong note, reaching 12% revenue growth and 13% order growth in the last quarter, on a constant-currency basis. Full-year revenue growth came in better than expected at 11%, or 10% in constant currency; however, margin expansion came in slightly weaker than our forecast. We maintain our fair value estimate of $112 per share and our wide moat rating.The oncology business, the main driver, reported double-digit growth in both products and services. Orders in this segment were also strong with growth at 13% in the quarter and 9% for the full year, reaching a record $3 billion in annual orders. At the regional level, Asia-Pacific reached an impressive 31% growth in the quarter, driven by China, Japan, and Australia. Europe, the Middle East, and Africa, or EMEA, reached 14% order growth in the quarter, reporting strong software growth, while North America's order growth of 4% was driven by large, multisite orders and demand for radiosurgery and radiotherapy solutions. Halcyon platform growth is progressing well, with 84 orders in the quarter, half of which are in EMEA.
The proton segment reported negative 12% revenue growth in the quarter and no new orders. For the full year, the total number of proton orders is two, both achieved in the first quarter.
Varian delivered weaker margin expansion than we expected, with full-year gross and operating margin at 110 basis points and 80 basis points, respectively, below our full-year forecast levels. The impact of tariffs on the oncology business negatively affected Varian's gross margin by 30 basis points. Management is guiding for a net tariff impact of $18 million on operating earnings for next year, after accounting for defensive measures. The firm plans to offset 70% of the potential total tariff impact by reshuffling the supply chain, commercial operations, and research and development investments.
Varian Medical Systems is a manufacturer of medical devices and software for treating cancer and other medical conditions. The company's segments are: Oncology Systems, which designs, manufactures, sells and services hardware and software products for treating cancer with radiotherapy, and treatments such as fixed field intensity-modulated radiation therapy, image-guided radiation therapy, volumetric modulated arc therapy, stereotactic radiosurgery, stereotactic body radiotherapy and brachytherapy, as well as associated equipment; and Proton Solutions, which develops, designs, manufactures, sells and services products and systems for delivering proton therapy, for the treatment of cancer.
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