F & P Healthcare shares jump to two-year high

Fisher & Paykel Healthcare chief executive Mike Daniell has welcomed plans for research and development funding. Photo / Dean Purcell

Shares in Fisher & Paykel Healthcare jumped to their highest in more than two years as the maker of breathing masks and respirators said it expects to beat analyst estimates for 2014 profit after surpassing its own guidance for 2013.

F&P Healthcare shares surged 5.9 per cent to $3.21, the highest since February 1, 2011, when it touched $3.22. The stock has surged 23 per cent so far this year.

Profit is likely to be $85 million to $90 million in the year ending March 13, 2014, managing director Michael Daniell said today. That's more than the $79 million-to-$83 million range expected in a survey of seven analysts by Merlin Consulting.

F&P Healthcare, which competes with Resmed and Respironics, is boosting profit margins on record sales, higher-margin new products and lower costs from its plant in Mexico.

"The share price rise reflects the guidance for 2014 being better than expectations," said Rickey Ward, who manages equities at Tyndall Investment Management. "Next year looks like it's better than forecast."

F&P Healthcare said 2013 profit rose 20 per cent to $77.1 million, ahead of its February guidance of about $75 million. The company boosted operating revenue to a record $556.3 million on strong demand for its respiratory systems and new masks to treat the condition obstructive sleep apnea.

"All of the new products we have invested in over the last 18 months do a better job and in return for that we are getting better margins," Daniell said on a conference call. "We are pretty positive about the coming year."

The company expects operating revenue to rise to between $610 million to $630 million in 2014, Daniell said. The 2014 forecasts are based on the New Zealand dollar trading between 80 US cents and 85 US cents for the remainder of the year as about half its operating revenue is derived in US dollars.

In constant currency terms, which the company uses to show its underlying performance excluding currency affects, operating revenue rose 11 per cent. Sales of respiratory products rose 15 per cent, while sales of devices to treat obstructive sleep apnea increased 6 per cent.

The annual revenue growth rate in constant currency terms should continue in the mid-teens, driven by new products and applications, Daniell said.

Making an increased quantity and range of products at its plant in Mexico contributed to an improvement in gross margin to 55.3 per cent in 2013 from 53.2 per cent the year earlier, Daniell said.

Removing the effects of currency volatility, gross margins are expected to expand 100 to 200 basis points a year as a result of new products, efficiencies and the Mexico plant, he said.

F&P Healthcare expects to outlay $40 million in capital expenditure in 2014. That's down from $62 million in 2013 when it spent on new equipment to increase manufacturing capacity, new product tooling, replacement equipment and $33.6 million to complete a third building on its Auckland site.

Research and development spending increased 9 per cent in 2013 and current new projects include masks, flow generators, humidifier systems and respiratory and acute care consumables.

It spent 6 per cent more on selling as it expanded in North America, Europe and the Asia Pacific regions.

The company's diluted earnings per share increased to 13.8 cents in 2013 from 11.7 cents the year earlier. It will pay a final dividend of 7 cents a share on July 5, unchanged from the year earlier.