OSI Systems [OSIS]
2Q13 2Q12
Sales $194M $188M
Net Inc. $12.4M, 0.60 $12.3M, 0.61
Net income edged up less than a percent on a 3% increase in sales, which were a new quarterly record, but the results were hindered by a $2.7 million (0.10 EPS) charge related to the recent termination by the Transportation Security Administration (TSA) of the company’s contract to develop automated threat recognition software for its body imagers that the agency has already deployed at a number of airport checkpoints (See related story this issue). The termination led OSI Systems to de-book $5 million from its backlog, which stood at just over $1 billion, down from about $1.1 billion at the end of the first quarter but still $600 million higher than a year ago. Sales rose primarily due to growth at the company’s Optoelectronics and Manufacturing division and to a lesser extent 3% growth at the security systems division Rapiscan to $91.9 million, which benefited from growth in its screening services programs in Puerto Rico and Mexico. The company had expected higher sales at Rapiscan but delayed customer acceptance on $10 million worth of products led to a slip of sales into the second half of the fiscal year. Those deliveries have already taken place in the third quarter. The gains at these two groups were partially offset by unanticipated decline in sales at the Healthcare Group, which was soft due to declines in Europe and smaller than expected increases in the U.S. Free cash flow was a negative $35 million as the company has begun screening services in Mexico. The unexpected drop in healthcare revenues led OSI Systems to lower its sales forecast for the year to between $850 million to $875 million from the previous outlook of between $870 million and $895 million. The earnings outlook is unchanged at between $2.77 and $3.00 EPS, as the ramp up in the screening services program in Mexico is offsetting the negative impact of less sales from the Healthcare Group.