Strong third quarter at Acuson can't offset news of global weakness

Company's stock plunges with rest of market

You never know with the stock market. Ultrasound vendor Acuson was a victim of the market's quixotic nature on Oct. 23, when shares of the Mountain View, CA, company plummeted 22%, the day after the vendor reported healthy growth in revenues and a sharp rise in net income for its third quarter (end-September). The third-quarter numbers exceeded Wall Street estimates, but the financial community may have been reacting to predictions by Acuson executives that future earnings could be affected by softness in the international market.

For the quarter, Acuson posted a 7% increase in quarterly revenues, while net income almost tripled. The vendor reported revenues of $100.1 million for the period, compared with $93.3 million in the same period of 1996. Net income was $4.5 million, compared with $1.6 million in the third quarter of 1996. Earnings per share were 15, compared with analysts' estimates of 14.

The company attributed the growth in revenues and net income to the success of its new Sequoia and Aspen scanners. In particular, the company cited the signing in August of a sole-source contract to supply radiology scanners to Kaiser Foundation Health Plan.

Despite the success of Sequoia and Aspen, Acuson executives said that the international market was showing signs of weakness. Incoming international orders had been impacted by softness in selected European and Asian markets, as well as the strong U.S. dollar. Acuson expects these trends to continue at least through the end of the year, company executives said in a conference call on Oct. 22.

"We discussed the fact that there has been some weakness in international markets, which has been observed by everyone over the last month or so," said Stephen Johnson, Acuson CFO. "Based on those comments, some analysts following the company reduced their expectations of future earnings."

Acuson shares began falling on the first day of trading after the results were released, dropping $5.81 to close at $20.88 on Oct. 23. The fact that the U.S. stock market suffered a sharp decline that day, which was triggered by a major drop on the Hong Kong stock exchange, didn't help.

"We had the misfortune of (releasing earnings) on a day when markets around the world were falling," Johnson said.