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NuVasive (NUVA) Q3 Earnings Top, Revenues Lag, Guidance Cut

NuVasive, Inc. NUVA reported third-quarter 2017 adjusted earnings per share (EPS) of 52 cents, reflecting a 30% rise from the year-ago quarter. The figure also surpassed the Zacks Consensus Estimate of 48 cents.

Solid revenue growth primarily led to this year-over-year bottom-line improvement.

Including one-time items, the company reported third-quarter 2017 net income per share of 64 cents, a significant improvement from the year-ago figure of 7 cents per share.

Revenues in the reported quarter increased 3.2% year over year to $247.4 million (up 3.4% at constant exchange rate or CER). The figure however, missed the Zacks Consensus Estimate of $255 million.

The above upside in revenues was driven by a robust performance in the international market on strong growth across all geographical regions. In the United States, procedural volumes were sluggish, unable to meet the company’s expectations.

NuVasive, Inc. Price, Consensus and EPS Surprise

NuVasive, Inc. Price, Consensus and EPS Surprise | NuVasive, Inc. Quote

 

However, putting together the impact of hurricanes Harvey and Irma on NuVasive’s U.S. results and Maria on the company’s international results along with one less selling day, the revenue growth would have been approximately 6% year over year.

In the reported quarter, the company’s U.S. Spinal Hardware business registered more than 2% growth backed by introduction of new products. Adjusting the impact of the hurricanes and offsetting the effect of one less selling day, the U.S. Spinal Hardware business approximately grew 5% year-over-year.

The U.S. Surgical Support business declined 12.7% in the third quarter, primarily on continued softness in biologics business. With new competitive products entering the market, the company faces challenges in the field. Also, procedural issues are affecting revenue volumes.

However, the international business recorded 46% growth at CER on continued strong demand of the company’s spine technology outside the United States, particularly in the key markets of Italy, Germany and Japan.

In the quarter under review, there was a 10.8% increase in cost of goods sold. Despite that, gross profits inched up 0.8% to $181.8 million. Yet the company reported a 180-basis point (bps) year-over-year contraction in gross margin to 73.5% in the third quarter that includes a 90-bps year-over-year impact from low-margin businesses.

Sales, marketing and administrative expenses went down 4.6% to $125.8 million, while research and development expenses increased 1.6% to $12.7 million.

NuVasive posted adjusted operating income of $43.3 million in the reported quarter, reflecting a 20.1% rise from the year-ago number. Adjusted operating margin expanded 247 bps to 17.5% in the quarter under review.

The company exited third-quarter 2017 with cash, cash equivalents and short-term investments of $62.2 million, down from $130.9 million at the end of the previously reported quarter.

Outlook

In view of the continued impact of Maria in Puerto Rico in the fourth quarter as well as the anticipated lower U.S. procedural volumes, NuVasive has updated its full-year 2017 guidance.

Currently, the company expects to report revenue growth of 7.2%, lower than the earlier expected rate of 11.1% at CER to approximately $1.030 billion (earlier it was $1.065 billion) in 2017. The figure also remains lower than the current Zacks Consensus Estimate of $1.06 billion.

NuVasive also lowered its guidance for full-year 2017 adjusted earnings per share to $1.91 as compared to the previous expectation of $2 per share. The current Zacks Consensus Estimate of $1.99 remains significantly above the company’s guidance. Additionally, adjusted operating margin for the year is currently expected at 16.6% compared with the former projection of 17.1%.

Our Take

NuVasive exited the third quarter with better-than-expected earnings and revenue numbers. This quarter, the company’s performance was significantly dependent on stellar international growth. The company noted that the reported quarter marked the fourth consecutive one, registering more than 20% growth in international business. However, overall sales in the quarter were grossly impacted by procedural volumes related challenges in the United States and the adverse impact of Harvey and Irma on NuVasive’s U.S. results and Maria on the international front.

With chances of the fourth-quarter revenues being affected by Maria in Puerto Rico and due to the anticipated lower U.S. procedural volumes continuing into the same period, NuVasive is pressed to reduce its full-year guidance, which is disappointing.

Zacks Rank & Key Picks

Currently, NuVasive has a Zacks Rank #4 (Sell).

A few better-ranked stocks in the broader medical sector are PetMed Express, Inc. PETS, Abbott ABT and Intuitive Surgical, Inc. ISRG. Notably, PetMed sports a Zacks Rank #1 (Strong Buy), while both Abbott and Intuitive Surgical carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed reported EPS of 43 cents for the second quarter of fiscal 2018, up 79.2% from 24 cents, reported in the year-ago quarter. Also, gross margin expanded 548 bps year over year to 35.2% in the reported quarter.

Abbott reported third-quarter 2017 adjusted earnings from continuing operations of 66 cents per share, up 11.9% year over year. Also, third-quarter worldwide sales came in at $6.83 billion, up 28.8% year over year. 

Intuitive Surgical posted adjusted earnings of $2.77 per share in the third quarter of 2017, up 34.5% on a year-over-year basis. Also, revenues increased 18% year over year to $806.1 million.

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PetMed Express, Inc. (PETS): Free Stock Analysis Report
 
Abbott Laboratories (ABT): Free Stock Analysis Report
 
Intuitive Surgical, Inc. (ISRG): Free Stock Analysis Report
 
NuVasive, Inc. (NUVA): Free Stock Analysis Report
 
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