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Integra LifeSciences (IART) Misses on Q3 Earnings & Revenues

Integra LifeSciences Holdings Corporation IART reported adjusted earnings per share (EPS) of 45 cents in the third quarter of 2017, which declined 2.2% from the year-ago figure.

Adjusted EPS also missed the Zacks Consensus Estimate of 47 cents. Including one-time items, the company reported earnings of 4 cents per share, down 54% from the year-ago quarter.

Revenue Discussion

Total revenue in the reported quarter increased 11.4% year over year to $278.8 million, which lagged the Zacks Consensus Estimate of $286 million. Excluding revenues from acquisitions, discontinued products and the effect of currency exchange rates, organic revenues rose 1.5% year over year.

The solid revenue growth in the third quarter was primarily driven by strong contribution from the Orthopedics and Tissue Technologies segments.

Coming to product categories, revenues from the company's Specialty Surgical Solutions segment increased 3.4% to $164.8 million.

Orthopedics and Tissue Technologies revenues came in at $114.1 million in the third quarter, up 25.5% year over year.

Margin Trend

Gross margin contracted 81 basis points (bps) to 63.5% in the reported quarter. Per the company, adjusted gross margin contracted 60 bps to 68.7%.

Selling, general and administrative expenses increased 29.9% to $145.9 million in the reported quarter, while research and development expenses contracted 0.6% to $15 million. Adjusted operating margin saw a 763-bps contraction to 5.8% in the third quarter.

Financial Position

Integra LifeSciences exited third-quarter 2017 with cash and cash equivalents of $481.9 million, up from $154.6 million recorded at the end of second-quarter 2017. As of Sep 30, 2017, net cash flow from operating activities was $102.9 million, down from $109.9 million in the year-ago quarter.

2017 Outlook Tweaked

Management has raised the full-year 2017 revenue guidance from $1.125-$1.140 billion to $1.165-$1.175 billion. Meanwhile, full-year 2017 organic revenue growth range was lowered to 4% from 6% to 7%. The Zacks Consensus Estimate for full-year 2017 revenues is $1.20 billion, below the guided range.

The company has revised its full-year 2017 adjusted EPS guidance to$1.83-$1.87 from the previous range of $1.88-$1.94. The Zacks Consensus Estimate for 2017 adjusted earnings is pegged at $1.91, above the company’s guided range.

Our Take

Integra LifeSciences exited the third quarter of 2017 on a disappointing note. Also, contraction in adjusted operating margin and adjusted gross margin adds to the woes. Moreover, the drop in year-over-year investments in research and development is discouraging. In spite of the raised full-year revenue guidance, the slashed full-year adjusted earnings range adds to the woes.

However, the strong year-over-year increase in revenues on the back of its Orthopedics and Tissue Technologies segment buoys optimism. We are also encouraged to note that the company’s segments saw year-over-year revenue growth in the quarter. Nonetheless, we believe the company is trying to execute its growth plan through an efficient management team.

Zacks Rank & Key Picks

Integra LifeSciences has a Zacks Rank #3 (Hold).

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 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 in the second quarter of fiscal 2018, up 79.2% from the year-ago quarter’s 24 cents. 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
 
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