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CONMED (CNMD) Q3 Earnings and Revenues Beat, Margin Down

CONMED Corporation CNMD reported third-quarter 2017 adjusted earnings of 42 cents per share, beating the Zacks Consensus Estimate by a penny. Moreover, earnings improved almost 2.4% on a year-over-year basis, courtesy of strong revenues.

Revenues rose 2.9% to approximately $190.1 million, surpassing the Zacks Consensus Estimate of $187 million by 1.7%. Sales also rose 2.4% on a constant currency basis (cc).

Revenue Details

In terms of product line, orthopedic surgery (51.9% of net sales) declined 1.6% on a year-over-year basis at cc. Sales at this segment totaled $98.6 million. On the other hand, the general surgery segment (48.1% of net sales) increased 7% on a year-over-year basis at cc. Sales at this segment totaled $91.5 million.

In terms of product category, sales for single-use products increased 4% at cc and accounted for 80.6% of net sales. Coming to the capital products, sales declined 3.8% at cc.

On the basis of geographies, CONMED witnessed a 0.9% fall in domestic revenues, which were almost 51.7% of net sales. Notably, domestic revenues were negatively impacted by approximately $2 million, thanks to the occurrences of the hurricanes Harvey and Irma. Precisely, the CONMED operations in the regions of Texas, Florida and South Carolina were hurt in the third quarter. Per management, the company incurred approximately $800,000 loss in domestic General Surgery, while the remaining $1.2 million was in domestic Orthopedics unit as a result of the natural disasters.

However, the company witnessed 7.3% organic growth in international markets. Coming to foreign-currency exchange rates, CONMED had a favorable impact of $0.9 million on third-quarter sales internationally.

CONMED Corporation Price, Consensus and EPS Surprise

 

Margin Details

Adjusted gross margin in the fourth quarter, excluding restructuring costs, declined 20 basis points (bps) year over year to 54.6% from 54.8% in the same quarter last year.

Per management, the deterioration in gross margin is primarily attributable to unfavorable pricing, which was partially compensated for by favorable foreign exchange volatility which benefitted margins by 10 bps.

Balance Sheet

CONMED had a cash balance of $44 million at the end of third-quarter 2017, with $494.8 million in long-term debt. The inventory balance was $149.5 million at the end of the third quarter.

Guidance

For the full year, CONMED raised sales growth guidance to the band of 2.5-3.25%, reflecting a raise from the prior guidance of 2-3% at cc. The company now projects adjusted earnings per share in the range of $1.85- $1.90 from the previously provided range of $1.85-$1.95. Management expects adjusted gross margin, excluding restructuring costs in the band of 55-56%, as a percentage of revenues.

Our Take

CONMED exited the third quarter on a promising note. The strength in General Surgery business on the back of strong performances by Advanced Surgical and Endoscopic Technologies buoys optimism. Moreover, the raised revenue guidance is indicative of brighter prospects ahead.

On the flip side, declining sales in Orthopedic surgery is a concern. Also, CONMED operates in a highly competitive environment which is likely to mar top-line growth.

Zacks Rank & Key Picks

CONMED has a Zacks Rank #4 (Sell).

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

PetMed reported earnings per share 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.

Luminex reported adjusted earnings per share of 19 cents in the third quarter of 2017, up 216.7% year over year. The company’s revenues in the quarter increased almost 4.1% year over year to $74.1 million.

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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