Disappointing 1Q Earnings for IART - Analyst Blog
May 10 2013 - 6:08AM
Zacks
Integra LifeSciences Holdings Corp. (IART)
reported adjusted earnings per share (EPS) of 39 cents in the first
quarter of 2013, declining 45.1% from the year-ago quarter, as well
as below the Zacks Consensus Estimate of 48 cents by 18.9%.
However, including some one-time items, the company reported net
loss of $4.1 million or 15 cents per share came in narrower than
net income of $6.7 million or 23 cents a share reported in first
quarter of 2013. Decline in the earnings is attributable to product
recall, from all the segments except Extremities, and related
product shortages.
Revenue Details
Total revenue during the reported quarter increased marginally
by 0.2% year over year (flat at constant exchange rates or CER) to
$196.7 million. The revenue came in below the Zacks Consensus
Estimate of $200 million.
The revenue remained sluggish mainly due to the product recall
which hurt the topline by $2.9 million. Owing to this recall, the
company is estimated to have lost the opportunity to tap sales in
the range of $6 million and $7 million. Sales of DuraGen and few
selected products in the company’s Private Label business were
adversely affected due to this recall.
Segment Revenues
Revenues from U.S. Neurosurgery declined 3.0% year over year to
$39 million. Within this segment, the product recall affected the
dural repair sales. Sales of tissue ablation, critical care and
cranial stabilization increased in mid-single digits.
U.S. Instruments revenue decreased 2.8% year over year to $36.9
million. Low sales in Xenon lighting and alternate site products
led to the decline in revenues. Increase in LED lighting,
instruments and retractors sales to hospitals partially offset the
lower sales.
International segment revenue declined 1.7% year over year to
$45.8 million. Product recalls and product shortages drove the
decline within this segment.
Revenue in the U.S. Extremities segment surged 18% year over
year as the product recall did not affect this segment. Robust
demand in regenerative medicine, and foot and ankle business drove
the segment’s revenue. Revenue of all the products increased at
about double-digits.
Revenue from U.S. Spine & Other decreased 2.8% year over
year to $43.5 million. Decline in the segment’s revenue is
attributable to low sale of spinal hardware products. Sale of
spinal hardware products decreased mainly due to pricing pressure
and a challenging market. Within this segment Orthobiologics sales
increased while sales in the Private Label business decreased due
to the product recall.
Margins
Integra witnessed a 4.2% year over year decrease in gross profit
to $116.4 million. Gross margin during the quarter was down 270
basis points (bps) to 59.2%. During the quarter, research and
development expenses increased 6.7% to $12.7 million while selling,
general and administrative expenses increased 14.6% year over year
to $100.2 million. For the quarter, the company incurred an
operating loss of $44 million compared to operating profit of $17.5
million.
Balance Sheet
Integra exited the first quarter of 2013 with $89.7 million in
cash and cash equivalents compared with $96.9 million at the end of
2012. The company used $7.8 million in cash flow from operations
and invested $10.9 million in capital expenditures in the
quarter.
Outlook Lowered
Integra lowered its fiscal 2013 guidance. The company expects to
generate revenues between $840 million and $852 million down from
the previously guided range of $865 million and $880 million.
Adjusted EPS were guided in the range of $2.40-$2.70 from the
previously guided $3.08−$3.27. The current Zacks Consensus Estimate
for revenues and EPS of $844 million and $2.49, respectively, are
in line with the company’s guided range.
Our Take
This quarter the financials of the company were adversely
affected owing to the product recalls. The product recall and
related product shortages hurt all its segments except
extremities.
On the other hand, future company initiatives such as planned
product launches and acquisitions are expected to accelerate sales
growth for the next several quarters.
However, tighter capital spending and pricing pressure continue
to challenge the market. Moreover, the company believes that the
medical device excise tax and new depreciation on its ERP system
will temper its 2013 margin growth.
Currently, the company retains a Zacks Rank #5 (Strong
Sell).
While we prefer to remain on the sidelines on Life Technologies,
other medical device stocks worth a look are Athersys,
Inc. (ATHX), Anika Therapeutics Inc.
(ANIK) and Aeterna Zentaris Inc. (AEZS). All these
stocks carry a Zacks Rank #1 (Strong Buy).
AETERNA ZENTARS (AEZS): Free Stock Analysis Report
ANIKA THERAPEUT (ANIK): Free Stock Analysis Report
ATHERSYS INC (ATHX): Free Stock Analysis Report
INTEGRA LIFESCI (IART): Free Stock Analysis Report
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