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CONMED (CNMD) Q3 Earnings Meet Estimates, Improve Y/Y

Zacks Equity Research

CONMED Corporation CNMD reported third-quarter 2016 adjusted earnings of 41 cents per share, in line with the Zacks Consensus Estimate. Further, earnings improved almost 9% on a year-over-year basis, courtesy of strong revenues.

Revenues surged 9.2% to approximately $184.8 million, well ahead of the Zacks Consensus Estimate of $180 million. Sales rose 11.2% on a constant currency basis (cc) and 0.8% organically.

Coming to share price movement, CONMED surged approximately 3.6% following the earnings release. However, market sentiments for the company have not been very promising of late. The company represents a negative one-year return of 4.7%, lower than the S&P 500’s 1.6% over the same time frame.

Quarter Highlights

The acquisition of AirSeal has been highly accretive for the company in the reported quarter. Notably, sales from the acquisition totaled $17.3 million, with total sales of $48.5 million on a year-to-date basis.

The domestic Endoscopic Technology business was one of the major factors driving CONMED’s growth trajectory, courtesy of new products and an expanded sales force. Notably, this quarter marked the third consecutive quarter of growth for the platform.

 

During the quarter, the company witnessed the international release of the Edge Bipolar Arthroscopic System. Apart from the U.S., the system got launched in the countries of Canada, Australia, Europe, Latin America and Middle East, Africa and the majority of Asia.

CONMED discontinued the sale of its flagship ‘Altrus tissue sealing device’ in the reported quarter. Notably, this resulted in a $400,000 loss in the third quarter, and is expected to be ‘a $480,000 headwind’ in the fourth quarter.

The company also witnessed strong sales in the export markets, marking its first quarter of organic constant currency growth in over two years on solid sales in Japan, Asia and Latin America.

Quarter in Detail

A glimpse on the revenues on the basis of geographies, domestic sales accounted for 53.7% of total revenue and increased 13%, courtesy of solid sales in the General Surgery unit. International sales, which represented 46.3% of the total revenue, increased 5.1% (up 9.2% at cc) on a year-over-year basis. Notably, unfavorable foreign exchange had a negative impact of $3.4 million on third-quarter sales.

In terms of product category, CONMED generated sales of almost $146.7 million and $38.1 million from Single-use and Capital products, respectively. Single-use products sales increased 8.7% (up 10.7% at cc), while capital products sales rose 11.2% (up 13.2% at cc) on a year-over-year basis.

CONMED CORP Price, Consensus and EPS Surprise

 

CONMED CORP Price, Consensus and EPS Surprise | CONMED CORP Quote

Coming to product lines, Orthopaedic surgery sales decreased 1.1% at cc to $86.3 million. U.S. sales decreased 3.5% and international sales were up 0.6% at cc at the segment.  Sales from General Surgery surged almost 29.2% (up 30.6% at cc) to $85.4 million. U.S. sales increased 32.1%, while international sales were up 27.7% at cc in the sector. The Surgical Visualization unit recorded sales of $13.1 million, down 3% from the year-ago quarter, at cc. Sales in this platform slumped 16.1% in the U.S., however grew 14.8% internationally on a year-over-year basis, fueled by solid growth in the export markets.

Balance Sheet

CONMED had a cash balance of $26.9 million at the end of third-quarter 2016, with $490.2 million of long-term debts. The inventory balance was $188.5 million at the end of the third quarter.

Margin Details

Adjusted gross margin in the third quarter, excluding restructuring costs, declined 130 basis points (bps) year over year to 54.8% from 56.1% recorded in the same quarter last year.

Per management, the drag in the gross margin is primarily attributable to unfavorable pricing mix and foreign exchange volatility which impacted the margins by 50 bps and 80 bps respectively.

Adjusted EBITDA margin in the third quarter of 2016 was 16.9% compared with 17.9% in the same quarter last year. The unfavorable foreign exchange impact marred EBITDA margin in third-quarter 2016 as well by 130 bps.

Selling and administrative expenses increased 9.6% to approximately $79 million, while research and development expenses surged 25.6% to $8.3 million.

Guidance

CONMED reiterated its previously issued guidance.

CONMED estimates sales in the range of $757 million to $767 million, which represents growth of 5.3% to 6.7%. The guidance reflects organic sales growth of -1% to 1% at cc.

The company estimates a $17 million to $19 million impact of foreign exchange on sales for the year.

Sales from the SurgiQuest acquisition are expected in the band of $62 million to $67 million.

Management maintains adjusted gross margin projection, excluding restructuring costs, at the range of 54.5% to 55.5% for the full year.

Adjusted earnings are now projected in the band of $1.83 to $1.93 per share.

Zacks Rank & Key Picks

Currently, CONMED carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader medical sector are Intuitive Surgical Inc. ISRG, AngioDynamics Inc. ANGO and Glaukos Corporation GKOS. Notably, AngioDynamics and Intuitive Surgical carry a Zacks Rank #2 (Buy) while Glaukos sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical has a long-term expected earnings growth rate of approximately 11.35%. The stock represents an impressive one-year return of approximately 32.2%.

AngioDynamics has a long-term expected earnings growth rate of 15.00%. The company posted a solid one-year return of almost 21.8%.

Glaukos Corporation recorded a stellar one-year return of almost 66.09%. Notably, the company posted positive surprises in the past four quarters, the average being 110.93%.

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