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CONMED's 2Q Earnings Disappoint; Guides Down

Zacks Equity Research

CONMED Corporation’s (CNMD) second-quarter 2013 adjusted earnings per share (excluding one-time expenses) of 43 cents missed the Zacks Consensus Estimate by 2 cents. Adjusted earnings exclude one-time items such as facility and administrative consolidation costs and legal charges.

The result, although flat year over year, was within the company’s guidance of 41–46 cents. Adjusted earnings would have increased by 7.0% excluding the medical devices excise tax.

The medical technologies and surgical devices company’s reported net income grew 8.0% year over year to $10.3 million (or 36 cents per share) in the quarter.


Revenues increased 1.7% year over year (up 2.3% at constant exchange rate or CER) to $193.0 million. However, revenues missed the Zacks Consensus Estimate of $196 million. It also failed to meet the company’s revenue guidance of $191–$196 million, announced in the previous quarter. On an organic basis, sales clambered 0.1% in the quarter, reflecting a soft healthcare utilization and spending environment in the global economy.

On a geographic basis, sales in the international markets (51.8% of total sales) were $100 million. Foreign currency headwind (including the impact of the foreign exchange hedging program) lowered sales by $1.1 million from the comparable year-ago period.

In addition, single-use products sales (80% of total sales) inched up 0.7% at CER to $153.8 million and capital offerings (20% of total sales) grew 9.2% at CER to $39.2 million in the quarter.

Segment Analysis

Effective Jan 1, 2013, the company has integrated its various segments into three categories viz. orthopedic surgery, general surgery and surgical visualization. The reshuffling became necessary after the acquisition of Viking in 2012.

The orthopedic surgery product line includes CONMED’s sports medicine group and power surgical instruments. Revenues from this product line declined 1.1% at CER to $101.8 million.

CONMED has combined its electrosurgery, endosurgery, endoscopic technologies and patient care into the general surgery categorization. On a positive note, revenues from the general surgery product group increased 2.7% at CER to $73.2 million.

Revenues from the surgical visualization line, which includes all 2D and 3D imaging devices, jumped 25.2% at CER to $18.0 million in the quarter. This reflects a marked improvement from the sales downfall in the first quarter of 2013.


Adjusted gross margin (excluding consolidation of production facilities expenses) grew 100 basis points (bps) to 54.2% in the second quarter of 2013. Selling and administrative charges rose 4.7% to $77.2 million, while research and development expenses declined 8.4% to $6.6 million in the quarter.

On an adjusted basis, operating margin increased 20 bps to 10.8% of sales. Adjusted operating margin excludes one-time expenses, including the medical device excise tax.

Balance Sheet

CONMED exited the second quarter of 2013 with cash and cash equivalents of $38.1 million, up more than twofold year over year. Long-term debt (inclusive of current portion) increased 39.4% year over year to $234.1 million.

Operating cash flow was $17.7 million in the quarter, up more than threefold sequentially. The company repurchased 0.6 million shares in the quarter amounting to $19.0 million.


CONMED lowered its guidance for 2013 owing to the austerity measures prevailing in Europe as well as lower healthcare utilization rates in the U.S. The company lowered the top end of its previous earnings guidance of $1.80–$1.90 per share to $1.80–$1.85 per share. The guidance assumes the impact of the medical device excise tax and foreign exchange headwinds. The Zacks Consensus Estimate for 2013 of $1.85 per share is pegged at the high end of the guidance.

Similarly, management also lowered its 2013 sales forecast to $770–$775 from $770–$780 million. The current Zacks Consensus Estimate for revenues stands at $790 million, which lies significantly above the guided range.

The company expects third-quarter 2013 adjusted earnings in the range of 37 cents to 42 cents. The Zacks Consensus Estimate of 44 cents is above the provided range.

For the third quarter, revenues are projected to remain in the band of $184 million and $189 million. The current Zacks Consensus Estimates of $188 million lies within the guided range.

Our Take

We are disappointed with CONMED’s second-quarter results, which missed the Zacks Consensus Estimates on both fronts. The persistent dismal macroeconomic conditions along with poor capital spending and sluggish volume/procedure growth remain causes of concern. Moreover, the company operates in a highly competitive orthopedic surgery market against much larger, more technically competent companies.

CONMED’s tempered guidance failed to impress us as well. However, the only positive factor we took note of was the company’s margins, reflecting leveraged operating efficiency and cost saving initiatives.

The company carries a Zacks Rank #3 (Hold). Other medical stock companies like Alere (ALR) and Steris (STE), carrying a Zacks Rank #1 (Strong Buy), as well as The Cooper Companies (COO), carrying a Zacks Rank #2 (Buy), are worth considering.

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