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Globus Medical (GMED) Q1 Earnings Miss Mark, Margins Weak

Zacks Equity Research

Globus Medical, Inc. GMED reported first-quarter 2019 adjusted earnings per share (EPS) of 36 cents, missing both the Zacks Consensus Estimate and the year-ago figure by 12.2%.

On a reported basis, the company registered earnings of 33 cents per share, translating to a 15.4% decline from the year-ago quarter.

Revenue Details

First-quarter 2019 worldwide sales summed $182.9 billion, up 4.9% (up 5.7% at constant exchange rate or CER) year over year. The figure, however, lagged the Zacks Consensus Estimate of $186 million. Also, net sales totaled $713 million in the period, up 12.1% year over year.

During the quarter under review, sales generated in the United States including robotic inched up 1.3% year over year. Quarterly seasonality and longer sales cycles dampened robotic sales in the reported period.

Globus Medical, Inc. Price, Consensus and EPS Surprise

Globus Medical, Inc. Price, Consensus and EPS Surprise | Globus Medical, Inc. Quote

International sales rose 23% from the year-earlier quarter (up 27.9% at CER).

Musculoskeletal solutions products generated revenues of $175.8 million, up 8.7% year over year. Enabling Technologies products revenues were $7.2 million in the quarter, representing a 44% decline from the prior-year period.

Margins

Gross margin came in at 77.1%, inducing a contraction of 110 bps in the first quarter. Selling, general and administrative expenses were up 13.3% to $85.7 million. Further, research and development expenses escalated 275.2% to $47.6 million. Adjusted operating margin declined a massive 2333 bps to 4.2% during the quarter under consideration from the year-ago level of 27.6%.

Cash Position

Globus Medical exited the first quarter with cash and cash equivalents and short-term marketable securities of $320.7 million compared with $339.8 million in 2018. For the first quarter, net cash provided by the operating activities was $39.2 million compared with $52.3 million a year ago.

2019 Guidance

The company reaffirmed its 2019 revenue and adjusted EPS guidance as follows:

Sales in 2019 are still projected to be $770 million. The Zacks Consensus Estimate for revenues is pegged at $769.8 million.

Adjusted EPS for 2019 is once again expected at $1.72. The Zacks Consensus Estimate for the metric is currently stands at $1.71 per share.

Our Take

Globus Medical suffered a dismal first-quarter performance with both earnings and revenues falling short of the respective Zacks Consensus Estimates. Per the company, the first quarter of the year is typically challenging seasonwise for capital equipment, which grossly impacted sales during the quarter. On a positive note, US spine business grew 6%, significantly above the overall market.

However, escalating costs and expenses put immense pressure on the company’s bottom line.

Zacks Rank & Other Key Picks

Globus Medical carries a Zacks Rank #2 (Buy). Some other top-ranked stocks boasting solid results this reporting cycle are Stryker Corporation SYK, Abbott Laboratories ABT and CONMED Corporation CNMD, each carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stryker delivered first-quarter 2019 adjusted EPS of $1.88, beating the Zacks Consensus Estimate by 2.2%. Meanwhile, revenues of $3.52 billion matched the Zacks Consensus Estimate.

Abbott reported first-quarter 2019 adjusted EPS of 63 cents, topping the Zacks Consensus Estimate by 3.3%. Further, first-quarter worldwide sales came in at $7.54 billion, higher than the consensus estimate of $7.47 billion.

CONMED posted first-quarter 2019 adjusted EPS of 57 cents, exceeding the Zacks Consensus Estimate of 54 cents. Revenues also summed $218.4 million, outpacing the consensus mark of $213 million.

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