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Integer (ITGR) Down 18% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Integer (ITGR). Shares have lost about 18% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Integer due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Integer Holdings Q2 Earnings Beat, Revenues Miss

Integer Holdings reported second-quarter 2019 adjusted earnings of $1.23 per share, which surpassed the Zacks Consensus Estimate of $1.06 by 16%. The bottom line also advanced 16% on a year-over-year basis.

Revenues improved 0.1% year over year to $314.2 million on a reported basis. However, the top line missed the Zacks Consensus Estimate by 1.7%.

Segmental Analysis

Integer Holdings operates through two segments — Medical Sales and Non-Medical Sales.

Medical Sales

At the segment, reported revenues were $297.5 million, down 0.6% year over year. Revenues remained flat year over year on an organic basis.
Medical Sales has three sub-segments — Advanced Surgical, Orthopedics and Portable Medical (AS&O); Cardio and Vascular; and Cardiac/Neuromodulation.

Advanced Surgical, Orthopedics and Portable Medical

Integer Holdings’ Advanced Surgical, Orthopedics & Portable Medical segment has been divested to Viant. Consequently, revenues at the segment include net sales from the acquirer Viant under supply agreements associated with the divestiture.

Revenues amounted to $32.6 million, down 6.1% from the prior-year quarter. Further, the metric deteriorated 2.3% on an organic basis. Per management, growth in Portable Medical was offset by a decline in advanced surgical and orthopedics products.

Cardio and Vascular

Revenues at the segment totaled $150.4 million, up 1.1% from the prior-year quarter and 1.6% organically. Per management, revenues increased on the back of solid peripheral vascular and structural heart growth. However, the estimated impact of an electrophysiology program maturing life cycle and supplier quality related delay offset the upside.
 
Cardiac/Neuromodulation
 
Revenues at this segment totaled $114.5 million, down 1.3% from the prior-year quarter and also on an organic basis due to soft performance at neuromodulation.

Non-Medical Sales

Reported revenues at the segment totaled $16.7 million, up 11% on both year over year and organic basis.

Margin Analysis

Integer Holdings generated a gross profit of $96.9 million in the second quarter, down 1.8% year over year. As a percentage of revenues, gross margin in quarter contracted 50 bps to 30.9%.

Selling, general and administrative expenses (SG&A) were $33.1 million, down 9.9% year over year.
 
Research, development and engineering costs grossed $11.4 million in the quarter, down 11.9% year over year.

Total operating income amounted to $49.3 million, up 11.2% year over year. Adjusted income from operations totaled $40.6 million, improving 16.9% year over year.

Operating margin in the quarter under review was 15.7%, up 160 bps year over year.

Guidance Revised

For 2019, adjusted earnings are expected in the range of $4.25-$4.45 (up from the previously guided range of $4.15-$4.35 per share), indicating an improvement of 12-17% from the previous year. The mid-point of the latest guidance range of $4.35 is lower than the Zacks Consensus Estimate of $4.40.

On a reported basis, Integer Holdings expects 2019 earnings to range between $2.89 and $3.09 (up from the prior band of $2.87-$3.07 per share), suggesting a whopping growth of 101-115% year over year.

For 2019, Integer Holdings expects reported revenues between $1.27 billion and $1.28 billion, reflecting year-over-year growth of 4-5%. On an adjusted basis, the company expects revenues in the same band, indicating an improvement of 4-6% from the previous year. Notably, the mid-point of the guidance is in line with the Zacks Consensus Estimate of $1.28 billion.

Adjusted income from operations is anticipated between $140 million and $147 million (up from the previously guided range of $137-$144 million), indicating year-over-year improvement of 13-18%.

How Have Estimates Been Moving Since Then?

Estimates review followed a downward path over the past two months.

VGM Scores

Currently, Integer has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Integer has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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