A month has gone by since the last earnings report for Integra LifeSciences (IART). Shares have added about 8.6% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Integra due for a pullback? 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.
Integra’s Q1 Earnings Miss Estimates, Margins Down
Integra LifeSciences delivered adjusted earnings per share (EPS) of 48 cents in the first quarter of 2020, down 26.2% from a year ago. The metric missed the Zacks Consensus Estimate by 20%.
The adjustment excludes the impact of certain non-recurring charges like structural optimization, acquisition and integration-related, COVID-19 and intangible asset amortization expenses, among others.
GAAP EPS for the first quarter was 11 cents, reflecting a plunge of 71.1% from the year-ago quarter.
Total revenues in the reported quarter declined 1.5% year over year to $354.3 million, which lagged the Zacks Consensus Estimate by 2.7%. Organically, revenues dropped 0.1% year over year.
The revenue decline can be attributed to lower surgical procedures related to COVID-19 during the second half of March. The revenue figure, however, was encouraging till the first half of March.
Coming to product categories, revenues from the Codman Specialty Surgical (CSS) segment fell 1.3% to $231.4 million (organic growth was 0.5%). However, the segment was boosted by strong international sales led by strength in Japan. Also, advanced purchases in several indirect markets like China, due to precautionary concerns over the pandemic, contributed to the top line.
Orthopedics and Tissue Technologies (OTT) revenues totaled $122.9 million in the first quarter, down 1.5% year over year. Organically, the segment fell 1.2%. The strong demand for AmnioExcel and SurgiMend, which were driven by an uptick in supplies resulting from capital investments initiated last year at the Boston and Memphis facilities, contributed to the top line.
In the reported quarter, gross profit totaled $220.8 million. Gross margin contracted 183 basis points (bps) to 62.3% on a 4.3% fall in gross profit. Per the company, adjusted gross margin was 68.3%, contracting 10 bps.
Selling, general and administrative expenses contracted 5.1% to $165.9 million in the quarter under review, while research and development expenses rose 13.6% to $20.8 million.
Overall, adjusted operating profit was $34.1 million, down 9.3% year over year. Adjusted operating margin saw an 83-bp contraction year over year to 9.6%.
Integra exited the first quarter of 2020 with cash and cash equivalents of $357.7 million, up from $198.9 million at the end of 2019.
At the end of the first quarter, net cash flow from operating activities was $20.8 million compared with $29.5 million in the year-ago quarter.
2020 Outlook Withdrawn
Given the current economic situation due to the pandemic, Integra is unable to assess the actual magnitude of the impact on its financial results. Hence, the company has announced the withdrawal of its 2020 guidance issued on Feb 19, 2020 as was confirmed by it on Apr 7 while releasing its preliminary results for the first quarter.
How Have Estimates Been Moving Since Then?
Estimates review followed a downward path over the past two months. The consensus estimate has shifted -88.8% due to these changes.
Currently, Integra has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Integra has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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