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Integra (IART) Lags Q1 Earnings Estimates, Withdraws Outlook

Zacks Equity Research

Integra LifeSciences Holdings Corporation IART 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.

Revenue Discussion

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.

Integra LifeSciences Holdings Corporation Price, Consensus and EPS Surprise

 

Integra LifeSciences Holdings Corporation Price, Consensus and EPS Surprise

Integra LifeSciences Holdings Corporation price-consensus-eps-surprise-chart | Integra LifeSciences Holdings Corporation Quote

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.

Segmental Details

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.

Margin Trend

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%.

Financial Position

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.

Our Take

Integra exited the first quarter with lower-than-expected results. The company registered disappointing overall and segmental performances due to coronavirus-led business disruptions. The contraction in both margins as well as the company’s guidance withdrawal is discouraging.

However, we are upbeat about the CSS segment’s strong international sales as well as OTT segment’s solid product demand.

Zacks Rank and Stocks to Consider

Integra currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader medical space are Aphria Inc. APHA, Biogen Inc. BIIB and Eli Lilly and Company LLY.

Aphria reported third-quarter fiscal 2020 adjusted EPS of 2 cents, comparing favorably with the Zacks Consensus Estimate of a loss of 4 cents. Net revenues of $64.4 million outpaced the consensus estimate by 14.6%. The company carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Biogen currently carries a Zacks Rank #2. It reported first-quarter 2020 adjusted EPS of $9.14, surpassing the Zacks Consensus Estimate by 18.1%. Revenues of $3.53 billion outpaced the consensus mark by 3.2%.

Eli Lilly delivered first-quarter 2020 EPS of $1.75, outpacing the Zacks Consensus Estimate by 12.9%. Revenues of $145.3 million surpassed the consensus estimate by 6.3%. The company currently sports a Zacks Rank #1.

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