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Why Is Integra (IART) Down 0.5% Since Last Earnings Report?

Zacks Equity Research
Monotype (TYPE) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

It has been about a month since the last earnings report for Integra LifeSciences (IART). Shares have lost about 0.5% in that time frame, underperforming the S&P 500.

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

Integra LifeSciences Posts Earnings Beat, Gross Margin Up

Integra LifeSciences delivered adjusted earnings per share (EPS) of 65 cents in the fourth quarter of 2018, up 1.6% from the year-ago figure. The same surpassed the Zacks Consensus Estimate by 4.8%.
Adjusted EPS in 2018 came in at $2.42, up 24.7% year over year.

Revenue Discussion

Total revenues in the reported quarter rose 4% year over year to $383.3 million and surpassed the Zacks Consensus Estimate by 0.6%. Excluding revenues from current-period acquisitions, product discontinuations and the effect of currency exchange rates, organic revenues rose 4.4% year over year. Per management, strength in the U.S. Codman Specialty Surgical business drove the top line in the reported quarter.

Revenues in 2018 came in at $1.47 billion, up 23.9% year over year.

Coming to product categories, revenues from the company's Codman Specialty Surgical segment rose 4.1% to $249.3 million. The improvement came primarily on the back of the Codman consolidation and solid performance by the Dural Access and Repair, Advanced Energy and Precision Tools and Instruments.

Orthopedics and Tissue Technologies revenues totaled $134 million in the fourth quarter, up 3.7% year over year. The upside was fueled by continued strength in Regenerative Technologies and Private Label businesses.

Margin Trend

Gross margin expanded 200 basis points (bps) to 61.8% in the reported quarter on a 7.4% rise in gross profit to $236.8 million. Selling, general and administrative expenses declined 7% to $177.2 million in the quarter under review while research and development expenses rose 18% to $20.3 million. However, adjusted operating margin saw a 690-bp expansion to 10.3% in the quarter.

Financial Position

Integra exited 2018 with cash and cash equivalents of $138.8 million, down from $174.9 million at the end of 2017. In 2018, net cash flow from operating activities was $199.7 million, up from $114.5 million a year ago.

2019 Outlook

Integra has provided its earnings and revenues guidance for 2019. The company expects 2019 revenues in the range of $1.515-$1.525 billion, showing 3.5% growth at the midpoint. Organic revenue growth is expected at roughly 5%. The Zacks Consensus Estimate for 2019 revenues is pinned at $1.53 billion, near the high end of the guided range.

The company expects adjusted earnings per diluted share in the range of $2.65-$2.72. The Zacks Consensus Estimate for 2019 adjusted earnings is pegged at $2.66, within the company’s guided range.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

At this time, Integra has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Integra has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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