CONMED Beats 4Q Estimates - Analyst Blog

By Zacks | February 15, 2013 AAA

CONMED Corporation (CNMD), a medical technologies and surgical devices company, reported fourth-quarter 2012 adjusted earnings (excluding one-time expenses) of 52 cents per share, beating the Zacks Consensus Estimate of 50 cents. The company also surpassed the year-ago earnings of 46 cents a share, up 13.0%.

Adjusted earnings exclude one-time items such as severance and relocation costs of $4 million, before taxes associated with the Viking acquisition, certain relocation and restructuring activities. Also excluded were the integration charges related to the buyout of a distributor and certain legal charges.

Profit in the reported quarter was $10.9 million (or 38 cents per share) compared with a loss of $25.1 million (or a loss of 90 cents per share) in the year-ago quarter. In the prior-year quarter, the company was affected by the impact of high non-cash goodwill impairment charge (of $60.3 million) related to its Patient Care business. Healthy sales growth across all segments (except Patient Care) and margin expansion led to incremental results.

For the full year, adjusted earnings of $1.80 a share beat the Zacks Consensus Estimate by a penny and was ahead of the year-ago earnings of $1.50. Earnings met the top-end of the company's guidance of $1.76 to $1.80 per share. According to management, the company witnessed solid bottom-line growth along with strong cash flow.

Revenue

Revenues grew 8.4% (up 7.8% in terms of constant currency) year over year to $201.2 million beating the Zacks Consensus Estimate of $200 million. On an organic basis, revenues increased 3.3% in the quarter. Sales were within the company's forecast range of $199 million and $204 million. For the full year, revenues increased 5.8% year over year to $767.1 million, marginally topping the Zacks Consensus Estimate.

On a geographic basis, revenues from the international markets (50.2% of total sales) grew 10.6% to $101.0 million in the fourth quarter. On a positive note, the company's foreign exchange hedging policy led to an increase in sales by $1.1 million in the quarter.

In addition, single-use products sales (79.7% of total sales) grew 10.7% to $160.4 million, while capital offerings (20.3% of total sales) slightly edged up 0.2% to $40.8 million in the quarter.

Segment Analysis

Revenues from the core Arthroscopy segment jumped 16.4% year over year (up 15.6% in constant currency) to $86.6 million. Sales from Powered Surgical Instruments and Electrosurgery increased 4.1% and 1.6% year over year to $38.3 million and $26.1 million, respectively.

Revenues from the Endoscopic Technologies division and Endosurgery grew 6.3% and 4.7% to $13.4 million and $19.9 million, respectively. However, revenues from Patient Care dipped 1.2% to $16.9 million.

Margins

Gross margin rose to 53.3% in the fourth quarter of 2012 from 52.0% in the year-ago quarter. Adjusted operating margin increased 80 basis points to 11.5% of sales.

Selling and administrative charges were higher at 39.7% of sales compared with 37.9% in the year-ago quarter, led by selling expenses associated with the MTF allograft products. Research and Development expenses, as a percentage of sales, were down at 3.4% of sales versus 3.9% in the prior-year quarter.

Balance Sheet

CONMED exited the fourth quarter of 2012 with cash and cash equivalents of $23.7 million, down 8.8% year over year. Long-term debt (inclusive of current portion) increased 12.7% year over year to $161.9 million. Operating cash flow stood at $33.9 million in the quarter, representing 16.9% of sales in the fourth quarter.

Guidance

CONMED expects adjusted earnings in a range of 42 cents to 47 cents for the first quarter of 2013. Revenues are projected to remain in the band of $192 million and $198 million. The current Zacks Consensus Estimates for revenues and earnings per share in 2013 are $201 million and 44 cents, respectively.

The company reiterated its outlook for 2013. Revenues are anticipated between $785 million and $795 million in 2013. CONMED expects adjusted earnings to be in the band of $1.80 and $1.90 per share for 2013, reflecting 5% growth in earnings per share. Earlier, the company anticipated 15% earnings growth but the MedTech excise tax and foreign exchange fluctuations have dampened earnings growth by 25 cents.

Adjusted earnings forecast for the first quarter and full year 2013 exclude one-time charges such as consolidation costs associated with the merger of the Tampere, Finland facility into the U.S. facilities and restructuring charges related to the integration of the Viking acquisition.

The current Zacks Consensus Estimates for revenue and earnings per share for full year 2013 are $791 million and $1.84, respectively.

CONMED is a medical products maker, specializing in surgical instruments and devices. A large percentage of the company's products are designed for minimally invasive surgery, a trend that is extremely popular these days.

However, we remain concerned about poor capital product sales, although improving, due to the ongoing dismal macroeconomic conditions. Moreover, CONMED operates in a highly-competitive orthopedic surgery market against much larger, more technically-competent companies.

The company carries a Zacks Rank #3 (Hold). While we remain on the sidelines regarding CONMED, Medical/Dental Supply company - Medical Action Industries Inc. (MDCI) carrying a Zacks Rank #1 (Strong Buy) is worth a look. Other companies, such as Becton, Dickinson and Company (BDX) and The Cooper Companies Inc. (COO) with a Zacks Rank #2 (Buy) can also be considered for investment.
 

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