Provider of newborn care and neurology healthcare products, Natus Medical Inc. (BABY), reported adjusted earnings per share (EPS) of 40 cents in the fourth quarter of 2014. Adjusted EPS increased 5.3% on a year-over-year basis and surpassed the Zacks Consensus Estimate by couple of cents.
Quarter’s Details
Revenues increased 3.7% year over year to $94 million but was merely in line with the Zacks Consensus Estimate. The upside may be attributed to improved performance from both the neurology and newborn care market.
Revenues from the neurology market increased 3.2% to $61.7 million, whereas revenues from the newborn care market increased nearly 5% to 32.3 million. The growth in revenues has been primarily achieved through new product launches and new markets.
Adjusted gross margin expanded 330 basis points (bps) on a year-over-year basis to 62.9%. The upside may be attributed to higher revenues in the U.S. and a favorable mix in product sales.
As a percentage of revenues, selling & marketing (S&M) and research and development (R&D) expenses increased 80 bps and 70 bps, respectively, on a year-over-year basis. General & administrative (G&A) expenses, as a percentage of revenues, increased 290 bps. The increase in expenses can be attributed to incentive compensation, commissions and labor cost for the company’s new Peloton business.
Adjusted operating margin however, decreased 130 bps on a year-over-year basis to 18.1%, on the back of higher operating expenses.
Guidance
Natus Medical updated its guidance for the first quarter and full year 2015.
For the first quarter of 2015, Natus Medical now expects revenues to lie between $88–$90 million, an increase from the previous guidance of $87–$89 million. For the full year, revenue expectation was increased to $373–$375 million compared to the earlier guided $367–$369 million.
Non-GAAP EPS guidance for the first quarter of 2015 remained unchanged at 28–30 cents. However, non-GAAP EPS for the full year is now expected to lie between $1.42–$1.46, an increase from the prior guidance of $1.40–$1.44.
Natus Medical aims to achieve 18% operating profit in 2015. Management is also striving to achieve 20% operating profit in 2016.
Our Take
Natus Medical reported a mixed fourth quarter of 2014. We are encouraged by the numerous product launches, a healthy product pipeline and the company’s multiple acquisitions. Also, management’s optimistic increase in its revenue and EPS guidance for 2015 is a key positive.
We feel newly launched products like Echo-Screen Hearing Screener and Vista Ultrasound System will propel further top-line growth in the long run.
Also, recently, Natus Medical acquired two early stage companies, NicView and Global Neuro-Diagnostics, GND. Alongside, the company announced its entry into the newborn video and neurodiagnostic services market, respectively. We believe these acquisitions will bode well for the company, going forward.
Zacks Rank
Currently, Natus Medical carries a Zacks Rank #2 (Buy).
Some other stocks that warrant a look in the medical instruments space are Inogen (INGN), Edwards Lifesciences (EW) and ABIOMED (ABMD). While both Edwards Lifesciences and ABIOMED carry the same rank as Natus Medical, Inogen sports a Zacks Rank #1 (Strong Buy).
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