Integra LifeSciences Holdings Corporation IART reported adjusted earnings per share (EPS) of 58 cents in the first quarter of 2018, up 48.7% from the year-ago figure. Adjusted EPS surpassed the Zacks Consensus Estimate by 18.4%.
Revenue Discussion
Total revenues in the reported quarter increased 38.1% year over year to $357.1 million, which surpassed the Zacks Consensus Estimate of $350 million. Excluding revenues from acquisitions, divestitures and the effect of currency exchange rates, organic revenues rose 3% year over year, slightly higher than the company’s expectations.
The growth in revenues was primarily driven by high organic revenues, successful progress with the company’s Codman integration and continued progress with the channel expansion strategy within Orthopedics and Tissue Technologies.
Integra LifeSciences Holdings Corporation Price, Consensus and EPS Surprise
Integra LifeSciences Holdings Corporation Price, Consensus and EPS Surprise | Integra LifeSciences Holdings Corporation Quote
Coming to product categories, revenues from the company's Codman Specialty Surgical segment surged 51.1% to $236.1 million. Growth came on the back of strong acquired revenues from Codman Neurosurgery and strong capital sales of CUSA Clarity.
Orthopedics and Tissue Technologies revenues came in at $120.9 million in the first quarter, up 18.2% year over year fueled by one full quarter of sales from Derma Sciences and strength in both regenerative technologies as well as ankle and shoulder portfolios.
Margin Trend
Gross margin contracted 691 basis points (bps) to 59.6% in the reported quarter despite a 23.7% rise in gross profit. Selling, general and administrative expenses increased 14.8% to $163.6 million in the reported quarter, while research and development expenses rose 18.3% to $18.3 million. However, adjusted operating margin saw a 324-bps expansion to 8.7% in the first quarter.
Financial Position
Integra LifeSciences exited first-quarter 2018 with cash and cash equivalents of $189.4 million, up from $174.9 million recorded at the end of 2017. Net cash flow from operating activities at the end of the first quarter was $41.5 million, up from $28.9 million in the year-ago period.
2018 Outlook
The company now has raised full-year 2018 revenue guidance from the earlier projected range of $1.46-$1.48 billion, to a range of $1.47-$1.49 billion on the back of strong performance of the Codman Specialty Surgical segment more favorable foreign currency rates. The Zacks Consensus Estimate for full-year 2018 revenues of $1.48 billion remains within the guided range. However, the full-year 2018 guidance for organic sales of approximately 5.0%, has been reiterated.
Adjusted earnings per share for 2018 has been raised to a new range of $2.34 to $2.42 from the previously provided guidance of $2.25-$2.35. The Zacks Consensus Estimate for 2018 adjusted earnings is pegged at $2.33, lower than the company’s guided range.
Our Take
Integra LifeSciences exited the first quarter of 2018 on a solid note. The strong year-over-year increase in revenues on the back of the company’s recent acquired business buoys optimism.
We are also encouraged by the company’s segments year-over-year revenue growth in the quarter. Integra’s successful progress with its channel expansion strategy and Codman integration buoy optimism. Notably, last December, the company announced plans within Orthopedics and Tissue Technologies segment to expand its sales channel, improve focus and competitiveness and better align the company’s product portfolio with clinical customers.
We believe the company is trying to execute its growth plan through an efficient management team. Moreover, the increase in year-over-year investments in research and development is encouraging. The company’s promising guidance also instills confidence in the stock.
However, significant gross margin contractions caused by escalating costs are concerns.
Zacks Rank & Key Picks
Integra LifeSciences has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical sector are Abaxis, Inc. ABAX, Bio-Rad Laboratories, Inc. BIO and ResMed Inc. RMD. While Abaxis and Bio-Rad sport a Zacks Rank #1 (Strong Buy), ResMed carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Abaxis is expected to release fourth-quarter fiscal 2018 results on Apr 26. The Zacks Consensus Estimate for adjusted EPS is 32 cents while for revenues, the same stands at $67 million.
Bio-Rad is expected to report first-quarter 2018 results on May 3. The Zacks Consensus Estimate for adjusted EPS is 90 cents and for revenues, $529.5 million.
ResMed is slated to release third-quarter fiscal 2018 results on Apr 26. The consensus mark for adjusted EPS is 83 cents and the same for revenues is pegged at $564.9 million.
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