Teleflex Incorporated (TFX) posted a 26.7% rise in adjusted earnings to $1.33 per share for the third quarter of 2013 from $1.05 in the same quarter of 2012. With this, earnings significantly beat the Zacks Consensus Estimate of $1.14. Net earnings surged 29.3% to $55.6 million from $43.0 million in the year-ago quarter.
Net revenues went up 12.4% to $413.8 million, exceeding the Zacks Consensus Estimate of $410 million. Excluding foreign exchange fluctuations, net revenues rose 11.6% from the prior-year quarter.
The increase in revenues was attributable to continued strength in Critical Care, owing to the contribution from the acquisition of LMA International in October 2012, higher average selling price of products, and the non-stop introduction of new products.
Product Group Results
Revenues from Critical Care products increased 18.7% to $289.3 million. Excluding the impact of foreign currency, net revenues rose 17.9%, due to higher sales of anesthesia, vascular, urology, and interventional access products. The rise in anesthesia product sales was attributable to the contribution from the LMA International business, partially offset by lower sales of respiratory products compared with the third quarter of 2012.
Revenues from Surgical Care products went up 5.2% to $73.2 million. Excluding the foreign currency impact, net revenues increased 3.9% in the quarter, driven by increased sales of ligation, suture and access products, partially offset by a decline in sales of general surgical instrument products from the prior-year quarter.
Revenues from Cardiac Care products fell 1.6% to $17.6 million. Excluding the impact of foreign currency, net revenues also dipped 1.6% compared due to a lower sales of intra-aortic balloon pumps compared with the 2012-quarter.
Revenues from OEM and Development Services slipped 8.5% to $33.7 million. Excluding the foreign currency impact, net revenues declined 9.4%, driven by a decline in sales of catheter, extrusion and performance fiber products from the third quarter of 2012.
Segment Results
Revenues from Americas rose 13.5% to $192.5 million in the quarter. Excluding foreign currency fluctuations, net revenues escalated 13.8%, largely driven by LMA product sales, price increases and introductions of new products, partially offset by lower sales volume of existing products.
Revenues from EMEA scaled up 14.0% to $132.3 million. Excluding the foreign currency impact, net revenues rose 9.6%, due to LMA product sales, price increases, higher sales volume of existing products, and new product introductions.
Revenues from Asia increased 21.2% to $55.3 million. Excluding foreign currency fluctuations, net revenues escalated 25.2% in the quarter, driven by LMA product sales, higher sales volume of existing products, and price increases.
Vidacare Acquisiton
As previously disclosed, TFX agreed to acquire privately-held Vidacare Corporation, the leading provider of intraosseous, or inside the bone, access devices. Teleflex will finance the transaction, valued at $262.5 million, using borrowings under its revolving credit facility. The acquisition is expected to close in the fourth quarter of 2013.
The acquisition is not expected to considerably impact Teleflex’s 2013 revenues and adjusted earnings per share. However, it is expected to contribute roughly $68–$72 million in revenues and 10–15 cents in adjusted earnings per share in fiscal year 2014, excluding non-recurring purchase accounting items and other acquisition and integration related costs.
Financial Position
Teleflex had cash and cash equivalents of $326.4 million as of Sep 29, 2013, down from $337.0 million as of Dec 31, 2012. Total debt increased to $985.4 million as of Sep 29, 2013 compared with $970.0 million as of Dec 31, 2012.
In the first nine months of 2013, cash flow from operating activities fell 3.5% to $134.2 million from $139.1 million in the same period of 2012, mainly driven by higher inventories. Capital expenditure rose 18.5% to $54.6 million compared with $46.1 million in the same period a year ago.
Guidance
For 2013, TFX anticipates constant currency revenue growth between 8.5% and 10%, down from the earlier guidance of 10% to 12%. The lower revenue guidance was driven by weaknesses with respect to sales of its OEM and respiratory therapy products. Teleflex expect weaknesses in those product lines to continue in the fourth quarter as well. In the fourth quarter, TFX also expects lower revenue in Asia due to the timing of certain distributor negotiations which are progressing slower than initially planned.
However, Teleflex upgraded its adjusted earnings per share guidance due to its continued cost reduction efforts. The company expects adjusted earnings per share in the range of $4.85 to $5.00 compared with the prior outlook of $4.70–$4.90. The current Zacks Consensus Estimate of $4.89 lies within the guided range.
Our Take
Headquartered in Limerick, Pa., TFX is a leading provider of specialty medical devices for a range of procedures in critical care and surgery globally. We are encouraged about its significant earnings beat in the third quarter and higher EPS guidance. However, we are concerned about weaknesses in Asia and some of its product markets that led to lower revenue guidance. Currently, TFX retains a Zacks Rank #3 (Hold).
While we remain on the sidelines about Teleflex, stocks that are performing well in the medical instruments industry include Cynosure, Inc. (CYNO), CryoLife, Inc. (CRY) and Natus Medical Inc. (BABY). All of them carry a Zacks Rank #1 (Strong Buy).
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