Teleflex Incorporated (TFX) posted a 15.1% rise in adjusted earnings to $1.22 per share for the first quarter of 2013 from $1.06 in the same quarter of 2013. With this, earnings beat the Zacks Consensus Estimate by 6 cents per share. Adjusted net earnings rose 19.6% to $53.0 million from $44.3 million in the year-ago quarter.
Net revenues went up 6.5% to $438.5 million, exceeding the Zacks Consensus Estimate of $434 million. Excluding foreign exchange fluctuations, net revenues rose 6.0% from the prior-year quarter.
The increase in revenues was attributable to contribution from the acquisitions of Vidacare Corporation in Dec 2013 and Mayo Healthcare in Feb 2014, an increase in the average selling price of products, and launch of new products.
Segment Overview
Effective Jan 1, 2014, Teleflex reorganized its operating segments. The reorganization in operating segments resulted from changes in the company’s internal reporting structure. The Vascular, Anesthesia/Respiratory and Surgical businesses, which previously comprised much of the Americas reportable segment, are now treated as separate reportable segments. As a result, Teleflex currently has six reportable segments: Vascular North America, Anesthesia/Respiratory North America, Surgical North America, EMEA, Asia and OEM.
Net revenues from Vascular North America rose 10.3% to $62.5 million. Excluding the impact of foreign currency movements, net revenues rose 10.8% from the prior year period. The increase in constant currency revenue was largely driven by Vidacare product sales, the introduction of new products to the market and price hikes, partially offset by lower sales volume of existing products.
Net revenues from Anesthesia/Respiratory North America dipped 5.9% to $54.7 million. Excluding the impact of foreign currency, net revenues fell 5.6% compared to the prior year quarter. The decline in constant currency revenue was largely driven by lower sales volume of existing products, partially offset by the introduction of new products and price increases.
Net revenues from Surgical North America slid 4.0% $35.2 million. Excluding the impact of foreign currency, net revenues fell 3.0% from the prior-year period. The decrease in constant currency revenue was largely due to lower sales volume of existing products, partially offset by price increases and the introduction of new products to the market.
Net revenues from EMEA rose 5.5% to $150.2 million. Excluding the impact of foreign currency, net revenues went up 2.5% from the prior-year period. The increase in constant currency revenue was largely driven by Vidacare product sales, price increases and the introduction of new products, partially offset by lower sales volume of existing products.
Net revenues from Asia rose 17.1% to $49.6 million from the prior-year quarter. Excluding the impact of foreign currency, net revenues increased 20.3% from the prior year period. The increase was attributable to Mayo Healthcare and Vidacare product sales, price increases and higher sales volume of existing products.
Net revenues from OEM and Development Services escalated 5.9% to $33.2 million. Excluding the impact of foreign currency, net revenues increased 5.3% compared to the prior year. The increase in constant currency revenues was driven by higher sales volume of existing products and the introduction of new products to the market, partially offset by lower average selling prices.
Restructuring Plan
On Apr 28, 2014, the Board of Directors of Teleflex approved a restructuring plan aimed at reducing costs, improve operating efficiencies and enhance the company’s long term competitive position. The plan includes the relocation of manufacturing operations from some higher-cost locations to existing lower-cost locations. These measures will commence in the second quarter 2014 and are expected to be majorly completed by the end of 2017.
Teleflex estimated that that it will incur aggregate pre-tax charges of approximately $42 to $53 million in connection with the restructuring measures. Out of the total amount, the company expects approximately $22 to $23 million to be incurred in 2014 and most of the balance will be incurred prior to the end of 2016.
Further, Teleflex expects to incur $24 to $30 million in capital expenditures in connection with the plan, of which about $10 to $15 million will be made in 2014.
Financial Position
Teleflex had cash and cash equivalents of $421.6 million as of Mar 31, 2014, down 2.4% from $432.0 million as of Dec 31, 2013. Long-term borrowings increased marginally by 0.2% to $1,289.3 million from $1,286.3 million as of Dec 31, 2013.
In the quarter, cash flow from operating activities increased more than six-fold to $33.6 million from $5.3 million in the 2013-quarter, mainly driven by higher earnings and lower inventories. Capital expenditure fell 22.6% to $12.1 million compared with $15.6 million in the 2013-first quarter.
2014 Guidance
For 2014, Teleflex continues to expect revenue growth between 6.0 and 8.0% versus 2013. In constant currency, the company expects revenues to increase by 7.0 and 9.0%.
Teleflex also expects adjusted earnings per share in the range of $5.35 to $5.55. The current Zacks Consensus Estimate of $5.52 lies within the guided range.
Our Take
Headquartered in Limerick, PA, Teleflex 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 fourth quarter and higher EPS and revenue guidance. However, we are concerned about weak sales of some of its product lines. Currently, Teleflex retains a Zacks Rank #2 (Buy).
Some better-ranked stocks in the medical instruments industry include Delcath Systems, Inc. (DCTH), Accuray Inc. (ARAY), and Natus Medical Inc. (BABY). Delcath Systems carries a Zacks Rank #1 (Storng Buy), while both Accuray and Natus Medical retain a Zacks Rank #2 (Buy).
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