Shares of CONMED Corp CNMD plunged 12.8% ($6.24) in after-hours trading after the company reported disappointing third-quarter results and lowered its full-year 2015 outlook.
CONMED posted adjusted earnings of 38 cents per share, which lagged the Zacks Consensus Estimate by 6 cents. Moreover, adjusted earnings declined 13.6% on a year-over-year basis because of lower sales and contracting operating margin.
Quarter Details
Net sales fell 3.3% (up 0.5% on a constant currency basis or cc) to $169.2 million. The top line also fell short of the Zacks Consensus Estimate of $174 million.
Domestic sales, which accounted for 51.9% of total sales, increased 1.3% on the back of considerable growth in capital equipment sales. Meanwhile, international sales, accounting for 48.1% of total sales, fell 7.8% primarily due to volatility in foreign exchange rates.
At cc, international sales declined 0.4% on a year-over-year basis owing to declining capital equipment sales. Sluggish demand in Latin America, particularly in Brazil and Middle East/Africa, hurt international sales.
Direct international business grew 5%, with international Orthopedics up 6% and Visualization up 9% in direct markets.
In terms of product category, CONMED generated sales of $134.9 million and $34.3 million from single-use and capital products, respectively. Single-use products sales declined 5.2%, while capital products sales improved 5.2% on a year-over-year basis.
In terms of product lines, Orthopedic Surgery sales declined 3.6% (up 1.4% in constant currency) to $89.4 million, primarily owing to a decrease in the sales of single-use products.
On the other hand, sales from General Surgery fell 5.2% (down 3.2% in constant currency) to $66.1 million. The downside was primarily because of declining sales of endoscopic technologies and advanced surgical business, delay in new product launches, lower inventories at distributors and export problems.
Surgical Visualization sales jumped 9.6% (up 13.8% in constant currency) to $13.7 million, primarily due to the robust performance by IM8000.
Adjusted gross margin expanded 20 basis points (bps) to 56.1%, primarily attributable to improvement in production costs and favorable mix.
Adjusted selling and administrative expenses fell 2.5% to $70.7 million, while research and development expenses decreased 3.7% to $6.7 million.
Adjusted operating margin contracted 20 bps to 10.3% owing to lower sales.
2015 Outlook
CONMED lowered its constant currency sales growth guidance to 0% to 1% from the previous guidance of 1% to 3% for full-year 2015. Taking the current exchange rates into consideration, CONMED anticipates full-year revenues in the range of $715–$720 million, down from $723–$738 million.
Adjusted earnings are now projected in the band of $1.65 to $1.70 per share, down from the earlier forecasted range of $1.82–$1.92.
Our Take
We believe volatile foreign exchange will prevail as a major headwind for CONMED in 2015. The company, we feel, has its work cut out to improve sales in the international markets. Declining margins also pose a major concern for CONMED.
Zacks Rank & Key Picks
Currently, CONMED carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the industry include Anteras Pharma ATRS, Patterson Companies PDCO and VWR Corp VWR. While Anteras sports a Zacks Rank #1 (Strong Buy), both Patterson Companies and VWR carry a Zacks Rank #2 (Buy).
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