Teleflex Inc. TFX reported third-quarter 2015 adjusted earnings of $1.60 per share which beat the Zacks Consensus Estimate by 4 cents and increased 1.9% on a year-over-year basis.
Revenue Details
Net revenues decreased 2.9% year over year to $443.7 million and missed the Zacks Consensus Estimate of $448 million. On a constant currency (cc) basis, revenues increased 4.2% year over year. The year-over-year growth was primarily driven by strong performance across all sectors and regions.
Vascular North America revenues totaled $82.6 million, up 7.8% (8.6% at cc) from the year-ago quarter, driven by higher sales volumes of existing products.
Anesthesia/Respiratory North America revenues increased 0.9% (1.6% at cc) year over year to $47.6 million, primarily buoyed by new product sales.
Revenues at the Surgical North America division reached $39.6 million, up 9.6% (11.1% at cc) from the year-ago quarter. The rise in revenues came on the back of the MiniLap acquisition, price increases, new product sales and higher sales of existing products.
EMEA revenues grossed $120.9 million, down 14.4% from the year-ago quarter. On a cc basis, revenues inched up1.1% on the back of new product sales.
Asia revenues declined 0.2% year over year to $61.9 million. At cc, revenues increased 11.3% largely driven by higher product sales in China, the acquisitions of N. Stenning & Co Pty Ltd and Human Medics Co, price increases and new product sales.
The OEM and Development Services segment garnered revenues of $39 million which represents a year-over-year decline of 0.6% (+2.5% at cc) from the year-earlier quarter. Higher sales of introducer, dilator and catheter products can be regarded as the primary behind the constant currency growth.
Other product revenues declined 5% (down 2.7% at cc) to $52.1 million. Lower sales of respiratory products and unfavorable currency impact in the Latin American region are the major reasons behind this decline.
Operational Details
Adjusted gross margin contracted 10 basis points (bps) year over year to 52%. The decline can be attributed to product recall expenses, higher costs incurred during the manufacturing startup phase and unfavorable foreign currency exchange.
Adjusted selling, general and administrative (SG&A) expenses, as a percentage of net revenues, increased 70 bps on a year over year basis to 27.9%. On the other hand, adjusted research and development (R&D) expenses, as a percentage of net revenues, declined 40 bps to 2.8%.
Adjusted operating margin declined 50 bps to 21.2% due to higher expenses.
Product/Service Update
Teleflex received FDA 510 (k) clearance for ARROW Triple Lumen Pressure Injectable Acute Hemodialysis Catheter during the third quarter. Management expects the clearance to help boost dialysis revenues.
Guidance
Teleflex narrowed its cc revenue growth guidance for 2015, which is now expected in the range of 4.7% to 5.5% as compared to the previously guided range of 4.0% to 6%.
Management also narrowed its full-year 2015 earnings guidance to a range of $6.20 to $6.30 per share. Previously, earnings for the same period was expected within the range of $6.10 to $6.35.
Management expects adjusted gross margin for 2015 in the range of 52.5%–53%, down from the previously guided range of 53%–54%. This represents a 100 to 150 bps increase from 2014.
Moreover, adjusted gross margin for the fourth quarter is projected at 54%. The sequential improvement in gross margin can be attributed to lower expectations of manufacturing costs and product recall costs in the fourth quarter.
However, currency headwinds are expected to impact gross margin by 50 bps.
For 2015, Teleflex estimates adjusted operating margin of 21.5%–22%, an increase of approximately 150–200 bps. Currency headwinds are expected to impact operating margin by 100 bps.
Our Take
Both revenues and margins of Teleflex were significantly hurt by foreign currency headwinds during the quarter and the impact of such is expected to continue to hurt fourth-quarter results as well.
The company was able to post decent year-over-year growth at constant currency which is a positive. Higher sales at constant currency in some regions reflect the strength in the company’s product portfolio. Notably, the acquisitions made during recent times have helped the company gain better traction.
Meanwhile, Teleflex discontinued some of its lower margin products in the EMEA region which impacted revenue growth in the region. However, this resulted in considerable margin improvement.
Stocks to Consider
Currently, Teleflex carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the medical sector include Cesca Therapeutics Inc. KOOL, Natus Medical Inc. BABY and Masimo Corporation MASI. All the three companies sport a Zacks Rank #1 (Strong Buy).
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