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Encouraging 2Q for Integra - Analyst Blog

Posted
7/27/2012 11:00:00 AM
By: Zacks.com
Referenced Stocks:IART;MDT;SYK

Integra LifeSciences Holdings Corporation ( IART ) reported EPS of 30 cents in the second quarter of fiscal 2012, significantly up from 2 cents in the year-ago quarter. Adjusted EPS increased 5.7% year over year to 74 cents and comfortably beat the Zacks Consensus Estimate of 68 cents.

Total revenue during the quarter increased 9% year over year (10% at constant exchange rates or CER) to $210.2 million and came ahead of the Zacks Consensus Estimate of $206 million. The healthy revenue growth was primarily on the back of improved sales across all the segments of Integra.

Segment wise, barring International  revenues (down 4% year over year to $45.7 million), all the other segments of Integra, namely U.S. Spine & Other, U.S. Neurosurgery, U.S. Instruments and U.S. Extremities recorded growth of 13% ($48.8 million), 2% (to $42.3 million), 9% ($41.3 million) and 38% ($32.0 million) respectively at CER.

Product category wise, worldwide Orthopedics sales increased 17% year over year to $95.6 million (22% increase in US and 2% dip outside US) in the quarter. However, the company also registered 1% year-over-year drag in worldwide Neurosurgery sales to $67.8 million as 2% rise in US Neurosurgery revenues were more than offset by a 5% dip in non-US revenues during the quarter. Worldwide Instruments revenues were $46.7 million, up 7% year over year with 10% increase in US sales and 8% decline in non-US sales.

Integra witnessed a 9.5% year-over-year increase in gross profit to $131.9 million. Gross margin during the quarter was up 40 basis points (bps) to 62.7%. During the quarter, research and development expenses rose 3.1% to $13.1 million but selling, general and administrative expenses were almost flat year over year at $96.1 million. Operating margin during the quarter expanded a huge 450 bps to 10.8%.

Integra exited the quarter with $114.8 million in cash, cash equivalents and short-term investments compared with $100.8 million at the end of 2011. The company generated $2.3 million in cash flow from operations and incurred capital expenditures of $14.2 million in the quarter. Additionally, the company borrowed $155 million from its credit facility to fund the maturity of its 2012 Senior Convertible Notes.

Outlook

On the back of strong results in the second quarter, Integra increased its revenue guidance to $828 - $838 million (earlier guidance was $820-$835 million) at CER. However, the company reiterated its fiscal 2012 adjusted EPS guidance at $2.97-$3.06. The current Zacks Consensus revenues and EPS guidance of $830 million and $3.04 respectively are in line with the company's guided range.

Recommendation

We are encouraged by the company's balanced segmental growth in the reported quarter amidst a challenging macroeconomic environment. The company's focus on strategic initiatives to drive growth and profitability in the orthopedic market is quite encouraging. Several initiatives on the company's part like planned product launches and acquisitions are expected to accelerate sales growth for the next several quarters.

However, tighter capital spending continues to challenge the surgical instruments market. Moreover, Integra faces direct competition in the medical instruments & supplies industry from major players like Medtronic ( MDT ) and Stryker Corp. ( SYK ). Currently, the company retains a short-term Zacks #3 Rank (Hold rating).


 
INTEGRA LIFESCI (IART): Free Stock Analysis Report
 
MEDTRONIC (MDT): Free Stock Analysis Report
 
STRYKER CORP (SYK): Free Stock Analysis Report
 
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