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CONMED (CNMD) Q4 Earnings Miss Estimates, Increase Y/Y

Headquartered in Utica, NY, leading medical technology player, CONMED CorporationCNMD reported fourth-quarter 2016 adjusted earnings of 54 cents per share, missing the Zacks Consensus Estimate by 2 cents. However, earnings improved almost 3.8% on a year-over-year basis, courtesy of strong revenues.

Revenues rose 6.8% to approximately $204.1 million, marginally ahead of the Zacks Consensus Estimate of $204 million. Sales rose 9.1% on a constant currency basis (cc) but declined 1.5% organically.

For the full year, sales of $763.5 million increased 8.6% at cc on a year-over-year basis. The company registered adjusted earnings of $1.84 per share, 14 cents lower from the prior year.

Conmed Corporation - Earnings Surprise | FindTheBest

Stock Performance

Coming to share price movement, CONMED fell approximately 1.16% to close at $44.27 following the earnings release.

However, market sentiments for the company have been quite promising of late. Over the last three months, the company represents a solid return of roughly 13%, higher than the Zacks classified Medical/Dental-Supplies sub-industry's return of almost 6.7%. The current level is also higher than the S&P 500's 8.8%.

On the flip side, CONMED projects sales growth of 2.8% for the current year, below the industry average of 4.9%. Furthermore, the stock carries a Zacks Rank #4 (Sell), adding to our concerns.

Revenue Details

In terms of product line, orthopedic surgery (48% of net sales) declined 3.2% on a year-over-year basis at cc. Sales at this segment totaled $98 million. Sales at the surgical visualization segment (6.7% of net sales) fell 13.9% at cc to $13.6 million. The general surgery segment (45.3% of net sales) had a great quarter registering a 32% rise at cc. General surgery organic sales increased 2.5% and 3.7% at cc internationally.

In terms of product category, sales for single-use products increased 11.3% at cc and accounted for 78.3% of net sales. Coming to the capital products, sales inched up 1.6% at cc.

CONMED Corporation Price and EPS Surprise

CONMED Corporation Price and EPS Surprise | CONMED Corporation Quote

On the basis of geographies, CONMED witnessed a 7.6% jump in domestic revenues, which were almost 51.4% of net sales. Domestic general surgery accounted for 30% of company's net revenue and increased 1.5% organically. CONMED witnessed 0.4% organic growth in international markets.

Quarter Highlight

Of the major highlights in the quarter, management remains upbeat about the global release of the Edge Bipolar Arthroscopic System. However, the product's launch is subject to regulatory approval in Korea. We note that in the last quarter, the product line was launched in Canada, Australia, Europe, Latin America and Middle East, Africa and the majority of Asia.

Margin Details

Adjusted gross margin in the fourth quarter, excluding restructuring costs, declined 170 basis points (bps) year over year to 53.4% from 55.1% recorded in the same quarter last year.

Per management, the drag in the gross margin is primarily attributable to unfavorable pricing mix and foreign exchange volatility which impacted margins by 70 bps and 100 bps, respectively.

Balance Sheet

CONMED had a cash balance of $27.4 million at the end of fourth-quarter 2016, with $488.3 million in long-term debt. The inventory balance was $180.7 million at the end of the fourth quarter.

Guidance

For the full year, CONMED expects sales growth in the band of 1% to 3% at cc. The company projects adjusted earnings per share in the range of $1.85 to $1.95. Management expects adjusted gross margin, excluding restructuring costs in the band of 54.5% to 55.5%, as a percentage of revenue. Notably, this assumes a currency headwind of approximately 30 bps.

Our Take

Foreign exchange movements have been impacting the company's results over quite a few quarters. Furthermore, CONMED operates in a highly competitive environment which is likely to mar top-line growth.

Declining sales in Orthopaedic surgery and surgical visualization is an added concern.

However, the stock holds a long-term expected earnings growth rate of 12%, instilling our confidence in the stock.

Stocks to Consider

Better-ranked stocks in the broader medical sector include Addus Glaukos Corporation GKOS , Avinger, Inc. AVGR and Inogen, Inc INGN . Notably, Glaukos and Avinger sport a Zacks Rank #1 (Strong Buy) while Inogen carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Glaukos Corporation has a long-term expected earnings growth rate of approximately 25%. Notably, the stock represents an impressive one-year return of 146.3%.

Avinger projects sales growth of 2.3% for the current year. Additionally, the company posted a positive earnings surprise of 27% in the last quarter.

Inogen has a long-term expected earnings growth rate of approximately 17.5%. Notably, the stock represents an impressive one-year return of 88.2%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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