Mindray Medical Beats Q2 Earnings by a Penny, Cuts 2014 View - Analyst Blog

Chinese medical devices maker, Mindray Medical International Limited ( MR ) posted adjusted earnings per share of 53 cents in the 2014-second quarter, down 1.9% from 54 cents a year ago. The figure, however, inched past the Zacks Consensus Estimate by a penny.

Also, reported earnings decreased 2% to 50 cents per share from 51 cents per share in the 2013-quarter or 3.9% to $59.6 million from $62.1 million in the year-ago quarter.


Second-quarter net revenues stood at $334.5 million, reflecting a rise of 8.9% from $307.2 million in the year-ago quarter. International sales (contributing 54.4% to total revenues) continued to be stronger than domestic sales.

International revenues escalated 13.9% to $182.0 million while revenues from China grew at a slower pace of 3.4% to $152.5 million owing to a sluggish Chinese healthcare sector. Revenues from certain key emerging markets were affected by unfavorable foreign exchange and political issues.

Segment Revenues

Revenues from Patient Monitoring & Life Support Products edged up 1.8% to $119.3 million, contributing 35.7% to overall net revenues in the second quarter of 2014. Revenues from In-Vitro Diagnostic Products went up 11.3% to $98.3 million, contributing 29.4% to net revenues. Reagents sales accounted for 41.2% of this segment's net revenues.

Revenues from Medical Imaging Systems spiked 11.2% to $84.6 million, contributing 25.3% to net revenues. Revenues from Others (including sales from the orthopedics business, service revenues from extended warranties, sales of accessories and repair service revenues for post-warranty period) zoomed 26.3% to $32.2 million, contributing 9.6% to overall net revenues.


Adjusted gross profit rose 7.1% to $191.2 million but adjusted gross margin deteriorated 90 basis points (bps) to 57.2% in the quarter.

Adjusted operating earnings went down 2.9% to $67.9 million, while operating margin deteriorated 250 bps to 20.3% from 22.8% in second-quarter 2013 on account of higher operating expenses.

Financial Position

MR had $915.6 million in cash and cash equivalents and short-term investments as of Jun 30, 2014, down 25.7% from $1,232.3 million as of Dec 31, 2013. Total bank loans fell 44.2% to $265.4 million from $475.7 million as of Dec 31, 2013.

For the first six months ended Jun 30, 2014, cash flow from operating activities came in at $104.3 million, down 12.1% from $118.6 million in the same period of 2013. Capital expenditure rose 26.9% to $51.1 million from $40.2 million in the first half of 2013.

2014 Guidance

MR lowered its 2014 financial guidance in face of the weakness in China and some key emerging markets in the first half of the year. The company expects 2014 net revenues to grow at least 10% over 2013, lower than the earlier guidance of 15%. The Zacks Consensus Estimate for the same is currently pegged at $1,391 million.

The company now apprehends 2014 adjusted net income to decrease by mid-single digits over 2013 as against the prior projection of in-line figures. Capital expenditure is expected around $130 million for 2014, as against the prior expectation of $160 million.

Our Take

MR posted decent year-over-year growth in revenues during the second quarter of 2014 and also beat our estimates on the earnings front. However, we are disappointed with the year-over-year fall in earnings. Besides, the lowered guidance for 2014 also fails to indicate any near-term catalyst that may improve the scenario in the coming period.

The Chinese healthcare market continues to grow at a sluggish pace which, in turn, impacted domestic revenues during the quarter. Operating earnings also posted a decline owing to soaring expenses.

Nevertheless, the long-term fundamentals of the healthcare markets remain solid. With consistent efforts to strengthen its sales, marketing, distribution and product development capabilities, we believe that MR is poised to achieve sustainable growth.

Currently, MR carries a Zacks Rank #3 (Hold). Better-ranked stocks in the medical instruments industry include Alphatec Holdings, Inc. ( ATEC ), RTI Surgical Inc. ( RTIX ) and Accuray Incorporated ( ARAY ). While Alphatec Holdings and RTI Surgical sport a Zacks Rank #1 (Strong Buy), Accuray carries a Zacks Rank #2 (Buy).

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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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