Solventum SOLV reported third-quarter 2024 adjusted earnings per share of $1.64, which beat the Zacks Consensus Estimate of $1.38 by 18.1%. The bottom line declined 42.9% year over year.
GAAP EPS in the quarter was 70 cents, down 73.7% from the year-ago quarter’s level.
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Revenue Details
The company reported revenues of $2.08 billion, up 0.4% reportedly from the prior-year recorded number. Organically, sales were up 0.3%. The metric beat the Zacks Consensus Estimate by 1.5%. The growth was primarily driven by the normalization of pricing. Organic sales growth was driven by the MedSurg and Health Information Systems segments, partially offset by the Dental Solutions and Purification and Filtration segments. Forex movement had an unfavorable impact of 10 basis points (bps).
Shares of the company were up 2.6% during after-hours trading on Nov. 7, following the better-than-expected quarterly performance. The stock has risen 11% since its IPO on April 1, 2024, against the industry’s decline of 11.5%. The S&P 500 Index gained 13.3% in the same time period.
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Segmental Details
MedSurg
Revenues from this segment totaled $1.18 billion, down 0.1% reportedly but up 1% organically year over year. Organic growth was driven by volumes in Tegaderm IV dressings, Medical OEM products and continued strength for single-use NPWT. This was partially offset by a decline in traditional NPWT sales.
Dental Solutions
revenues totaled $313 million, down 5.2% year over year reportedly and 3.9% organically. Soft end-market demand and the divestiture of the local anesthetic business during the third quarter of 2023 hurt the segment's sales.
HIS
Revenues from this segment amounted to $326 million, up 1.5% reportedly as well as organically on a year-over-year basis. Organic growth was driven by the continued adoption of 360 Encompass revenue cycle management, partially offset by lower revenues from performance management solutions and clinician productivity solutions.
Purification and Filtration
Revenues from this segment amounted to $238 million, down 1.5% year over year reportedly and 0.3% organically. The decline was led by a lower volume of drinking water filtration and dialysis membranes, partially offset by continued strength in bioprocessing filtration and added capacity for industrial filtration.
Margins
Adjusted gross profit was $1.19 billion, down 1.4% year over year. As a percentage of revenues, the gross margin was 57.3%, down approximately 100 bps from the prior-year quarter’s figure.
Selling, general and administrative expenses totaled $701 million, up 33.5% year over year.
Research and development expenses totaled $189 million, up 5% on a year-over-year basis.
Adjusted operating income totaled $475 million, down 11.9% year over year. As a percentage of revenues, the adjusted operating margin was 22.8%, down approximately 320 bps from the prior-year quarter’s figure. The margin contraction was due to lower gross margins, including the impact of the 3M supply agreement mark-up, and an increase in operating expenses related to public company stand-up costs and growth investments.
Financial Position
Solventum exited the third quarter with cash, cash equivalents and investments of $772 million compared with $897 million in the previous quarter.
Total assets increased to $14.75 billion from $14.58 billion in the previous quarter.
Solventum Corporation Price, Consensus and EPS Surprise
Solventum Corporation price-consensus-eps-surprise-chart | Solventum Corporation Quote
2024 Guidance
Solventum has updated its sales and adjusted earnings guidance for 2024. Solventum now expects adjusted earnings per share to be in the range of $6.50-$6.65 per share (up from the previous guided range of $6.30-$6.50).
Total sales are expected to be in the upper half of the previous guidance of 0-1% growth.
Our Take
Solventum exited the third quarter on a strong note. Both the top and bottom lines beat their respective estimates. The company’s raised outlook for 2024 earnings instills optimism. Its shares have risen 11% since its IPO on Apr. 1, 2024, against the industry’s decline of 5.1%. The S&P 500 Index has gained 24.8% in the same period.
The organic growth at SOLV’s largest segment (in terms of revenues), MedSurg, looks promising. The trend is likely to continue in the upcoming quarters on the back of continued demand for its products. However, traditional NPWT sales are likely to be under pressure. Strong adoption of 360 Encompass revenue cycle management is likely to aid sales growth for the HIS segment going forward.
However, soft end-market demand is likely to continue as a headwind for the Dental Solutions segment. Meanwhile, the contraction in gross and operating margins raises concern. The company’s updated outlook, however, implies that margins may improve in the fourth quarter.
SOLV is undergoing a three-phase restructuring program after its separation from 3M in 2023, focusing on debt reduction, portfolio optimization and operational efficiency, with Phase 1 expected to be completed within 12-24 months. These initiatives look promising for the company’s long-term prospects.
Zacks Rank and Key Picks
Solventum currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the medical industry are AngioDynamics ANGO, Masimo MASI and Globus Medical GMED.
AngioDynamics, sporting a Zacks Rank #1 (Strong Buy) at present, has an estimated growth rate of 38.2% for 2025. You can seethe complete list of today’s Zacks #1 Rank stocks here.
ANGO’s earnings surpassed estimates in three of the trailing four quarters and missed once, delivering an average surprise of 31.71%.
AngioDynamics’ shares have lost 5.5% year to date against the industry’s 6.3% growth.
Masimo, sporting a Zacks Rank of 1 at present, has an estimated growth rate of 10.4% for 2025. MASI’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 17.10%.
Masimo’s shares have risen 43% year to date compared with the industry’s 6.3% growth.
Globus Medical, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 12.7%. GMED’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 12.1%. Its shares have risen 55.2% year to date compared with the industry’s 6.3% growth.
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