Integra (IART) Q4 Earnings Surpass Estimates, Margins Up

Integra LifeSciences Holdings Corporation (NASDAQ:IART) delivered adjusted earnings per share (EPS) of 68 cents in the fourth quarter of 2019, up 4.6% from a year ago. The metric surpassed the Zacks Consensus Estimate by 1.5%.

GAAP EPS for the fourth quarter was 18 cents, reflecting a dip of 37.9% from the year-ago period due to expenses related to the Rebound Therapeutics Corporation acquisition and tax benefits received in the year-ago quarter.

Adjusted EPS was $2.74 for the year, reflecting a 13.2% increase from the year-ago period. However, the company lagged the Zacks Consensus Estimate by 8.4%.

Revenue Discussion

Total revenues in the reported quarter moved up 3.1% year over year to $395.1 million, which lagged the Zacks Consensus Estimate by 0.6%. Organically, the company’s revenues grew 4.6% year over year.

Revenues for the year were $1.52 billion, reflecting a 3.1% increase from the year-ago period. The metric was in line with the Zacks Consensus Estimate. Organically, the company’s revenues grew 4.8% for the year.

Segmental Details

Coming to product categories, revenues from the Codman Specialty Surgical segment rose 4.1% to $259.4 million (organic growth was 5.6%). The upside was driven by the substantial completion of all integration activities related to the Codman acquisition, scale expansion, product launches, and venturing into faster growing markets like China and Japan.

Orthopedics and Tissue Technologies revenues totaled $135.7 million in the fourth quarter, up 1.3% year over year. Organically, the segment grew 1.6%, owing to sales uptick in wound reconstruction. Wound reconstruction, in turn, rose due to the company’s solid performance in inpatient and plastics and reconstructive portfolios, partially offset by weaker sales in outpatient settings. However, wound reconstruction sales were affected by supply constraints in the reported quarter.

Margin Trend

In the reported quarter, gross profit totaled $245.7 million. Gross margin expanded 38 basis points (bps) to 62.2% on a 3.7% rise in gross profit.

Selling, general and administrative expenses contracted 1.7% to $174.3 million in the quarter under review, while research and development expenses rose 21.4% to $24.6 million. In the quarter, the company incurred in-process research and development expenses of $5 million.

Overall adjusted operating profit was $41.8 million, up 6.2% year over year. Adjusted operating margin saw a 31-bps expansion year over year to 10.6%.

Financial Position

Integra exited the year with cash and cash equivalents of $198.9 million, up from $138.8 million at the end of 2018.

Cumulative cash flow from operating activities was $231.4 million at the end of 2019 compared with $199.7 million at the end of 2018.

2020 Outlook

For the year, Integra reiterated its guidance (issued on Jan 14). Revenues are expected between $1.55 billion and $1.57 billion, representing a reported growth of 3%. The Zacks Consensus Estimate for the metric is pegged at $1.56 billion.

For 2020, organic sales growth (excluding the effects of foreign currency, acquisitions, divestitures and discontinued products) is projected to be 5%.

GAAP EPS is expected between $1.40 and $1.45 for 2020.

Adjusted EPS is expected between $3.00 and $3.05 for 2020. The Zacks Consensus Estimate for the metric stands at $2.99.

Our Take

Integra exited the year after posting mixed fourth-quarter results, as its adjusted EPS beat the consensus mark but revenues lagged the same. We are upbeat about year-over-year revenue growth in both operating segments. Expansion of both margins is encouraging as well. The 2020 guidance for organic revenue growth and adjusted EPS appears strong.

However, weaker sales in outpatient settings and effects of supply constraints in the reported quarter are concerning.

Zacks Rank and Key Picks

Integra currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks, which reported solid results this earnings season, are Stryker Corporation (NYSE:SYK) , STERIS plc (NYSE:STE) and ResMed Inc. (NYSE:RMD) .

Stryker delivered fourth-quarter 2019 adjusted EPS of $2.49, outpacing the Zacks Consensus Estimate by 1.2%. Its fourth-quarter revenues of $4.13 billion surpassed the consensus estimate by 0.7%. The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

STERIS reported third-quarter fiscal 2020 adjusted EPS of $1.45, outpacing the Zacks Consensus Estimate by 1.4%. Net revenues of $774.3 million outpaced the consensus estimate by 3.3%. The company carries a Zacks Rank #2 at present.

ResMed currently sports a Zacks Rank #1. It reported second-quarter fiscal 2020 adjusted EPS of $1.21, surpassing the Zacks Consensus Estimate by 19.8%. Its revenues of $736.2 million outpaced the consensus mark by 1.5%.

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