Integra Lifesciences reports Street-beating earnings, stock still down

Integra Lifesciences today reported fourth-quarter and full-year results that beat analysts expectations, but its stock is still down slightly — perhaps because its gross margins were down as it digests more than $1.2 billion worth of acquisitions.

CEO Peter J. Arduini ticked off the Plainsboro, N.J.–based surgical and medical instruments company’s  “significant milestones” from 2017: the $1.045 billion purchase of Johnson & Johnson’s Codman Neurosurgery business, the $205 million buy of Derma Sciences, the global launch of the CUSA Clarity tissue ablation platform, and the launch seven new regenerative products. Integra during the fourth quarter also restored operations ahead of schedule at its Puerto Rico facility, which was affected by Hurricane Maria.

Integra enjoyed adjusted earnings per share of 64 cents per share during the quarter ended Dec. 31, up 23% year-over-year, on revenue of $368.6 million. The results beat the Street, where analysts on average had expected earnings of 56 cents per share off $356.4 million in revenue, according to Yahoo! Finance. Company officials reported better-than-expected results at both of the two newly acquired business, as well as better than expected organic sales.

Adjusted profits for all of 2017 amounted to $1.94 per share, a 10.2% increase over the prior year, with revenue at $1.19 billion. Analysts had predicted $1.86 per share earnings off of $1.18 billion in revenue, according to Yahoo! Finance.

Despite surpassing earnings expectations, Integra’s stock is down about 2.5%, trading at more than $53 per share, near the close of trading today — while the Dow Jone Industrial Average is only down 0.75%.

Integra’s overall earnings were up year-over-year in the fourth quarter: $44.4 million, or 56 cents per share, versus $28.2 million, or 35 cents per share, for the same quarter a year before. But total 2017 profits were down: $64.7 million, or 82 cents per share, versus $74.6 million, or 94 cents per share in 2016.

Integra Lifesciences also has work to do when it comes to improving its margins. Fourth quarter adjusted gross margin was 67.1%, down 310 basis points from the same period a year before. For all of 2017, adjusted gross margin was 68.5%, down 100 basis from 2016.

“The declines were largely attributable to dilution from both acquisitions, unfavorable manufacturing variances associated with restoring operations in Puerto Rico and unfavorable product mix,” Integra CFO Glenn Coleman told analysts during today’s earnings call, transcribed by Seeking Alpha.

Integra Lifesciences expects adjusted gross margin in the 68–69% range in 2018, with revenue in the range of $1.46 billion to $1.48 billion and adjusted earnings per diluted share at the high end of the company’s previously provided range of $2.25 to $2.35 per share.

 

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