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Conmed (CNMD) Beats Earnings and Revenue Estimates in Q4

Zacks Equity Research

Conmed Corporation CNMD reported fourth-quarter 2017 adjusted earnings of 69 cents per share, beating the Zacks Consensus Estimate of 65 cents. Moreover, earnings improved 27.8% on a year-over-year basis. Per management, the upside was driven strong performances in General Surgery and Orthopedics segments.

Revenues of $222.6 million surpassed the Zacks Consensus Estimate of $212.4 million. Further, revenues surged 20.3% on a year-over-year basis. In the fourth quarter, domestic sales (50.9% of total revenues) improved 7.8% year over year.

International sales, which represented 49.1% of total revenues, increased 10.4% on a year-over-year basis.

CONMED Corporation Price, Consensus and EPS Surprise

CONMED Corporation Price, Consensus and EPS Surprise | CONMED Corporation Quote

Over the last year, Conmed has had a favorable run on the bourses. The stock has returned 29.5% compared with the industry’s rally of 28.3%.

Segment Details

Orthopedic Surgery: Revenues in this segment totaled $121 million, up 8.4% year over year.

Although business in the domestic category declined 2.1% in 2017, management is optimistic about exiting the quarter with 5.3% growth. This marks the first upside after witnessing declines for six consecutive quarters.

General Surgery: This segment delivered revenues worth $101.6 million in the reported quarter, up 9.8% year over year.

Quarter Highlights

General Surgery, A Consistent Performer: On a worldwide constant-currency (cc) basis, general surgery grew 9.1%, posting its eighth straight quarter of positive gains.

In the previous quarter, the segment delivered 7% growth on a year-over-year basis at cc. Sales at this segment totaled $91.5 million.

Additionally, domestic general surgery grew 9.6%, on the back of solid growth from Advanced Surgical and endoscopic technologies, which delivered decent performances in the fourth quarter and the full year.

Continued Innovation: Courtesy of management’s steady focus on innovation during fiscal 2017, 22 new products have been introduced, transcending the previous goal of 20. The total number of product innovations over the last three years is 42. The company consistently directs focus toward research and development.

International Business on a High: Reporting an eighth consecutive quarter of positive returns, the international general surgery reported growth of 8.1% at cc.

Meanwhile, international orthopedics surgery reported growth of 7.9% at cc.

The international business of Conmed displayed stellar performance for yet another fiscal year.

Margins

Adjusted gross margin expanded 240 basis points (bps) to 55.8% of net revenues. Per management, the year-over-year improvement is attributable to favorable foreign exchange rate and a favorable impact from product mix.

Operating margin also expanded 420 bps to 10.4%. It was partially offset by increased expenses for research and development.

Financial Position

Cash flow from operations was $65.6 million in 2017, up 64.4% from the prior-year quarter. Free cash flow for fiscal 2017 is $52.7 million, up 110% from the prior-year quarter.

Notably, the company’s long-term debts declined to $471.1 million by 3.4% on a year-over-year basis.

Guidance Solid

The company expects full-year 2018 sales growth in the range of 4-5% at cc.

Adjusted earnings per share are projected in the range of $2.11-$2.17, up 12-15% from fiscal 2017.

2018 research and development expenses are expected in the range of 4.5-5% as a percentage of sales.

Further, the company projects operating cash flow at $70 million. This is expected to result in a free cash flow of around $55 million.

FY17 at a Glance

For fiscal 2017, revenues totaled $796.4 million, up 4.3% from the prior-year quarter.

Domestic revenues increased 3% year over year on the back of strong performance in General Surgery.

International revenues improved 5.8% at cc, driven by growth in General Surgery and Orthopedics.

Adjusted earnings per share for full-year 2017 are $1.89, up 2.7% from the prior-year quarter.

Revenues in the Orthopedic Surgery segment totaled $428.9 million in 2017, up 1.6% from the prior year. The segment contributed 53.9% of the full-year revenues.

Revenues in the General Surgery totaled $367.5 million, up 7.6% from the prior year. The segment contributed for 46.1% of the full-year revenues.

Our Take

Conmed has delivered stellar performance in the fourth quarter, beating earnings and revenue estimates. Performance by the company’s business segment has been commendable, with the Orthopedic Surgery rebounding after six quarters of decline.

Solid focus on innovation continues to drive sales and gain leverage in the international market. A raised guidance and shrinking debts instill optimism.

However, higher research and development expenditures are likely to be a concern as they continue to affect operating margins. Intense competition in the niche space adds to Conmed’s woes.

Stocks Worth a Look

Conmed carries a Zacks Rank #3 (Hold).

A few better-ranked stocks that reported solid results this earnings season are, PetMed Express PETS, PerkinElmer PKI and Accuray ARAY. While PetMed sports a Zacks Rank #1 (Strong Buy), PerkinElmer and Accuray carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PetMed recently reported third-quarter fiscal 2018 results. Adjusted earnings per share was 44 cents, up 88.3% from the prior-year quarter. Revenues in the reported quarter rose 13.7% on a year-over-year basis to $60.1 million.

PerkinElmer reported fourth-quarter 2017 adjusted earnings per share of 97 cents. Adjusted revenues were approximately $641.6 million, up from $567 million in the year-ago quarter.

Accuray reported a loss of 6 cents per share in second-quarter fiscal 2018, 5 cents narrower than the year-ago figure. Total revenues improved 15% year over year to $100.3 million.

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