Shares of CONMED Corp CNMD declined 4.5% to close at $42.39 on Apr 28, following an unimpressive quarterly release. The company reported first-quarter 2016 adjusted earnings of 30 cents per share, which declined 28.6% on a year-over-year basis owing to modest sales growth and higher operating expenses. The earnings figure also missed the Zacks Consensus Estimate by a dime.
Quarter Details
Net sales increased 1.8% to $181.2 million, slightly better than the Zacks Consensus Estimate of $180 million. On a constant currency basis (cc), sales increased 5% from the year-ago quarter. SurgiQuest's AirSeal system, which was recently acquired by the company, contributed $12.7 million to sales.
Domestic sales, which accounted for 53% of quarterly sales, increased 10.4% owing to robust growth in General Surgery and Visualization. Meanwhile, international sales, accounting for 47% of total sales, fell 6.4% (down 0.3% at cc) primarily due to volatility in foreign exchange rates.
In terms of product category, CONMED generated sales of almost $145 million and $36.3 million from single-use and capital products, respectively. Single-use products sales increased 3.4% (up 6.7% at cc), while capital products sales decreased 4% (down 1.1% at cc) on a year-over-year basis.
In terms of product lines, Orthopedic Surgery sales (51.5% of total sales) decreased 5.2% (down 1.2% at cc) to $93.4 million. U.S. sales increased 0.9%, while international sales were down 9% in the reported quarter.
On the other hand, sales from General Surgery surged almost 15% (up 16.7% at cc) to $75.9 million. U.S. sales increased 19.4%, while international sales were up 6.1% in the quarter. The upside was primarily driven by higher sales of endoscopic technologies business.
Surgical Visualization sales plunged 10.7% (down 7.7% at cc) to $11.9 million.
Adjusted gross margin expanded 120 basis points (bps) to 54.4%, primarily attributable to improvement in production costs and partially offset by unfavorable pricing mix and foreign exchange volatility.
Adjusted selling and administrative expenses increased 8% to $74.1 million, while research and development expenses surged 26.2% to $8.3 million.
Adjusted operating margin contracted 20 bps to 9% in the reported quarter, primarily attributed to higher costs.
Guidance
CONMED estimates sales in the range of $768 to $778 million, up from the earlier guided range of $760–$770 million for full-year 2016. The guidance reflects organic sales growth of 1% to 3% at cc, sales from SurgiQuest acquisition of $55 to $60 million and negative impact of foreign exchange of $13 million to $15 million.
Management still expects adjusted gross margin including restructuring costs to be in the range of 54.5% to 55.5% for the full year.
CONMED forecasts quarterly adjusted SG&A expenses in the range of 38% to 40.5% of sales. For the full year, the company estimates SG&A expenses in the range of 38.5% to 39.5% of sales. R&D expenses are forecasted in the range of $36 million to $38 million (4.6% to 4.9% of sales), which represents an increase of $9 million to $11 million from the full-year 2015 figure.
Adjusted earnings are now projected in the band of $1.95 to $2.05 per share as compared to the earlier guided range of $1.85 to $1.95.
Zacks Rank & Key Picks
Currently, CONMED carries a Zacks Rank #2 (Buy).
Other favorably ranked stocks in the industry include Align Technology ALGN, VWR Corp VWR and Baxter International BAX. All the three stocks sport a Zacks Rank #1 (Strong Buy).
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