Conmed Corporation’s (CNMD) second-quarter fiscal 2011 adjusted (excluding one-time items such as restructuring charges) earnings per share of 35 cents met the Zacks Consensus Estimate and surpassed the year-ago adjusted earnings of 32 cents. Profit (as reported) soared 18.8% year over year to roughly $8.7 million (or 30 cents a share), buttressed by higher sales and lower restructuring costs.
Restructuring costs include expenses related to the consolidation of administrative functions and costs of transferring additional product lines to the company’s new manufacturing plant in Chihuahua, Mexico. Costs associated with these activities were $1.1 million in the second quarter and Conmed expects restructuring expenses of $4 million – $5 million for the full year.
Revenues rose 1.2% year over year to roughly $183.2 million, but missed the Zacks Consensus Estimate of $186 million. Sales were within the company’s forecast range of $180 million and $185 million. International sales were $93.4 million (up 6.3%), representing 51% of total revenues. Foreign exchange translation contributed $2.7 million to revenues.
Conmed registered healthy growth across its Powered Surgical Instruments, Electrosurgery and Endosurgery businesses in the quarter, offset by lower Arthroscopy sales. Arthroscopy revenues fell 5.7% year over year to $70.6 million. Powered Surgical Instruments sales jumped 7.3% to $38.3 million while Electrosurgery revenues surged 8.8% to $26.1 million.
Revenues from Endoscopic Technologies rose 5% to $12.5 million. Endosurgery sales spiked 11.7% to $19.1 million. Total single-use and reposable revenues rose 3.5% to $143.1 million while consolidated revenues from capital equipment dipped 6.5% to $40.1 million.
Gross margin fell to 49.9% from 51.7% a year ago due to higher cost of sales. Operating margin rose to 9.1% from 8.2% a year ago as the company spent less on restructuring and selling and administrative expenses.
Balance Sheet and Cash flow
Conmed ended the second quarter with cash and cash equivalents of $24.3 million, a nearly three-fold year-over-year growth. Long-term debt decreased 14% year over year to $174.7 million. The company generated operating cash flows of $19.5 million during the second quarter which was primarily used to de-leverage its balance sheet.
Outlook
Conmed has retained its fiscal 2011 adjusted earnings per share forecast of $1.40 to $1.50. However, given the still challenging hospital capital purchasing backdrop, the company has trimmed its revenue expectation for the full year to a range of roughly $735 million to $740 million from its earlier view of $745 million to $755 million. The current Zacks Consensus Estimates for revenues and earnings for fiscal 2011 are $744 million and $1.47, respectively.
For third-quarter 2011, Conmed expects revenues in the band of $178 million and $183 million and adjusted earnings per share of between 29 cents and 33 cents. The company expects sales in the quarter to be lower sequentially on account of seasonality. The current Zacks Consensus Estimates for revenues and earnings for the quarter are $178 million and 33 cents, respectively.
Conmed is a medical products maker specializing in surgical instruments and devices. A large percentage of the company’s products are designed for minimally invasive surgery, a trend that is extremely popular these days. However, Conmed operates in a highly-competitive orthopedic surgery market against much larger, more technically-competent companies, such as Johnson & Johnson (JNJ), Smith & Nephew (SNN) and Stryker Corporation (SYK). Currently, we are Neutral on Conmed.
