Conmed Corporation (CNMD) reported third quarter fiscal 2010 adjusted (excluding restructuring charges) earnings per share of 34 cents, topping both the Zacks Consensus Estimate and the year-ago earnings of 28 cents. Restructuring expenses include consolidation of three New York manufacturing facilities and the cost of transferring product lines to the company’s new manufacturing plant in Chihuahua, Mexico.
Net income skyrocketed to $8.8 million (or 31 cents a share), nearly a sevenfold growth year over year. Results were boosted by cost synergies from the company’s ongoing restructuring initiatives and improving hospital capital spending, which has rebounded from a slowdown last year.
Revenues, however, fell 1.9% year over year to $172.2 million, below the Zacks Consensus Estimate of $176 million and the company’s guidance range of $174 million and $179 million. Sales across major business segments such as Arthroscopy (40% of revenues), Powered Surgical (20%) and Electrosurgery (14%) declined in the quarter.
Arthroscopy revenues fell 0.7% year over year to $68.2 million. Powered Surgical Instruments sales dipped 7.2% to $34.6 million while revenues from Electrosurgery declined 1.2% to $23.8 million. Total Single-use and Reposable revenues edged up 0.6% year over year to $132.1 million while consolidated revenues from Capital Equipment clipped 9.3% to $40.1 million.
Gross margin improved to 51.7% from 49.9% a year ago as the company spent less on relocation and consolidation activities. Higher gross margin led to an increase in operating margin, which climbed to 8.8% from 2.9% a year ago.
For the nine months ending September 30, Conmed generated adjusted operating cash flows of $44.3 million, up 72% year over year. The company used its cash flows to repurchase roughly 690,000 shares during the quarter for $13.5 million. It has $23.8 million remaining under the current stock repurchase authorization.
Outlook
Conmed has tweaked its revenues and adjusted earnings guidance for fiscal 2010. The company now expects revenues in the range of $715 million to $720 million compared to its previous guidance of $715 million to $725 million.
Adjusted EPS for the full year has been raised to a band of $1.27 to $1.32 from the earlier forecast of $1.20 to $1.30. The current Zacks Consensus Estimate for fiscal 2010 revenue and EPS are $720 million and $1.45, respectively.
For the fourth quarter, revenues are projected between $185 million and $190 million with adjusted EPS in the range of 33 cents to 38 cents. The company believes the seasonality factor would boost fourth quarter revenues on a sequential basis.
Conmed is a major medical product manufacturer specializing in surgical instruments and devices. The company is poised to benefit from the uptrend in the adoption of minimally invasive techniques as a large percentage of its products are designed for these procedures, representing an attractive opportunity to sustain revenue growth.
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).
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