We maintain our Neutral recommendation on medical technology company Conmed Corporation (CNMD). Its second-quarter fiscal 2011 adjusted earnings of 35 cents a share matched the Zacks Consensus Estimate while profit surged roughly 19% year over year on the back of higher revenues and lower restructuring costs.
Revenues rose narrowly year over year to roughly $183 million, missing the Zacks Consensus Estimate. Growth across Powered Surgical Instruments, Electrosurgery and Endosurgery businesses was partly masked by lower Arthroscopy sales. Management’s cost-cutting initiatives contributed to an expansion in the operating margin.
Conmed retained its fiscal 2011 adjusted earnings per share forecast of $1.40 to $1.50. However, given the challenging capital purchasing backdrop, the company trimmed its revenue expectation for fiscal 2011 to a range of roughly $735 million to $740 million from its earlier view of $745 million to $755 million. The company expects sales in the third quarter to be lower sequentially on account of seasonality.
Conmed is a medical products maker specializing in surgical instruments and devices. The company is experiencing healthy demand for its single-use disposable products, which remain the mainstay of its business.
A large percentage of the company’s products are designed for minimally invasive surgery, a trend that is extremely popular these days. The use of minimally invasive surgery lowers costs by reducing patient trauma, recovery time and the length of hospitalization.
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). The orthopedic industry is highly susceptible to the economic softness and Conmed is no exception. Moreover, it is exposed to pricing pressure and a still weak hospital capital purchasing environment.
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