Integra LifeSciences (IART) reported EPS of 16 cents in the fourth quarter of fiscal 2011 compared with 63 cents in the year-ago quarter. However, adjusted EPS declined 10% year over year to 72 cents, but surpassed the Zacks Consensus Estimate of 67 cents. For fiscal 2011, adjusted EPS stood at $2.79, in line with the Zacks Consensus Estimate but 6% lower than the 2010 level.
Total revenue during the quarter increased 5% year over year to $203.5 million and was at par with the Zacks Consensus Estimate. Sluggish sales during the quarter resulted from the inventory reduction initiatives by the company’s instrument distributors, worldwide weaker economy and disappointing sales of Extremity Reconstruction products in the domestic market. However, excluding the impact of currency exchange rates, revenues jumped 5% from the year-ago quarter.
Total revenue in fiscal 2011 was $780.1 million, up 7% (5% at constant exchange rates) from the 2010 level.
During the reported quarter, barring Orthopedics, which increased 21% year over year to $89.5 million, Integra registered lower sales in both Neurosurgery (down 2% to $72.5 million) and Instruments (down 4% to $41.5 million).
Integra witnessed a 1.6% year-over-year drag in gross profit to $120.8 million leading to 380 basis points (bps) contraction in gross margin. During the quarter, selling, general and administrative expenses rose 14.8% to $94.8 million and research and development expenses crept up 1% to $13.4 million. This in turn resulted in a 760 bps drag in operating margin to 6.2%.
Integra exited fiscal 2011 with $100.8 million in cash and cash equivalents compared with $128.7 million at the end of 2010. The company generated $104.3 million in cash flow from operations in fiscal 2011 and incurred capital expenditures of $38.4 million in the quarter.
Outlook
Integra reiterated its fiscal 2012 revenue guidance. The company expects full year 2012 revenues to be in the range of $820-$835 million at current exchange rate (representing an increase of 5-7% over the 2011 level and 6-8% at constant exchange rates).
The company also provided its 2012 adjusted EPS guidance range of $2.93-$3.06, representing an increase of 5-10% year over year. The current Zacks Consensus Estimate for revenue and EPS are $837 million and $3.02, respectively.
Integra is a global leader in regenerative medicine. The company’s products are used primarily in neurosurgery, extremity reconstruction, orthopedics, and general surgery to treat millions of patients in the US, Europe and the Asia-Pacific every year.
Tighter capital spending continues to challenge the surgical instruments market. Moreover, Integra faces direct competition in the medical instruments & supplies industry from major players like Medtronic (MDT) and Stryker Corp. (SYK). Currently the company retains a short-term Zacks #4 Rank (Sell). However, considering the company’s business model and fundamentals, we have a long-term ‘Neutral’ recommendation on the stock.
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