Conmed Corporation‘s (CNMD) third-quarter fiscal 2011 adjusted (excluding one-time items) earnings per share of 33 cents topped the Zacks Consensus Estimate of 31 cents while coming a penny below the year-ago adjusted earnings. The results met the top end of the company’s guidance of 29 cents-33 cents.
Profit (as reported) slipped 6% year over year to roughly $8.2 million (or 29 cents a share), hurt by costs of transferring additional product lines to the company’s new manufacturing plant in Chihuahua, Mexico. Costs associated with these activities were $0.8 million in the third quarter and Conmed expects restructuring expenses of $4 million – $5 million for the full year.
Revenues rose marginally (roughly 0.3%) year over year to $172.8 million, missing the Zacks Consensus Estimate of $180 million. Sales came in below the company’s forecast range of $178 million and $183 million. International sales climbed roughly 6% year over year to $84.5 million, representing 48.9% of total revenues. Foreign exchange translation contributed $3.7 million to revenues.
Revenues from the company’s Arthroscopy business moved up 1.8% year over year to $69.4 million. Powered Surgical Instruments sales edged up 0.6% to $34.8 million while Electrosurgery revenues slipped 2.1% to $23.3 million.
Endoscopic Technologies sales fell 1.6% to $12.3 million. Endosurgery business was the bright spot in the quarter with revenues growing 5.4% to $17.7 million. Total single-use and reposable revenues rose 2.6% to $135.5 million while consolidated revenues from capital equipment clipped 7% to $37.3 million.
Gross margin rose to 52.8% from 51.7% a year ago. Operating margin improved to 9.2% from 8.8% in the prior year quarter.
Balance Sheet and Cash flow
Conmed exited the third quarter with cash and cash equivalents of $39.9 million, a nearly two-and-half fold year-over-year growth. Long-term debt decreased 18% year over year to $175.5 million. The company generated operating cash flows of $36.5 million during the third quarter which was primarily used to repurchase 669,000 shares.
Outlook and Recommendation
Conmed has narrowed its fiscal 2011 adjusted earnings per share forecast to a new range of $1.42 to $1.47 from its previous guidance of $1.40 to $1.50.
However, given the still challenging hospital capital purchasing backdrop and a less favorable foreign exchange environment, the company has slashed its revenue expectation for the full year to a range of roughly $722 million to $727 million from $735 million to $740 million. The current Zacks Consensus Estimates for revenues and earnings for fiscal 2011 are $729 million and $1.44 a share, respectively.
For the fourth quarter, Conmed expects revenues in the range of $183 million to $187 million and adjusted earnings per share of between 37 cents and 42 cents. The company expects sales in the quarter to be higher sequentially on account of seasonality. The current Zacks Consensus Estimates for revenues and earnings for the quarter are $193 million and 41 cents a share, respectively.
For fiscal 2012, the company envisions sales of $745 million-$755 million. Revenues from single-use devices are projected to grow 4%-5% year over year. Capital product sale are expected to be flat year over year as the company remains cautious about the impact of the soft economy on the demand these products.
Adjusted earnings for fiscal 2012 have been forecast in a band of $1.60 to $1.70, a roughly 15% year over year growth. According to the Zacks Consensus Estimate, revenues and earnings for fiscal 2012 are $753 million and $1.66 a share, 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, backed by a short-term Zacks #3 Rank (Hold).
