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Integra (IART) Up 24% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Integra LifeSciences (IART - Free Report) . Shares have added about 24% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Integra due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Integra’s Q2 Earnings Beat Estimates, Margins Down

Integra LifeSciences delivered adjusted earnings per share of 80 cents in the third quarter of 2020, up 17.6% from a year ago. The metric surpassed the Zacks Consensus Estimate by 40.4%.

The adjustment excludes the impact of certain non-recurring charges like structural optimization, acquisition and integration, COVID-19, and intangible asset amortization expenses, among others.

GAAP earnings per share for the third quarter was 38 cents, against the year-ago quarter’s loss per share of 32 cents.

Revenue Discussion

Total revenues in the reported quarter declined 2.3% year over year to $370.2 million. However, the metric exceeded the Zacks Consensus Estimate by 0.4%. Organically, revenues dropped 1.5% year over year.

Although revenues were lower during the third quarter, Integra recorded a 43.1% revenue increase on a sequential basis due to deferred or delayed surgical procedures during the second quarter.

Notably, despite the fall in revenues due to the pandemic-led impacts, it exceeded the high end of the company’s expectation of $368-$370 million which was provided along with the preliminary results announced earlier this month.

Segmental Details

Coming to product categories, revenues from the CSS segment fell 5.4% year over year on a reported basis to $239.3 million (organically, the decline was 4.2%). However, the segment’s global neurosurgery sales witnessed a strong recovery from the sequential decline in revenues. Also, sales in neuromonitoring and CSS management increased low-single digits. Despite lower sales in dural access and repair, a strong sequential recovery was observed in the United States.

International sales and CSS were down high-single digits in the reported quarter. Notably, growth in Japan and Canada was offset by slower recovery in the company’s indirect markets, including Latin America and parts of Greater Asia. However, the robust adoption of CUSA consumables, programmable valves and DuraGen boosted the top line.

OTT revenues totaled $130.9 million in the third quarter, up 3.8% year over year on both reported and organic basis. Notably, sales in the United States demonstrated a stronger recovery and grew over 7%. Mid-single-digit year-over-year growth in sales of Integra skin, PriMatrix, Nerve and Amniotic tissue-based products were offset by year-over-year mid-teens decline in surgical reconstruction.

Margin Trend

In the reported quarter, gross profit totaled $235.4 million. Gross margin expanded 121 basis points (bps) to 63.6% despite a 0.4% fall in gross profit. Per the company, adjusted gross margin was 68.6%, up 160 bps.

Selling, general and administrative expenses contracted 13.3% to $150.1 million in the quarter under review, while research and development expenses rose 2.4% to $19.5 million.

Overall, adjusted operating profit was $65.9 million, up 48.5% year over year. Adjusted operating margin saw a 609-bps expansion year over year to 17.8%.

Financial Position

Integra exited the third quarter of 2020 with cash and cash equivalents of $396.3 million, up from $360.9 million at the end of the second quarter.

Cumulative net cash flow from operating activities at the end of the third quarter was $123.6 million compared with $142.2 million in the year-ago quarter.

2020 Outlook

Given the current economic situation due to the pandemic, Integra is unable to assess the magnitude of its impact on its financial results. Hence, the company has not provided any financial guidance for the year.

However, the company anticipated a further sequential revenue improvement in the fourth quarter, given that the pandemic does not worsen significantly. Further, the company does not expect the recovery rates for all its markets and product lines to be the same, thus leading to uncertainties about revenues.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 5.65% due to these changes.

VGM Scores

Currently, Integra has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Integra has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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