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Integra (IART) Down 3% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Integra LifeSciences (IART - Free Report) . Shares have lost about 3% in that time frame, underperforming the S&P 500.

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

Integra Q4 Earnings Top Estimates, Revenues Down Y/Y

Integra LifeSciences Holdings Corporation delivered adjusted earnings per share of 84 cents in the fourth quarter of 2020, up 23.5% from a year ago. The metric surpassed the Zacks Consensus Estimate by 13.5%. According to the company, the year-over-year improvement was the result of the company’s implementation of expense reduction measures during the pandemic to mitigate the impact of lower sales.

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

GAAP earnings per share for the fourth quarter was $1.09, against the year-ago quarter’s per share of 18 cents.

Adjusted earnings per share was $2.45 for the year, reflecting a 10.6% decrease from the year-ago period. The figure however surpassed the Zacks Consensus Estimate by 3.8%.

Revenue Discussion

Total revenues in the reported quarter declined 1.6% year over year to $388.6 million

Total revenues in the reported quarter declined 1.6% year over year to $388.6 million. However, the metric exceeded the Zacks Consensus Estimate by 0.3%. Organically, revenues dropped 1.5% year over year.

Although revenues were lower during the fourth quarter, Integra recorded a 5% revenue increase on a sequential basis due to continued growth of franchises and products in the fourth quarter of fiscal 2020.

Notably, the quarter’s figure matches the high end of the company’s preliminary estimate of $387-$389 million announced in January.

Revenues for the year were $1.37 billion, down 9.6% from the year-ago period. The metric was in line with the Zacks Consensus Estimate. Organically, the company’s revenues fell 8.7% for the year.

Segmental Details

Coming to product categories, revenues from the  CSS segment fell 2% year over year on a reported basis to $254.3 million (organically, the decline was 1.6%). 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-double digits. Sales in dural access and repair and CSS management increased low-single digits and mid-single digits respectively during the quarter under review.

OTT revenues totaled $134.4 million in the fourth quarter, down 1% year over year on reported basis and 1.3% on organic basis. During the fourth quarter, sales in wound reconstruction declined 1.5% compared to prior year, but sales of SurgiMend, nerve and amniotic all increased double digits and sales of Integra skin increased low-single digits. Fourth quarter sales in private label also increased 2% in line with the company expectations.

Margin Trend

In the reported quarter, gross profit totaled $241.6 million, down 1.7% year over year. Gross margin contracted 1 basis point (bps) at 62.2%. The company-adjusted gross margin of 68.2% was also down 1 bps.

Selling, general and administrative expenses contracted 6.8% to $162.4 million in the quarter under review, while research and development expenses fell 9.9% to $22.2 million.

Overall, adjusted operating profit was $57 million, up 21.9% year over year. Adjusted operating margin saw a 283-bps expansion year over year to 14.7%.

Financial Position

Integra exited 2020 with cash and cash equivalents of $470.2 million, up from $198.9 million at the end of 2019.

Cumulative net cash flow from operating activities at the end of the fourth quarter was $203.8 million compared with $231.4 million in the year-ago quarter.

2021 Outlook

The company has announced its financial guidance for fiscal 2021.

For the full-year 2021, the company expects revenues to be in a range of $1.52 billion to $1,53 billion. The Zacks Consensus Estimate for the same is pegged at 1.51 billion.

Adjusted earnings per diluted share for fiscal 2021 are expected to be in a range of $2.86 to $2.93. The Zacks Consensus Estimate for the same is pegged at $2.90.

For the first quarter 2021, the company expects reported revenues in the range of $345 million to $355 million. The Zacks Consensus Estimate for the same is pegged at $354.2 million.

Adjusted earnings per diluted share in the first quarter 2021 are expected to be in a band of 54 to 58 cents. The Zacks Consensus Estimate for the same is pegged at 65 cents.

Our Take

Integra exited the fourth quarter with better-than-expected earnings results. The ongoing recovery within the company’s business looks encouraging. The sequential improvement in segmental revenues, in the fourth quarter, buoys optimism. Robust demand for the company’s products is also a positive. Expansion of operating margin looks encouraging. The Company provided financial guidance for fiscal 2021 raising optimism.

However, lower year-over-year revenue looks discouraging. The company witnessed decline in OTT and CSS segment’s revenues due to coronavirus-led business disruptions is concerning. Contraction of gross margin looks worrying.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -12.74% due to these changes.

VGM Scores

Currently, Integra has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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