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Surmodics, Inc. (SRDX - Free Report) reported earnings of 26 cents per share in the fourth-quarter of fiscal 2016 (ended Sep 30, 2016), surpassing the Zacks Consensus Estimate of 9 cents. Reported earnings were, however, lower than the year-ago figure of 34 cents.

Revenues in the quarter increased 4.6% to $18.2 million. The top line included $1.3 million from the company’s acquisitions made in fiscal 2016. Reported revenues were also above the Zacks Consensus Estimate of $16.2 million.

Quarter in Detail

Surmodics reports revenues in two segments – IVD and Medical Device.

Products sales surged 19.1% to $8.1 million, reflecting acquisition-related product sales, and higher reagent and product sales at the Medical Device and IVD segments, respectively.

Revenues at the Medical Device segment, which contributes approximately three-quarters to the company’s top line, came in at $13.7 million, up 4.6% year over year. The increase was driven by higher reagent product sales and acquisition revenues. Hydrophilic coating royalty revenues, however, fell 13% to $8 million due to the patent expiration of Surmodics’ third-generation hydrophilic coatings in the U.S. in Nov 2015.

Revenues at the IVD unit were up almost 5% to $4.5 million.

Research and development expenses were $5.3 million, up 23.2% from the year-ago figure reflecting investments in whole product strategy.

General and administrative expenses increased almost 43% to $5 million.

Fiscal 2016 Results

Surmodics reported earnings of $1.21 per share in fiscal 2016, up 11% year over year and above the Zacks Consensus Estimate of $1.04.

Moreover, full-year revenues soared 15.3% year over year to $71.4 million and surpassed the Zacks Consensus Estimate of $69 million.

Fiscal 2017 Outlook

Surmodics provided its guidance for both earnings and revenue for fiscal 2017. The company expects adjusted earnings in the range of 15–35 cents per share. The Zacks Consensus Estimate for adjusted earnings is pegged at 79 cents.

Meanwhile, revenues are expected in the range of $63–$67 million. The Zacks Consensus Estimate of $64.38 million falls within the company’s guided range.

Our Take

We are impressed by Surmodics’ fourth-quarter fiscal 2016 results, wherein it beat on both earnings and revenues. We are also encouraged by the company’s recent acquisitions of Creagh Medical and NorMedix Inc., as well as its progress on the SurVeil drug-coated balloon platform.

However, the impact of the U.S. patent expiration of the company’s third-generation hydrophilic coatings is anticipated to increase in the upcoming quarters as customers have largely depleted the inventories stocked before the patent expiration.

Moreover, the company expects IVD business to grow in the mid single digits, compared to double-digit gains realized in fiscal 2016, due to anticipated top-line headwinds in the near term.

SURMODICS Price, Consensus and EPS Surprise


SURMODICS Price, Consensus and EPS Surprise | SURMODICS Quote

Zacks Rank & Key Picks

Surmodics currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the health care sector include Anika Therapeutics Inc. (ANIK - Free Report) , Cambrex Corp. (CBM - Free Report) and Vanda Pharmaceuticals, Inc. (VNDA - Free Report) . Each of these stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Anika’s earnings estimates increased from $1.96 to $2.06 for 2016 and from $2.03 to $2.09 for 2017 over the last 60 days. The company posted a positive surprise in all of the four trailing quarters with an average beat of 33.14%.

Cambrex’s earnings estimates have increased from $2.46 to $2.55 for 2016 and from $2.91 to $3.06 for 2017 over the last 60 days. The company has posted a positive earnings surprise in three of the trailing four quarters with an average beat of 19.78%.

Vanda’s loss estimates narrowed from 68 cents to 56 cents for 2016 over the last 60 days, while its earnings estimates increased from 16 cents to 17 cents for 2017. The company posted a positive earnings surprise in three of the last four quarters with an average beat of 56.65%.

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