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NuVasive (NUVA) Q2 Earnings Meet Estimates, EPS View Down

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NuVasive, Inc. (NUVA - Free Report) reported second-quarter 2018 adjusted earnings per share (EPS) of 58 cents, reflecting a 26.1% rise from the year-ago quarter. The bottom line, however, remained in line with the Zacks Consensus Estimate.

On a reported basis, second-quarter 2018 EPS was 22 cents per share, a penny ahead of the year-ago number.

Revenues in the reported quarter came in at $281.6 million, up 8.5% (up 7.7% at constant exchange rate or CER) year over year. The top line also surpassed the Zacks Consensus Estimate by 2%.

In the reported quarter, revenues at the U.S. Spinal Hardware business increased around 5.6% to $150.8 million, driven by new product launches in the United States, namely modular 3D printed titanium implants for TLIF and XLIF, Porous PEEK offerings, COHERE and COALESCE, expanded PLF implant offerings and RELINE Small Stature.

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Revenues in the U.S. Surgical Support business were $74 million for the quarter under review, up 5.9% year over year. While the acquisition of SafePassage contributed $6 million to the top line, there was approximately 6% growth in the legacy services business, partially offset by the expected decline in the Biologics product line.

The international business recorded 17% growth at CER or 21% on a reported basis on solid contributions from key geographies.

In the reported quarter, adjusted gross margin was 72.8%, down 170 basis points year over year. This year-over-year contraction was the result of a slower production throughput and insourcing of SKUs at NuVasive’s West Carrollton facility.

Sales, marketing and administrative expenses rose 4.8% to $145.7 million while research and development expenses shot up 18.2% to $14.9 million. Adjusted operating margin contracted 44 bps to 15.6% in the quarter under discussion.

The company exited the second quarter with cash and cash equivalents of $70.1 million, down from $73.7 million at the end of the first quarter.

Outlook

NuVasive provided an update on its guidance for 2018. The projection has been adjusted for the recent buyout of SafePassage, full-year benefits from the U.S. tax reform and suspension of the medical device tax.

The company continues to expect 2018 revenues in the range of $1.095-$1.105 billion, reflecting 4.7-5.7% organic growth (unchanged). On a reported basis, the company expects revenue growth of 6.7-7.6% (unchanged) inclusive of the recently-acquired SafePassage. The Zacks Consensus Estimate of $1.10 billion is within this guided band.

NuVasive however, declined its full-year adjusted EPS forecast to a new range of $2.37-$2.40 from the earlier prediction of $2.44-$2.47. The current Zacks Consensus Estimate of $2.45 remains outside this guided range. Additionally, adjusted operating margin for the year is anticipated at 16.7% (down from the earlier figure of 17.6%).

Our Take

NuVasive deivered revenues ahead of the Zacks Consensus Estimate while its earnings met the consensus mark. The company registered balanced growth in both its business wings. Also, a solid show by the international business buoys optimism. The company expects to see strong demand for new products and positive surgeon conversion efforts as its new Lateral Single-Position Surgery procedure gains traction in the market. Moreover, we are upbeat about the recently-completed consolidation of SafePassage.

On the flip side, the lowered earnings as well as operating margin outlook was disappointing.

Zacks Rank & Key Picks

NuVasive has a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader medical sector having reported solid results this earnings season are Intuitive Surgical (ISRG - Free Report) , Chemed Corporation (CHE - Free Report) and Align Technology, Inc. (ALGN - Free Report) . While Intuitive Surgical sports a Zacks Rank #1 (Strong Buy), Chemed and Align Technology carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical reported second-quarter 2018 adjusted EPS of $2.76, which beat the Zacks Consensus Estimate of $2.48. Revenues totaled $909.3 million, also surpassing the consensus estimate of $870 million.

Chemed reported second-quarter 2018 adjusted EPS of $2.81, which trumped the Zacks Consensus Estimate of $2.68. Revenues of $441.8 million edged past the Zacks Consensus Estimate of $432.3 million.

Align Technology posted second-quarter 2018 adjusted EPS of $1.30, steering past the Zacks Consensus Estimate of $1.09. Revenues came in at $490.3 million, exceeding the consensus estimate of $462.9 million.

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