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Teleflex (TFX) Q2 Earnings Top, Sales Lag, '18 View Bearish

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Teleflex (TFX - Free Report) announced earnings per share (EPS) from continuing operations of $2.47 for the second quarter of 2018, up 21.1% year over year. Also, the bottom line surpassed the Zacks Consensus Estimate by 2.5%. This year-over-year rise in earnings was driven by an increase in sales and improved margins.

Although net revenues in the reported quarter rose 15.4% year over year to $609.9 million, the metric missed the Zacks Consensus Estimate by 1.2%.

On a year-over-year basis, the company saw organic constant currency revenue growth of 3.6% including a benefit of approximately 1% from one additional shipping day.

Per management, the company also realized benefits from the newly-acquired NeoTract, which generated approximately $48 million in revenues during the second quarter.

Revenue in Detail

Teleflex’ Vascular North America segment recognized net revenues of $80.1 million, up 1.4% year over year at constant exchange rate or CER. Despite a decrease in sales volumes of existing products, the growth was primarily attributable to an increase in new product sales.

The Interventional North America business registered net revenues of $65 million, an 11.3% rise on a year-over-year basis at CER. This upside was fuelled by higher sales volumes of existing products and better new product sales along with a favorable impact of one additional shipping day during the second quarter of 2018.

Teleflex Incorporated Price, Consensus and EPS Surprise

Teleflex Incorporated Price, Consensus and EPS Surprise | Teleflex Incorporated Quote

Within Anesthesia North America, net revenues climbed 2.7% at CER to $50.5 million on higher new product sales and stronger sales volumes of existing products. This was however, partially offset by price declines.

Surgical North America realized net revenues of $40.7 million, a 9.2% fall due to contracted sales volumes of existing products in spite of the positive impact from an extra shipping day.

Meanwhile, EMEA revenues grossed revenue growth of 2.8% at CER to $153.4 million, driven by a beneficial price improvement.

Asia, OEM and All Other reaped net revenues of $72.4 million, $52.6 million and $95.2 million, respectively (corresponding top-line growth of 5.9%, 14.9% and 98% each at CER), in the quarter under review.

Margin

Gross margin of 56.3% during the second quarter was up 162 basis points (bps) year over year on an 18.7% improvement in gross profits. Adjusted operating margin contracted 644 bps to 14.5% despite a 42.8% escalation in operating profit.

Liquidity Position

The company exited the second quarter with cash and cash equivalents of $346.3 million compared with $333.5 million at the end of 2017. Year to date, net cash provided by operating activities was $181.6 million compared with $197.7 million in the year-ago period.

Outlook

Teleflex lowered its 2018 revenue growth guidance to a range of 14-15% from the earlier-announced band of 15-16%. The revised range reflects an anticipated 2% favorable impact of foreign exchange translation (earlier, the projection was a 3% conducive effect). On a constant currency basis, the company reaffirmed its full-year guidance of 12-13% over the prior-year’s expected range.

The company also reiterated its full-year adjusted earnings per share from continuing operations outlook in the $9.70-$9.90 band, representing an approximately 5% positive impact from foreign exchange fluctuations.

Our Take

We note that Teleflex continues to report robust improvement in revenues, banking on balanced growth across all segments and geographies. Teleflex’s newly-acquired NeoTract has started to contribute to the company’s top line quite handsomely. We are also upbeat about Urolift considering the recently published favorable study outcome. Besides this, Vascular solutions synergy is progressing well.

Zacks Rank & Key Picks

Teleflex carries a Zacks Rank #3 (Hold). 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, beating the consensus mark of $462.9 million.

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