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Surmodics (SRDX) Beats Q3 Earnings Estimates, Raises '18 View

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Surmodics, Inc. (SRDX - Free Report) reported adjusted earnings of 27 cents per share in third-quarter fiscal 2018, up 200% year over year. The Zacks Consensus Estimate was pegged at a loss of 8 cents.

Revenues in the quarter increased 24.9% to $22.2 million, beating the Zacks Consensus Estimate of $20 million. The figure included $1.7 million of revenues from the company’s SurVeil agreement with Abbott Labpratories.

The stock has a Zacks Rank #3 (Hold).

Q3 Details

Notably, Product sales in the quarter were $10.5 million, up 25.8% year over year.

Royalty and license fee revenues totaled $9.6 million, up 32.5% from the year-ago quarter’s tally. The uptick in royalty and license fee revenues indicate Surmodics’ strength in the hydrophilic coatings royalties.

Research, development and other revenues were $2.2 million, down 2.9% year over year.

Surmodics, Inc. Price, Consensus and EPS Surprise


Segmental Analysis

Surmodics reports revenues under two segments — Medical Device and In Vitro Diagnostics (IVD).

Medical Device

In the reported quarter, sales rallied 30.7% to $16.7 million. The medical device business unit reported $6.2-million operating loss in the quarter under review. Notably, the company delivered operating income of $1.4 million in the prior-year quarter

Per management, the medical device operating results were impacted by the $7.9-million IP R&D charge associated with the acquisition of the Embolitech thrombectomy technology and also $1.5 million of increased R&D expenditure.


In the quarter under review, sales increased 10.3% to $5.5 million. The upside came on the back of strong growth and stabilization across microarray and antigen product sales.

Operating income in the segment was $2.2 million in the reported quarter, marginally down from the year-ago quarter’s level.

Operating Details

Surmodics registered Product costs of $4.1 million in the quarter, up 40.8% year over year.

The company had Research and development costs of $9.8 million, up 23.4% year over year.           

Selling, general and administrative expenditures were almost $6 million, up 14.2% year over year.

Total operating costs and expenses in the quarter were $28.5 million, up 77.5% year over year.


Surmodics raised guidance for fiscal 2018.

Surmodics expects fiscal 2018 revenues in the range of $79-$81 million, up from the previous band of $75-$79 million. The Zacks Consensus Estimate is currently pegged at $78.4 million, lower than the guidance.

The company expects fiscal 2018 earnings per share between 39-44 cents, compared with the previous estimate of negative 6 cents and 9 cents. The Zacks Consensus Estimate is currently pegged at a loss of 2 cents per share, significantly below the guidance.

Wrapping Up

Surmodics exited the third quarter of fiscal 2018 on a solid note, beating the Zacks Consensus Estimate on both the counts. Further, solid performance in the IVD segment, which gained from growth in antigen and stabilizer sales, holds promise. The company issued a solid guidance for fiscal 2018. The company's solid initiatives to strengthen research and development programs bode well. Surmodics generated strong profits from the SurVeil agreement with Abbott Laboratories.

On the flip side, the company witnessed significantly high operating losses. Product sales declined due to shipment issues, particularly in the Medical Device segment. Further, foreign-exchange woes related to the Creagh Medical buyout have been a major dampener. The company’s drug-coated balloons face stiff competition in niche space. The company’s margins are expected to stay under pressure, thanks to expenses in the Irish facility infrastructure and lower Medical-Device product gross margins.

Earnings Results of MedTech Majors at a Glance

A few better-ranked stocks in the broader medical space, which reported solid earnings this season, are Intuitive Surgical, Inc (ISRG - Free Report) , Chemed Corporation (CHE - Free Report) and Illumina, Inc (ILMN - Free Report) .

While Intuitive Surgical and Illumina sport a Zacks Rank #1 (Strong Buy), Chemed carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical reported adjusted earnings of $2.76 per share in the second quarter of 2018, which beat the Zacks Consensus Estimate of $2.48. Adjusted earnings improved 38% year over year.

Chemed's second-quarter 2018 adjusted earnings per share were $2.81, up 30.7% from the year-ago quarter’s tally. The figure also surpassed the Zacks Consensus Estimate of $2.68.

Illumina reported adjusted earnings of $1.43 per share, beating the Zacks Consensus Estimate of $1.11.

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