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Integer Holdings (ITGR) Beats on Q3 Earnings and Revenues

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Integer Holdings Corporation (ITGR - Free Report) reported third-quarter 2018 adjusted earnings of $1.06 per share, outpacing the Zacks Consensus Estimate by 15.2%. Earnings rose 16.5% on a year-over-year basis.

Revenues improved 6.9% year over year to $305.1 million on a reported basis and surpassed the Zacks Consensus Estimate of $292 million.

Meanwhile, the Zacks Rank #1 (Strong Buy) stock has rallied 81.4% compared with the industry’s 16.2% in a year’s time. The current level is also higher than the S&P 500 index’s rise of 5.2%.

Integer Holdings Corporation Price, Consensus and EPS Surprise

Integer Holdings Corporation Price, Consensus and EPS Surprise | Integer Holdings Corporation Quote

Segmental Analysis

Integer Holdings operates through two segments — Medical Sales and Non-Medical Sales.

Medical Sales

Reported sales at the segment were $292.6 million, up 8% year over year. Revenues increased 8.7% on an organic basis.

Medical Sales has three sub-segments — Advanced Surgical, Orthopedics and Portable Medical (AS&O); Cardio and Vascular; and Cardiac/Neuromodulation.

Advanced Surgical, Orthopedics and Portable Medical

Revenues amounted to $32.8 million, up 3.4% from the prior-year quarter. Notably, the segment grew 8.9% on an organic basis. Per management, the upside was driven by solid market demand.

Cardio and Vascular

Revenues at the segment totaled $150.2 million, up 9.1% from the prior-year quarter and 9.2% organically. Per management, sales increased primarily on continued strong demand in the electrophysiology market and product launches.

Cardiac/Neuromodulation

Revenues at this segment totaled $109.6 million, up 7.9% from the prior-year quarter. On an organic basis, the segment grew 7.9%. However, management expects a drop in sales in the fourth quarter of 2018.

Non-Medical Sales

Reported sales in the segment totaled $12.4 million, down 17.7% on both year over year and organic basis. Per management, the deterioration was caused due to North American drilling activity and planned phase out of certain rechargeable battery pack products.

Margin Analysis

Integer Holdings generated gross profit of $91.9 million in the third quarter, up 3.1% year over year. As a percentage of revenues, gross margin in quarter contracted 110 basis points (bps) to 30.1%.

Selling, general and administrative expenses (SG&A) were $34.1 million, down 2.8% year over year.

Research, development and engineering costs totaled $12.2 million in the quarter, up 0.1% year over year.

Total operating income in the quarter under review was $41.5 million, up 15.7% year over year. Adjusted income from operations totaled $45.6 million, up 8.8% year over year.

Adjusted operating margin was 14.9%, up 30 bps year over year.

Financial Condition

Integer Holdings exited the third quarter with cash and cash equivalents of $22.9 million. The company paid down $595 million of debt, of which $548 million was used from the divestiture of the AS&O Product Line.

Guidance

For 2018, Integer Holdings expects reported revenues between $1,197 million and $1,212 million, reflecting year-over-year growth of 5-7%. On an adjusted basis, the company expects revenues in the band of $1,195-$1,210 million, showing growth of 6-7% from the previous year.

The Zacks Consensus Estimate is pegged at $1.24 billion.

Adjusted earnings per share are expected within $3.55 to $3.70, indicating a rise of 15-20% from the previous year. The Zacks Consensus Estimate is pinned at $3.62, within the guided range.

Adjusted income from operations is anticipated between $117 million and $122 million showing year-over-year rise of 18%-23%.
Adjusted EBITDA is projected between $255 million and $265 million, up 9-13% year over year.

Summing Up

Integer Holdings wrapped up the third quarter on a solid note, with earnings and revenues beating the consensus mark. The company continues to gain from its Cardio & Vascular product line. Strong demand across key areas like electrophysiology, structural heart and peripheral vascular is a major positive. Management is optimistic about the divestiture of its AS&O product line. A solid outlook for 2018 and expansion in operating margin buoy optimism as well. Integer Holdings also paid down its debt significantly in the quarter.

On the flip side, Integer Holdings’ Non-Medical segment continues to see market softness. Management expects segment sales to be flat year over year in the fourth quarter. Additionally, a lackluster guidance for the Cardiac/Neuromodulation’s fourth-quarter sales is discouraging. Contraction in gross margin adds to the woes.

Earnings of Other MedTech Majors at a Glance

Other top-ranked stocks in the broader medical space which also reported solid earnings this season are Intuitive Surgical (ISRG - Free Report) , Stryker Corporation (SYK - Free Report) and Merit Medical Systems, Inc. (MMSI - Free Report) . Each of the stocks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical reported third-quarter 2018 adjusted earnings per share of $2.83, which beat the Zacks Consensus Estimate of $2.65. Revenues totaled $920.9 million, also surpassing the consensus estimate of $918.6 million.

Stryker posted third-quarter 2018 adjusted earnings per share of $1.69, beating the Zacks Consensus Estimate by a penny. Operating margin was 17.8%, up 30 bps.

Merit Medical reported third-quarter 2018 adjusted earnings per share of 47 cents, which trumped the Zacks Consensus Estimate of 42 cents. Revenues of $221.6 million edged past the consensus estimate of $218 million.

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