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Why Is Integra (IART) Down 37.3% Since Last Earnings Report?

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A month has gone by since the last earnings report for Integra LifeSciences (IART - Free Report) . Shares have lost about 37.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Integra due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Integra’s Q4 Earnings Surpass Estimates, Margins Up

Integra delivered adjusted earnings per share of 68 cents in the fourth quarter of 2019, up 4.6% from a year ago. The metric surpassed the Zacks Consensus Estimate by 1.5%.

GAAP earnings per share for the fourth quarter was 18 cents, reflecting a dip of 37.9% from the year-ago period due to expenses related to the Rebound Therapeutics Corporation acquisition and tax benefits received in the year-ago quarter.

Adjusted earnings per share was $2.74 for the year, reflecting a 13.2% increase from the year-ago period. However, the company lagged the Zacks Consensus Estimate by 8.4%.

Revenue Discussion

Total revenues in the reported quarter moved up 3.1% year over year to $395.1 million, which lagged the Zacks Consensus Estimate by 0.6%. Organically, the company’s revenues grew 4.6% year over year.

Revenues for the year were $1.52 billion, reflecting a 3.1% increase from the year-ago period. The metric was in line with the Zacks Consensus Estimate. Organically, the company’s revenues grew 4.8% for the year.

Segmental Details

Coming to product categories, revenues from the Codman Specialty Surgical segment rose 4.1% to $259.4 million (organic growth was 5.6%). The upside was driven by the substantial completion of all integration activities related to the Codman acquisition, scale expansion, product launches, and venturing into faster growing markets like China and Japan.

Orthopedics and Tissue Technologies revenues totaled $135.7 million in the fourth quarter, up 1.3% year over year. Organically, the segment grew 1.6%, owing to sales uptick in wound reconstruction. Wound reconstruction, in turn, rose due to the company’s solid performance in inpatient and plastics and reconstructive portfolios, partially offset by weaker sales in outpatient settings. However, wound reconstruction sales were affected by supply constraints in the reported quarter.

Margin Trend

In the reported quarter, gross profit totaled $245.7 million. Gross margin expanded 38 basis points (bps) to 62.2% on a 3.7% rise in gross profit.

Selling, general and administrative expenses contracted 1.7% to $174.3 million in the quarter under review, while research and development expenses rose 21.4% to $24.6 million. In the quarter, the company incurred in-process research and development expenses of $5 million.

Overall adjusted operating profit was $41.8 million, up 6.2% year over year. Adjusted operating margin saw a 31-bps expansion year over year to 10.6%.

Financial Position

Integra exited the year with cash and cash equivalents of $198.9 million, up from $138.8 million at the end of 2018.

Cumulative cash flow from operating activities was $231.4 million at the end of 2019 compared with $199.7 million at the end of 2018.

2020 Outlook

For the year, Integra reiterated its guidance (issued on Jan 14). Revenues are expected between $1.55 billion and $1.57 billion, representing a reported growth of 3%. The Zacks Consensus Estimate for the metric is pegged at $1.56 billion.

For 2020, organic sales growth (excluding the effects of foreign currency, acquisitions, divestitures and discontinued products) is projected to be 5%.

GAAP earnings per share is expected between $1.40 and $1.45 for 2020.

Adjusted earnings per share is expected between $3.00 and $3.05 for 2020. The Zacks Consensus Estimate for the metric stands at $2.99.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

Currently, Integra has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision has been net zero. It comes with little surprise Integra has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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