Integer (ITGR) Down 2.4% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Integer (ITGR). Shares have lost about 2.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Integer 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.

Integer Holdings Q4 Earnings Beat, ‘19 View Strong

Integer Holdingsreported fourth-quarter 2018 adjusted earnings of $1.04 per share, which surpassed the Zacks Consensus Estimate of 92 cents. The bottom line also increased 8.3% on a year-over-year basis.

Revenues decreased 22.4% year over year to $303 million on a reported basis but outshined the Zacks Consensus Estimate of $298 million.

2018 at a Glance

In 2018, Integer Holdings registered revenues of $1.22 billion on a GAAP basis, improving 6.9% on a reported basis and 7.1% on an organic basis year over year. However, the top line missed the Zacks Consensus Estimate of $1.30 billion.

Total Medical sales in the year were $1.16 billion (95.1% of net revenues), while Non-medical sales were almost $53 million (4.9% of net revenues).

Segmental Analysis

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

Medical Sales

At the segment, reported revenues were $290.2 million, up 0.9% year over year. Revenues increased 1.6% 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 $31.7 million, down 0.4% from the prior-year quarter. Notably, the metric grew 4.8% on an organic basis. Per management, the upside was driven by solid market demand.

Cardio and Vascular

Revenues at the segment totaled $149.6 million, up 7.7% from the prior-year quarter and 8% organically. Per management, revenues increased primarily on continued strong demand in the electrophysiology market and product launches.

Cardiac/Neuromodulation

Revenues at this segment summed $108.9 million, down 6.7% from the prior-year quarter. On an organic basis, revenues at the segment decreased 6.7% year over year.

Non-Medical Sales

Reported revenues at the segment totaled $12.8 million, down 13.2% on both year over year and organic basis. Per management, the downturn 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 $88.4 million in the fourth quarter, down 5.5% year over year. As a percentage of revenues, gross margin in quarter contracted 180 basis points (bps) to 29.2%.

Selling, general and administrative expenses (SG&A) were $35.1 million, down 7.7% year over year.

Research, development and engineering costs grossed $10.2 million in the quarter, down 26.1% year over year.

Total operating income amounted to $39.7 million, up 32.9% year over year. Adjusted income from operations totaled $25.3 million, up 55.6% year over year.

Adjusted operating margin was 8.4%, up 300 bps year over year.

Guidance

For 2019, Integer Holdings expects reported revenues between $1.26 billion and $1.28 billion, reflecting year-over-year growth of 4-5%. On an adjusted basis, the company expects revenues in the same band, mirroring a 4-6% improvement from the previous year. Notably, the mid-point of the guidance is in line with the Zacks Consensus Estimate of $1.27 billion. For 2019, adjusted earnings are expected in the range of $4.05-$4.25 per share, indicating a 7-12% increase from the previous year. The mid-point of the latest guidance range of $4.15 beats the Zacks Consensus Estimate of $4.08.

On a reported basis, Integer Holdings expects 2019 earnings are anticipated in the $2.77-$2.97 per share band, mirroring 7-12% growth year over year.

Adjusted income from operations is anticipated between $141 million and $275 million, indicating year-over-year rise of 8-13%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Integer has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Integer has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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