Integra Lifesciences Down to Sell on Poor Q1 Segment Show - Analyst Blog

On June 6, Zacks Investment Research downgraded Integra Lifesciences Holdings Corporation IART to a Zacks Rank #4 (Sell).

Why the Downgrade?

Integra Lifesciences reported its first-quarter 2014 results on May 1. Adjusted earnings per share of this New Jersey-based manufacturer and distributor of medical instruments and surgical implants surged 83.9% year over year to 57 cents in the quarter, but missed the Zacks Consensus Estimate by a penny.

Revenues for the quarter increased 9.4% year over year to $215.1 million and beat the Zacks Consensus Estimate by a penny. However, excluding the contribution of revenues from the DuraSeal acquisition (which closed during the first quarter), contribution from discontinued products, and the effect of currency exchange rates, revenues increased by only 3% over the prior year's first quarter.

On the basis of product categories, revenues from U.S spine and Other segment declined 6% to $41.1 million in the first quarter. This decline is attributable to a 10% decline in the Private label revenues to $12.9 million. A long-term decline in sales in one of the company's larger partners and the effect of product line discontinuations negatively affected the Private label performance.  

Integra Lifesciences' overall U.S. Spine business experienced a 7% downfall in revenues due to the company's poor performance in the hardware business. Revenues from the U.S. Instruments segment also dropped 3% from the prior-year quarter, owing to a product line transfer from U.S. Extremities in the reported quarter. Discontinued products and lower sales in retractors resulted in lower reported top-line growth.

In addition, Integra Lifesciences believes the change in accounting policy for the medical device tax has the potential to reduce reported net earnings per share by approximately 5 cents in 2014.

Management has lowered its adjusted earnings guidance, primarily reflecting the negative impact of the change in accounting policy for the medical device excise tax; greater amortization expense than the company originally estimated following the purchase price accounting for the DuraSeal acquisition; and the increase in the adjusted tax rate.

The Zacks Consensus Estimate for 2014 earnings dropped 4.5% to $2.94 over the last 60 days. For 2015, majority of the estimates were revised downward over the same time frame, dragging the Zacks Consensus Estimate down by 2.4% to $3.32.

Other Stocks to Consider

In the biomedical space, ANI Pharmaceuticals, Inc. ANIP, Gilead Sciences Inc. GILD and Illumina Inc. ILMN are performing well. All these stocks carry a Zacks Rank #1 (Strong Buy).