Mindray Medical Misses on Q1 Earnings - Analyst Blog

Chinese medical devices maker, Mindray Medical International Ltd. (MR) posted a disappointing 34.0% fall in adjusted earnings per share to 33 cents for the 2014-first quarter from 50 cents a year ago and missed the Zacks Consensus Estimate by 3 cents per share.

Adjusted net earnings dipped 35.7% year-over-year to $38.5 million from $59.8 million in the first quarter of 2013. Reported earnings decreased 37.5% to 30 cents per share from 48 cents per share in the 2013-quarter or 37.9% to $35.6 million from $57.4 million in the year-ago quarter.

Net revenues grew 9.4% to $264.8 million, lying below the Zacks Consensus Estimate of $291 million. International sales continued to be stronger than the domestic market sales.  

International revenues upped 13.9% to $148.9 million while revenues from China grew at a slower pace of 4.0% to $115.8 million due to sluggish purchasing and marketing activities in the healthcare sector.

Segment Revenues

Revenues from Patient Monitoring & Life Support Products fell 1.4% to $98.0 million, contributing 37.0% to overall net revenues. Revenues from In-Vitro Diagnostic Products went up 6.8% to $73.0 million, contributing 27.6% to net revenues. Reagents sales accounted for 38.1% of segment revenues.

Revenues from Medical Imaging Systems escalated 27.1% to $67.6 million, contributing 25.5% to net revenues. Revenues from Others (including sales from the orthopedics business, service revenues from extended warranties, sales of accessories and repair service revenues for post-warranty period) zoomed 23.6% to $26.2 million, contributing 9.9% to overall net revenues.

Margins

Adjusted gross profit rose 5.3% to $148.0 million but adjusted gross margin declined 210 basis points (bps) to 55.9% in the quarter. Adjusted operating profit went down 16.5% to $34.7 million, while operating margin dipped 410 bps to 13.1% from 17.2% in the 2013 first quarter.

Financial Position

MR had $419.8 million in cash and cash equivalents as of Mar 31, 2014, up 9.0% from $385.2 million as of Dec 31, 2013. Total bank loans fell 10.6% to $425.2 million from $475.7 million as of Dec 31, 2013.

In the quarter, cash flow from operating activities plunged 53.6% to $19.7 million from $42.4 million in the 2013-quarter. Capital expenditure rose 39.1% to $27.9 million compared with $20.0 million a year ago.

2014 Guidance

MR continues to expect 2014 net revenues to grow at least 15% over 2013 based on strengths in Western Europe and some emerging markets as well as gradual improvement in China. The company also reiterated its capital expenditures guidance of $160 million for the year.

Our Take

MR is a bellwether in the Chinese MedTech industry with a solid international presence. A key distinction with domestic competitors is that the majority of its products have CE Mark and/or Food and Drug Administration (FDA) clearance.

However, falling earnings disappointed investors and the company's results fell short of both the earnings and revenues estimates. Currently, MR carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the medical instruments industry include Delcath Systems, Inc. (DCTH), Accuray Inc. (ARAY) and Edwards Lifesciences Corp. (EW). While Delcath Systems sports a Zacks Rank #1 (Strong Buy), both Accuray and Edwards Lifesciences retain Zacks Rank #2 (Buy).