Integra LifeSciences Holdings Corporation (IART) reported EPS of 23 cents in the first quarter of fiscal 2012 compared with 38 cents in the year-ago quarter. Adjusted EPS increased 7.6% year over year to 71 cents and comfortably beating the Zacks Consensus Estimate of 61 cents.
Total revenue during the quarter increased 8% year over year (9% at constant exchange rates or CER) to $196.2 million and came ahead of the Zacks Consensus Estimate of $193 million. The healthy revenue growth was primarily on the back of improved sales across all the segments of Integra.
During the reported quarter, Orthopedics, increased 19% year over year to $86.2 million. The company also registered 1% year-over-year sales growth in both Neurosurgery (to $66.1 million) and Instruments ($43.9 million).
Integra witnessed a 4.6% year-over-year increase in gross profit to $121.5 million. However, gross margin came down by 220 basis point (bps) to 61.9%. During the quarter, selling, general and administrative expenses rose 9.1% to $87.4 million but research and development expenses were down 1.9% to $11.9 million. Operating margin during the quarter contracted 190 bps to 11.3%.
Integra exited the quarter with $112.4 million in cash, cash equivalents and short term investments compared with $100.8 million at the end of 2011. The company generated $32.3 million in cash flow from operations and incurred capital expenditures of $10.4 million in the quarter. Additionally, the company used $12.8 million to pay its revolving credit.
On the back of strong results in the first quarter reflecting solid regenerative medicine sales as well as expense control, Integra increased the lower end of its 2012 adjusted EPS guidance to $2.97–$3.06 (earlier guidance was $2.93–$3.06).
However, the company reiterated its fiscal 2012 revenue guidance of $820–$835 million at current exchange rate (representing a growth of 5–7% over the 2011 level and 6–8% at CER).
We are encouraged by the company’s balanced segmental growth in the reported quarter amidst a challenging macroeconomic environment. The company’s focus on strategic initiatives to drive growth and profitability in the orthopedic market is quite encouraging. Several initiatives on the company’s part like planned product launches and acquisitions are expected to accelerate sales growth in the next several quarters.
However, tighter capital spending continues to challenge the surgical instruments market. Moreover, Integra faces direct competition in the medical instruments & supplies industry from major players like Medtronic (MDT) and Stryker Corp. (SYK). Currently, the company retains a short-term Zacks #3 Rank (Hold).  We have a long-term ‘Neutral’ recommendation on the stock.


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