A month has gone by since the last earnings report for Merit Medical (MMSI). Shares have lost about 0.7% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Merit Medical 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.
Merit Medical Q4 Earnings Top Estimates, Margins Down
Merit Medical delivered adjusted earnings per share of 79 cents in the fourth quarter of 2022, up by 11.3% year over year. The figure also surpassed the Zacks Consensus Estimate by 17.9%.
The adjustments include expenses related to the amortization of intangibles, and corporate transformation and restructuring, among others.
Our projection of adjusted earnings per share was 66 cents.
GAAP earnings per share for the quarter was 58 cents a share, up by 61.1% year over year.
Full-year adjusted earnings per share was $2.70, up 13.9% from the end of 2021. Our projection of full-year adjusted earnings per share was $2.56.
Revenues in Detail
Merit Medical registered revenues of $293.4 million in the fourth quarter, up 5.4% year over year. The figure surpassed the Zacks Consensus Estimate by 1.3%.
The fourth-quarter revenue compares to our estimate of $288 million.
Per management, the overall top line was driven by 7% growth in U.S. sales and 3% growth in international sales. Strong performance by the Cardiovascular segment and the majority of its product categories also contributed to the top line.
CER, organic revenues inched up 8.2% year over year primarily on the back of a more favorable-than-anticipated international sales trend, particularly in the EMEA region, and demand in the United States, that was in line with the growth expectations Merit Medical had outlined in its third-quarter call.
Full-year revenues were $1.15 billion, reflecting a 7.1% improvement from the comparable 2021 period. CER, organic revenues increased by 9.3%.
Our projection of full-year reported revenues was $1.15 billion, which matched the company-reported figures.
Merit Medical operates through two segments — Cardiovascular and Endoscopy.
The Cardiovascular unit reported fourth-quarter revenues of $285.7 million, up 5.7% year over year on a reported basis. CER, organic revenues inched up 8.7% year over year.
This figure compares to our segmental projection of $280 million for the fourth quarter.
The Cardiovascular segment includes the following product categories: PI, CI, CPS and OEM.
On a reported basis, PI product line revenues were $112.4 million, up 6.5% year over year, whereas CI revenues rose 6% to $85.3 million. OEM revenues climbed 15% to $38.9 million, whereas CPS revenues declined 2.6% to $49.1 million, both on a reported basis.
This compares to our projections of $110.1 million, $83.4 million, $36.7 million and $49.8 million, respectively.
Endoscopy devices’ revenues totaled $7.7 million, down 6.3% year over year. CER, organic revenues also declined 5.5% year over year.
This figure compares to our segmental projection of $8 million for the fourth quarter.
In the quarter under review, Merit Medical’s gross profit rose 4.5% to $134.6 million. However, the gross margin contracted 39 basis points (bps) to 45.9%.
We had projected 47.6% of gross margin for the fourth quarter.
Selling, general & administrative expenses rose 8.6% to $83.2 million. Research and development expenses inched up 0.1% year over year to $20.4 million. Adjusted operating expenses of $103.7 million increased 6.8% year over year.
Adjusted operating profit totaled $30.9 million, reflecting a 2.8% decline from the prior-year quarter. Adjusted operating margin in the fourth quarter contracted by 89 bps to 10.5%.
Merit Medical exited the full-year 2022 with cash and cash equivalents of $58.4 million compared with $67.8 million at the end of 2021. Total debt (including the current portion) at the end of full-year 2022 was $198 million compared with $242.8 million at the end of 2021.
Cumulative net cash flow from operating activities at the end of 2022 was $114.3 million compared with $147.2 million a year ago.
Merit Medical has issued its 2023 outlook.
Net revenues for 2023 are projected to be between $1.194 billion and $1.210 billion, reflecting an increase of approximately 4-5% over the comparable reported figures of 2022. The Zacks Consensus Estimate for the same is pegged at $1.20 billion.
Net revenues from the cardiovascular segment are expected to be in the range of $1.156 billion-$1.172 billion, representing an increase of approximately 3-5% over the comparable reported figures of 2022.
The endoscopy segment’s net revenues are projected to be between $37.5 million and $37.8 million, representing an increase of approximately 14-16% over the comparable reported figures of 2022.
Adjusted earnings per share for 2023 are projected to be within $2.80-$2.89. The Zacks Consensus Estimate for the same stands at $2.82.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
Currently, Merit Medical has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Merit Medical has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Merit Medical is part of the Zacks Medical - Dental Supplies industry. Over the past month, West Pharmaceutical Services (WST), a stock from the same industry, has gained 6.4%. The company reported its results for the quarter ended December 2022 more than a month ago.
West Pharmaceutical reported revenues of $708.7 million in the last reported quarter, representing a year-over-year change of -3%. EPS of $1.77 for the same period compares with $2.04 a year ago.
West Pharmaceutical is expected to post earnings of $1.65 per share for the current quarter, representing a year-over-year change of -28.3%. Over the last 30 days, the Zacks Consensus Estimate has changed +1.6%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for West Pharmaceutical. Also, the stock has a VGM Score of C.
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