Why Is Globus Medical (GMED) Down 28.9% Since Last Earnings Report?

It has been about a month since the last earnings report for Globus Medical (GMED). Shares have lost about 28.9% in that time frame, outperforming the S&P 500.

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

Globus Medical Q4 Earnings Lag, Revenues Beat Estimates

Globus Medical reported fourth-quarter 2019 adjusted earnings per share of 49 cents, missing the Zacks Consensus Estimate by 5.8%. However, the metric improved 13.9% from the year-ago figure.

The adjusted earnings per share excluded certain non-recurring expenses like litigation-related charges, amortization of intangibles and acquisition-related costs.

Without the adjustments, the company registered GAAP earnings of 44 cents per share, reflecting a 22.2% jump from the year-ago quarter.

The full-year adjusted earnings per share of $1.68 also lagged the Zacks Consensus Estimate by 1.2%. However, it was a penny higher than the year-ago figure.

The fourth-quarter 2019 worldwide sales summed $211.7 million, up 8.1% (constant currency impacts are immaterial) year over year. Revenues increased 8.2% on a day adjusted basis, with fewer selling days in Japan compared with the prior-year quarter. The reported figure also outpaced the Zacks Consensus Estimate by 0.3%.

For 2019, revenues were $785.4 million, representing a 10.2% increase from that reported in 2018. Also, the revenue figure surpassed the Zacks Consensus Estimate of $784.7 million.

Q4 Revenue Details

Sales generated in the United States, including robotic, improved 8.3% year over year on continued growth in the Musculoskeletal business, led by strength in U.S. Spine, which has been benefiting from record recruiting of competitive representatives as well as the implant pull-through from accounts utilizing ExcelsiusGPS systems.

Meanwhile, international sales rose 6.4% from the year-earlier quarter (same at CER).

Moreover, Musculoskeletal Solutions’ products generated revenues of $197.8 million, up 8.9% year over year. However, Enabling Technologies’ product revenues of $13.9 million in the quarter reflected a 2.7% decline from the prior-year figure.

Margin

Gross profit in the reported quarter climbed 8.6% year over year to $162.9 million. Gross margin expanded 42 basis points (bps) to 76.9% despite a 6.1% rise in cost of goods sold to $48.8 million.

Selling, general and administrative expenses in the reported quarter were $92.1 million, flaring up 10.2% from the year-ago quarter. Research and development expenses rose 12.6% to $15.5 million.

Operating profit grew 5.1% year over year to $55.3 million, while operating margin shrunk 72 bps to 26.1% in the quarter.

Cash Position

Globus Medical exited the year with cash and cash equivalents, and short-term marketable securities of $311.5 million compared with $339.7 million at the end of 2018. Full-year net cash provided by the operating activities was $171.9 million compared with the prior year’s $181.6 million.

2020 Guidance

The company reaffirmed its 2020 adjusted earnings per share guidance at $1.82. The Zacks Consensus Estimate for the metric is pegged at $1.88. The current-year revenue guidance has been reiterated at $850 million. The Zacks Consensus Estimate for the same is pegged at $853. million.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

Currently, Globus Medical has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Globus Medical has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.