Why Is Integer (ITGR) Down 48.3% Since Last Earnings Report?

It has been about a month since the last earnings report for Integer (ITGR). Shares have lost about 48.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Integer due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Integer Holdings Q4 Earnings & Revenues Top Estimates

Integer Holdings Corporation reported fourth-quarter 2019 adjusted earnings per share of $1.25, which surpassed the Zacks Consensus Estimate of $1.18 by 5.9%. The bottom line also improved 20.2% on a year-over-year basis.

Revenues improved 7.5% year over year to $325.6 million on a reported basis. Moreover, the top line beat the Zacks Consensus Estimate by 1.6%.

2019 at a Glance

In 2019, the company reported revenues worth $1.26 billion, which improved 3.5% from the previous year. The top line also beat the Zacks Consensus Estimate by 0.8%.

Adjusted EPS for the year was $4.68, which surged 23.2% from the prior year. The figure also surpassed the consensus mark by 1.7%.

Segmental Analysis

Integer Holdings operates through two segments — Medical Sales and Non-Medical Sales.

Medical Sales

At the segment, reported revenues were $311.7 million, up 7.4% year over year. Revenues improved 7.2% from the prior-year quarter on an organic basis.

Medical Sales has three sub-segments — Advanced Surgical, Orthopedics and Portable Medical (AS&O); Cardio & Vascular; and Cardiac & Neuromodulation.

Advanced Surgical, Orthopedics and Portable Medical

Integer Holdings’ Advanced Surgical, Orthopedics & Portable Medical segment has been divested to Viant. Consequently, revenues at the segment include net sales from the acquirer Viant under supply agreements associated with the divestiture.

Revenues amounted to $33.9 million, up 6.7% from the prior-year quarter. Further, the metric improved 6.8% on an organic basis. Per management, higher end-market demand for advanced surgical and orthopedic products contributed to the upside.

Cardio & Vascular

Revenues at the segment totaled $158.5 million, up 5.9% from the prior-year quarter and 5.6% organically. Per management, a substantial rise in peripheral vascular demand from a customer launching and existing program into a new geography, and market growth contributed to the upside. However, incremental sales from inking a customer contract on existing business completely offset the impact of an end of life electrophysiology program.

Cardiac & Neuromodulation

Revenues at this segment totaled $119.3 million, up 9.5% from the prior-year quarter and on an organic basis. This can be attributed to new and next generation product launches, underlying strength in existing cardiac rhythm management programs, and new customer agreement on existing business. However, the upside was partially offset by lost sales on account of the impact of Nuvectra Chapter 11 bankruptcy filing.

Non-Medical Sales

Reported revenues at the segment totaled $13.9 million, up 9.2% on both year over year and organic basis.

Margin Analysis

Integer Holdings generated a gross profit of $76 million in the fourth quarter, down 14% year over year. As a percentage of revenues, gross margin in quarter contracted 590 basis points (bps) to 23.3%.

Selling, general and administrative expenses (SG&A) were $37.7 million, up 7.2% year over year.

Research, development and engineering costs grossed $11.8 million in the quarter, up 16.2% year over year.

Total operating income amounted to $22.6 million, down 42.9% year over year. However, adjusted income from operations totaled $41 million, improving 7% year over year.

Operating margin in the quarter under review was 6.9%, down 620 bps year over year.

2020 Guidance

For 2020, adjusted earnings per share are expected in the range of $5.10-$5.30, indicating an improvement of 9-13% from the previous year. The mid-point of the latest guidance range of $5.20 is higher than the Zacks Consensus Estimate of $4.96.

On a reported basis, Integer Holdings expects 2020 earnings to range between $3.83 and $4.03, indicating an improvement of 39-46% from the previous year.

For 2020, the company estimates reported revenues between $1.29 billion and $1.31 billion. On an adjusted basis, the company expects revenues in the same band, indicating an improvement of 3-4% from the previous year. Notably, the mid-point of the guidance is above the Zacks Consensus Estimate of $1.29 billion.

Adjusted income from operations is anticipated between $169 million and $176 million, reflecting an improvement of 9-14% from that of 2019.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 11.9% due to these changes.

VGM Scores

Currently, Integer has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Integer has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.