Morningstar | Getinge's First-Quarter Results Put the Firm on Track to Exceed Our Full-Year Estimates
Getinge's first-quarter results surpassed our full-year expectations on revenue and were consistent with our outlook that calls for modest margin expansion for the full year. We don't intend to make many changes to our model, but with 6% organic revenue growth, or roughly 14% as reported, management's 2%-4% organic growth target appears too conservative. Any adjustments we make will likely move our SEK 97 per share fair value estimate higher by a low- to mid-single-digit percentage for this no-moat name.First quarter's strong revenue performance followed a similar pattern to what we saw throughout much of 2018. Sales of capital equipment outstripped growth of consumables products by a wide margin, posting organic growth of 12.4% versus only 2.4%, respectively. The resulting product mix accounted for the bulk of the firm's roughly 260-basis-point decline in gross profitability (or a 220-basis-point decline on an adjusted basis) compared with the year-ago quarter. Management has begun to make good on its promises, however, with reported and adjusted gross profit margin continuing to march higher sequentially compared with last year's third quarter trough. We'll need to see further progress on this front to meet our 48.2% reported margin projection for the full year. However, adjusted operating expenses have remained largely unchanged over the course of the last year, helping support our expectation for just over 100 basis points of adjusted EBITDA margin expansion in 2019.
While reported performance has been improving over the last few quarters, regulatory risks remain outstanding and underscore our negative moat trend rating on the business. Specifically, the firm received two previously disclosed warning letters in late 2018 and early 2019 that pertain to two legacy Datascope manufacturing sites. While management doesn't believe the identified issues will be material to the company, the firm's consistent compliance weaknesses remain a concern.
Getinge is engaged in three business areas: Medical Systems, Extended Care and Infection Control. Medical System's product range includes surgical tables, surgical lamps, telemedicine, perfusion products, instruments for bypass operations, ventilators, anesthesia systems, synthetic vascular implants and stents. Extended Care's product range includes bathing and shower solutions, lifting equipment and mattresses for the treatment and prevention of pressure ulcers, as well as service and consulting. Infection Control's product range comprises disinfectors, sterilizers, information technology systems and related equipment, as well as service and consulting.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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