EUR 850.00 For Business Accounts Only

Morningstar | ICU Medical Posts Consistent Profits Despite Top-Line Volatility; Trimming FVE

Narrow-moat ICU Medical closed out a tumultuous 2018 on a solid note, reporting revenue and earnings that fell roughly in line with our thinking for the full year. However, as we roll and update our model, we'll likely trim our $251 per share fair value estimate by a modest amount, largely driven by lower near-term revenue estimates. With the bulk of the heavy lifting related to the Hospira Infusions Systems integration now in the rearview mirror, we think free cash flow is set to improve markedly over the coming years. In the shorter term, though, volatility will remain as the firm laps an uncharacteristically strong first half of 2018.

The company's IV solutions segment continues to be the wild card, reporting quarterly revenue down 28% versus our expectation of a decline nearer 20%. This was somewhat softer than management anticipated, but most of the weakness is simply driven by having to compare against the fourth quarter of 2017, which marked the peak of the IV solutions’ market shortage in the United States. This rate of year-over-year decline will likely continue through the first half of the coming year, although sequential revenue performance has largely stabilized.

Despite the drop in sales, the firm has done a remarkable job defending its profitability. Adjusted EBITDA margin clocked in near 21.5% for the quarter, consistent with the first three quarters of the year. While revenue growth may be hard to come by in 2019, we think ICU will benefit from another step change in operating profitability as the cost savings associated with transitioning off legacy Pfizer systems and having a fully integrated organization are realized through the year.