Morningstar | ICU Misses Top-Line Forecasts but Profitability Continues to Hold Up
ICU Medical's first-quarter results continue the firm's pattern of volatile top-line performance, this time falling somewhat short of our and consensus expectations. As we update our model, we'll likely leave our $248 fair value estimate in place, as accounting for the cash flows received since our last update largely offsets a modestly lower earnings outlook. On a positive note, the firm continues to defend its bottom line, with adjusted earnings consistent with our model resulting in meaningful margin expansion after completing most of the heavy lifting associated with Hospira's integration. That said, management suggested this quarter is likely the high-water mark for gross profitability for the year, and recent end market softness isn't expected to turn around immediately.While the firm's consumables business met expectations, shortfalls in its IV solutions and systems segments drove the bulk of the variance, with negative currency effects also contributing to weaker revenue. The company continues to lap the height of the IV solutions product shortage that peaked in the United States market during late 2017 and early 2018--revenue comparisons will normalize in the second half of the year. Despite the quarter-to-quarter results, we believe the firm will comfortably outearn its cost of capital in 2019 and beyond, with returns on invested capital falling north of 20% for the foreseeable future. This gives us added confidence in our narrow moat rating and positive outlook for the firm's consumables and systems businesses in the face of a difficult-to-forecast solutions market.
The company remains on track to build a cash balance of over $450 million by the end of the year. This gives the firm substantial optionality as it relates to capital allocation. We expect management to turn its focus toward investment opportunities as integration work comes to a close and cash flow generation begins to stabilize.
ICU Medical is an infusion therapy company with a range of product portfolio that includes intravenous (IV) solutions, IV smart pumps, dedicated and nondedicated IV sets and needle free connectors, along with pain management and safety software technology. In addition, the company manufactures automated pharmacy IV compounding systems. The company's product lines include: Infusion Consumables; Infusion Systems, which include infusion pump hardware, IV mediation safety software, and rofessional pservices; IV Solutions, which include IV therapy and diluents and irrigation; and Critical Care, which help clinicians get real-time access to patients' hemodynamic and cardiac status.
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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