Morningstar | Teleflex Faces an Uphill Battle to Meet Full-Year Expectations
Teleflex reported a relatively weak second quarter, with both revenue and operating profit falling just shy of our expectations. As we update our model, we'll likely leave our $185 per share fair value estimate and no-moat rating in place.This quarter was characterized by many moving parts, including distributor destocking, manufacturing hiccups, and supply constraints for various products. Overall, excluding shipping-day variances and exited surgical products, the company put up respectable underlying growth of 3.2%, although down from 3.7% in the first quarter. After including the net drag from shipping days and portfolio adjustments in the first half, Teleflex grew 2.7% organically. We view this as the main point of investor concern as management maintained its growth guidance of 5.0%-5.5% for the full year, implying a sizable ramp over the next six months. Some of the acceleration is simply mechanical, such as lapping the close of the NeoTract acquisition in the fourth quarter, seeing a shipping day benefit, and fully including Vascular Solutions, or VSI, in the organic calculation. That said, the second half of the year will need to show average growth of 7.8%--an eye-popping figure versus the 2.7% shown to date. We estimate distributor ordering patterns and supply constraints affected the quarterly results by about 100 basis points, which should provide a small tailwind should these truly prove transient. Regardless, the base business will need to accelerate in the coming months to meet management's expectations.
On the other hand, Teleflex's two flagship acquisitions continue to perform nicely, with NeoTract handily beating our forecasts and VSI stabilizing after a few weak quarters. Investors are likely also spooked by management's implicit 25-basis-point reduction in growth for the base business, as contributions from NeoTract and VSI are now expected to make up 175 basis points of the full-year forecast, up from 150 basis points originally.
Teleflex is a provider of medical technology products. The company primarily designs, develops, manufactures and supplies single-use medical devices used by hospitals and healthcare providers for common diagnostic and therapeutic procedures in critical care and surgical applications. The company's product categories within its geographic segments include vascular access, which provides devices that facilitate a variety of critical care therapies and other applications; anesthesia, which comprised of airway and pain management product lines; and interventional, which consist of a variety of coronary catheters, structural heart therapies, and peripheral intervention products.
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