Cantel Medical's (CMD) moves to acquire its international distributors and boost operational efficiency helped the medical supply company grow operating income and earnings faster than revenue during its fiscal third quarter, which ended April 30.
Cantel Medical results: The raw numbers
|
Metric |
Fiscal Q3 2017 |
Fiscal Q3 2016 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$192.1 million |
$173.7 million |
10.6% |
|
Income from operations |
$27.4 million |
$23.3 million |
18% |
|
Earnings per share |
$0.42 |
$0.34 |
23.5% |
Data source: Cantel Medical
What happened with Cantel Medical this quarter?
- Most of the revenue growth -- 7.4 percentage points of that 10.6% growth -- came from organic growth. Acquisitions contributed another 4.4 percentage points, while foreign currency headwinds subtracted 1.2 percentage points from the total.
- Cantel's healthcare disposable business continues to be its fastest growing segment, up 21.5% year over year; but as was the case last quarter as well, most of that growth came from the acquisition of Accutron; organic growth was just 0.6%.
- The company's endoscopy division, on the other hand, continued to post solid growth without the need for acquisitions. Organic growth was up 9.9% thanks to revenue growth of about 20% in international markets.
- Rounding out the top three segments, water purification sales were up 7.5% organically, boosted by a 15% increase in sales for capital equipment. And there's more growth to come as the company is still running a backlog of orders.
- Cantel's acquisitions of its distributors, as well as other moves including toward selling higher-margin products, helped boost gross margin by 140 basis points to 47.6%.
Image source: Getty Images.
What management had to say
Seth Yellin, EVP of strategy and corporate development, talked about how the company is thinking about future acquisitions, including the potential to get into related infection prevention segments:
From an M&A perspective, I think we're looking at acquisition targets in all of our major segments as well as new verticals as well. I don't know if we could really rank opportunities in terms of priority. I think we look at them fairly agnostically and really think about what is the best strategic fit and what is actionable at the time at which the opportunity presents itself and act accordingly.
CFO Peter Clifford noted that the company is mostly done buy its distributors to allow direct selling internationally, saying: "We're where we want to be, and I think now it's a pivot toward optimization and accelerating what we already have."
Looking forward
Management offered guidance for its 2017 fiscal year for the first time, with revenue expected to grow 14.5% to 15.5% and earnings per share growing even faster at 18% to 21% year over year.
It's a little odd for the company to initiate guidance three quarters of the way through its fiscal year, but management noted that it's trying to increase its coverage by investment banks. Doing analysts' jobs for them seems like a pretty good way to start.
There's nothing wrong with trying to boost interest in the company, but long-term investors should make sure that desire doesn't shift management's priorities away from its five-year strategic plan -- growing earnings per share one to two percentage points faster than sales -- in favor of short-term results.
