Why Orthofix International Shares Tanked

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Orthofix International (NASDAQ: OFIX  ) , a medical device company specializing in spinal and orthopedic applications, shed as much as 21% of their value after the company reported its first-quarter results and received four analyst downgrades.

So what: For the quarter, Orthofix saw sales drop 14% to $100.3 million from the year-ago period as EPS declined by 66% to just $0.23. Its spine segment delivered a sales decline of 12% compared to a 17% decline from its orthopedics division with both experiencing significant weakness from international markets (e.g., Europe and Brazil). The Street had been expecting a profit of $0.66 per share on revenue of roughly $111 million in sales, so its results weren't even in the ballpark. Orthofix did authorize a $50 million share repurchase program, but that hardly made a dent with Mizuho, JMP Securities, Janney Capital, and Lazard Capital all downgrading the company. Looking ahead, Orthofix is forecasting second-quarter revenue of $104 million to $107 million, which is well below the $119.7 million that the Street had been projecting.

Now what: Yuck! If I were an analyst, I'd develop a special rating known as "Yuck" to quantify earnings reports like this. I understand that Europe is a challenging sales environment, but I'm having a hard time figuring out why Orthofix is struggling so much in Brazil. On top of that, CEO Brad Mason identified many of Orthofix's challenges as being internal, which to me signals that this isn't going to be a one-quarter event. Until we see demonstrable growth in sales and profits, I suggest looking elsewhere in the medical device industry.

Craving more input? Start by adding Orthofix International to your free and personalized watchlist so you can keep up on the latest news with the company.

While you can certainly make huge gains in device makers like Orthofix, the best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2420587, ~/Articles/ArticleHandler.aspx, 8/23/2014 11:20:23 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement