Acquisitions have always been part and parcel of the growth strategy of medical device manufacturer Cantel Medical
Cantel reported third-quarter revenue of $54.4 million, a 16% increase over last year. That was well ahead of analyst expectations of $52.7 million. Yet profits of $0.14 per share came in below forecasts of $0.16, even though the company helped boost them by repurchasing nearly 465,000 shares since the program was authorized in April of last year.
While we want to look at Cantel's business going forward, when comparing numbers, we can see that the loss of the Olympus distribution agreement was an Olympic-sized blow that hurt profits this time out, considering it contributed more than $3 million in after-tax operating income to Cantel's bottom line last year. With that business shut down now, the former Motley Fool Hidden Gems recommendation can concentrate on its ongoing operations, and water purification looks like it will be its new profit center.
Cantel acquired the water purification business of General Electric
Management, though, doesn't want to mislead investors with the potential of what that means, and cautions them not to extrapolate one month's performance out over a year and expect those results.
Yet the business is expected to provide a 50% boost to Cantel's purification revenues and was one of the justifications for the acquisition. CEO Scott Jones said, "By adding GE's installed base of 1,800 dialysis centers, we now work with over 70% of U.S. dialysis centers." That gives the company a national network to continue expanding into. It also represents the kind of acquisitions Cantel hopes to make in the future.
The cautionary note here, however, is that the GE business, while having pre-acquisition revenues of $20 million, derives 70% of that from Fresenius Medical Care
Although Cantel has just $26 million left on its revolving line of credit, it plans to make further acquisitions beyond that amount. If it can make deals that can provide immediate revenue enhancement, like the one with GE, investors will find themselves inoculated against the vagaries of any particular loss in one of Cantel's segments.
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