ArthroCare Shows Healthy Q3 Sales Growth, But Earnings Stifled

ArthroCare Corp. has announced its financial results for the quarter ended September 30, 2013. Total revenue was up 5.7% to $91.9, with growth over the main business areas. Gross Profit was $63.0 million compared to $60.7 million a year ago.

Background

ArthroCare’s business centers on revenues from it sports med and ENT lines, both of which saw healthy revenue gains in Q3 compared with a year ago. Worldwide sales of Sports Medicine products make up two thirds of the companies revenue and increased $2.9 million or 5.2 percent (5.8 percent constant currency). International sales growth outstripped the US with double digit (12.3 percent) increase.

Notably, the increase in US proprietary product sales was partially offset by a decrease in contract manufactured product sales (predominantly sales of previous generation generator systems to Smith & Nephew) of approximately $0.8 million, or 11.2 percent.

Over in ENT, which makes up just under a third of the company’s revenue, Worldwide product sales increased $1.2 million, or 4.7 percent. International ENT product sales increased $0.9 million or 16.2 percent and Americas ENT product sales increased $0.3 million or 1.3 percent.

So, further down the income statement gross profit (GP) for the third quarter of 2013 was $63.0 million compared to $60.7 million in Q3 2012. GP Margin in the current quarter was 68.6 percent compared to 69.9 percent in the third quarter of 2012, a modest decline which the company attributes to the medical device excise tax imposed on US product sales, which became effective in 2013 and was applied to the Company’s domestic sales during the third quarter 2013. This, coupled with price pressure on Sports Medicine product sales and changes in sales mix versus the same period in 2012.

Down at the bottom then we see a drop in income from operations to $12.7 million compared to $13.7 million last year. Operating margin for the third quarter of 2013 was 13.9 percent compared to 15.7 percent for the same quarter of 2012.

And the seemingly ever-present threat of investigation/restatement-related costs following the now years-old investigation into alleged stock fraud, never go away, costing the company $3.2 million this quarter compared with $2.1 million in the equivalent period last year.

Bottom line

So, in terms of what this means for shareholders, it filters out at $0.27 per share in the third quarter of 2013, the same as in the equivalent period a year ago and somewhat lower than analyst expectations.