Sales Growth

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, CONMED grew its sales at a mediocre 6.5% compounded annual growth rate. This fell short of our benchmark for the healthcare sector and is a tough starting point for our analysis.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. CONMED’s annualized revenue growth of 11.8% over the last two years is above its five-year trend, suggesting some bright spots.

We can better understand the company’s sales dynamics by analyzing its constant currency revenue, which excludes currency movements that are outside their control and not indicative of demand. Over the last two years, its constant currency sales averaged 13.3% year-on-year growth. Because this number aligns with its normal revenue growth, we can see CONMED’s foreign exchange rates have been steady.

This quarter, CONMED reported year-on-year revenue growth of 5.8%, and its $345.9 million of revenue exceeded Wall Street’s estimates by 1.5%.

Looking ahead, sell-side analysts expect revenue to grow 6.5% over the next 12 months, a deceleration versus the last two years. Still, this projection is above average for the sector and indicates the market sees some success for its newer products and services.

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Adjusted Operating Margin

Adjusted operating margin is a key measure of profitability. Think of it as net income (the bottom line) excluding the impact of non-recurring expenses, taxes, and interest on debt - metrics less connected to business fundamentals.

CONMED has done a decent job managing its cost base over the last five years. The company has produced an average adjusted operating margin of 13.5%, higher than the broader healthcare sector.

Analyzing the trend in its profitability, CONMED’s adjusted operating margin rose by 3 percentage points over the last five years. Zooming in on its more recent performance, we can see the company’s trajectory is intact as its margin has also increased by 1.1 percentage points on a two-year basis.

In Q4, CONMED generated an adjusted operating profit margin of 23.1%, up 7.3 percentage points year on year. This increase was a welcome development and shows it was recently more efficient because its expenses grew slower than its revenue.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

CONMED’s EPS grew at a remarkable 9.4% compounded annual growth rate over the last five years, higher than its 6.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of CONMED’s earnings can give us a better understanding of its performance. As we mentioned earlier, CONMED’s adjusted operating margin expanded by 3 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q4, CONMED reported EPS at $1.34, up from $1.06 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects CONMED’s full-year EPS of $4.16 to grow 13.6%.

Key Takeaways from CONMED’s Q4 Results

We enjoyed seeing CONMED exceed analysts’ constant currency revenue, EPS, and EBITDA expectations this quarter. On the other hand, its full-year revenue and EPS guidance fell well short of Wall Street’s estimates, dampening the results. The stock traded down 9.9% to $67 immediately after reporting.

CONMED may have had a tough quarter, but does that actually create an opportunity to invest right now? We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free .