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Why ConMed Is Expected to Report a Slight Rise in Its Net Profit Margin in 2018

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Mar. 14 2018, Updated 4:20 p.m. ET

Earnings growth

ConMed (CNMD) expects to witness the positive impact of around 0.5–1.0 percentage points on its fiscal 2018 adjusted gross margin, attributable to various cost-saving initiatives. ConMed has also projected an improvement of ~0.2–0.5 percentage points in its ratio of SG&A (selling, general, and administrative) expenses to total sales for fiscal 2018 on a YoY (year-over-year) basis.

CNMD’s SG&A-to-sales ratio, however, is expected to be higher in the first half of 2018, due to seasonal trends in the company’s business. ConMed also expects its 2018 R&D (research and development)-to-sales ratio to be at the higher end of the projected range of 4.5%–5%.

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With the possibility of a rise in interest rates in the US, the company has projected that its interest expense will fall in the range of $20 million–$21 million in 2018. ConMed has also given guidance for its adjusted effective tax rate in 2018, which is expected to fall in the range of 25%–27%. This projection considers the current uncertainty related to the US tax reform passed in December 2017.

Based on these estimates and the anticipated positive impact of $0.05–$0.08 (attributable to favorable foreign currency fluctuations), ConMed expects its adjusted diluted EPS (earnings per share) to fall in the range of $2.11–$2.17, which would be a YoY (year-over-year) rise of 12%–15%.

Wall Street projections

Wall Street analysts have projected ConMed’s fiscal 2018 net profit margins to be close to 6.79%, which would be a YoY rise of 10 basis points.

Peers Abbott Laboratories (ABT), Zimmer Biomet (ZBH), and Stryker (SYK) are expected to report net profit margins close to 16.3%, 13.5%, and 19.9%, respectively, in fiscal 2018.

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