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ICU Medical Earnings: Operational Problems Continue To Pressure Near-Term Outlook

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Securities In This Article
ICU Medical Inc
(ICUI)

No-moat ICU Medical ICUI turned in a mixed second quarter with weaker-than-expected sales but strong profits. Negatively for 2023, management suggested that sales would be weaker than previously expected in a couple businesses and narrowed its guidance range for profits mildly below our previous expectations. However, making a slight cut to our 2023 view does not materially change our $177 fair value estimate, and we continue to view ICU shares as about fairly valued.

During the quarter, ICU turned in weak sales but strong profits. Sales declined 2% year over year (down 1% in constant currency) including weakness in its vascular access and IV solutions businesses. Generally, those products should grow along with medical utilization, which has been rebounding in recent months, so that performance was disappointing. Also, management noted that most of the weakness stemmed from the legacy Smiths operations, including vascular access products that look likely to significantly underperform previous expectations through the rest of the year, and included some headwinds affecting IV solutions that ICU still sources from Pfizer, including from a facility that was recently hit by a tornado. Positively though, as supply chain issues eased year over year, gross margin rose to 35% in the quarter, up 500 basis points from the prior year period, as ICU continues to improve its operating efficiency. Including other cost controls in the quarter, ICU increased its adjusted EPS 37% to $1.88, or well above FactSet consensus of $1.60.

Considering those impressive profit trends, we were disappointed that management narrowed its guidance range for 2023, pushing down the top end of that new range below our previous expectations on continued expected weakness in those vascular access and IV solutions operations. However, making moderate changes to our near-term assumptions does not materially affect our fair value estimate, which depends on much longer-term assumptions.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Julie Utterback

Senior Equity Analyst
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Julie Utterback is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. Within the healthcare industry, she covers medical technology and service companies. She is also the chairperson of the equity research team’s capital allocation methodology.

Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry. At that time, she covered medical technology companies, including orthopedic device, medical equipment, and cardiac device firms. In 2010, she joined Morningstar's credit research team, initiating coverage of the entire healthcare industry and generally helping the organization expand and maintain its credit coverage across many industries. She held that senior credit analyst role until April 2019, when she returned to the equity team to cover medical technology and service companies.

Prior to joining Morningstar, Utterback was an equity analyst at State Farm Insurance for several years. She holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign. She also holds the Chartered Financial Analyst® designation.

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