What: Shares of Merit Medical Systems (MMSI -0.71%), a manufacturer of disposable medical devices used in primarily in cardiology, radiology and endoscopy, were in the doghouse in early trading today as its stock was down more than 20% at one point this morning after the company reported its third quarter results.
So what: The company reported revenue during the third quarter of $136 million, which was up 6% over the year-ago period. Non-GAAP net income came in at $8.9 million which translated into $0.20 in earnings-per-share, which was down from the $0.25 that it reported in the year-ago period. Although revenue grew during the quarter, lower gross margins mixed with higher spending company-wide appear to be the main causes of the earnings decline.
While the $0.20 in earnings-per-share managed to match analyst projections, revenue came in lighter than the $137.8 million that they were expecting, which is likely the cause of the sell-off today.
Now what: During the quarter the company opened up a new facility in Tijuana, Mexico that appears to have temporarily put pressure on its gross margins, but the company believes that as more production is moved to its new facility that its gross margins will eventually rise. In addition, the company reported that it received CE mark for its Centros and CentrosFLO Long-Term Hemodialysis Catheters, and sales of these products jumped more than 76% during the period. Both of these developments could are certainly positive signs for the company and could lead to higher earnings in the coming quarters.
Despite the huge sell off today shares of Merit are still up more than 10% year to date and nearly 50% over the last year, so perhaps a pull-back in the shares shouldn't come as such a surprise. If the company is able to meet or exceed its 15% growth rate that analysts are projecting over the coming 5 years, then long-term investors in this company should do just fine.
