Cantel Medical Reports a Solid Quarter While Saying Thanks to Uncle Sam

Cantel Medical (NYSE: CMD) reported solid results from its second fiscal quarter, meeting expectations for the quarter while revising earnings upward, based on expected benefits from the new tax law.

Cantel Medical results: The raw numbers

Metric	Q2 2018	Q2 2017	Year-Over-Year Change
Revenue	$213.0 million	$184.8 million	15.3%
Income from operations	$32.5 million	$28.6 million	13.5%
Earnings per share	$0.78	$0.43	81%

Data source: Cantel Medical.

What happened with Cantel Medical this quarter?

• Organic growth was 10% year over year, with the rest of the growth coming from acquisitions within the last year and a small bump from changes in exchange rates.

• Endoscopy products continue to lead the way, with year-over-year revenue growth of 23.6%. Much of the growth came from new products, but there was still organic growth of 13.8%, driven by recurring revenue for products used with the company's instruments.

• The water purification and filtration segment had growth of 7.4%. Cantel is working through its backlog, which will presumably result in slowing year-over-year sales if it eventually ends up fulfilling the entire backlog.

• Sales of healthcare disposables increased just 6.2%, with most of that coming organically. The one bright spot for the segment continues to be Cantel's branded portfolio, which grew by 9.2% year over year.

• International sales were up 43% year over year, although a lot of that had to do with acquisitions. Nevertheless, international organic growth was up 18.1%, driven by increasing sales in Germany, China, Australia, and Canada.

• The earnings-per-share number includes a one-time benefit from the recent change in tax law. Excluding the benefit, non-GAAP earnings per share were up 13.5% year over year.

Gloved hands using an endoscope

Image source: Getty Images.

What management had to say

Cantel's president and CEO Jorgen Hansen hinted to expect more mergers and acquisitions, perhaps sooner rather than later:

From an M&A perspective, we are encouraged with the health of our pipeline and are optimistic about the potential deals in the coming quarters. We are evaluating opportunities to acquire new businesses and technologies in all of our existing segments, as well as exploring potential new verticals within infection prevention.

Hansen also talked about what the company plans to do with the extra cash it'll have, given a lower tax rate. This includes research and development:

We are still working through the details on how exactly to allocate the funds, and that's why we have a pretty wide range called out in terms of how much we want to invest, and we will decide that over the next period here. But starting in the fourth quarter, we have specifically allocated money to accelerate some R&D projects that we have wanted to either start or have more resources on.

Looking forward

Management updated revenue guidance, and now expects revenue to grow between 13% and 14%, up from 12.5% to 13.5%. But the move was entirely due to an expected increase in sales from changes in exchange rates.

On the bottom line, the tax benefit will help boost adjusted earnings guidance by $0.18 to $0.20 per share, excluding the one-time benefit. As noted by Hansen above, Cantel Medical plans to spend some of the benefit; this results in a $0.14 to $0.15 addition to previous guidance, with new adjusted earnings guidance for the fiscal year of $2.44 to $2.50 per share.

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Brian Orelli has no position in any of the stocks mentioned. The Motley Fool recommends Cantel Medical. The Motley Fool has a disclosure policy.