Derma Sciences: Second Quarter Results Were Disappointing; Going From a Buy to a Hold (DSCI, $9.72)
Derma Sciences released second quarter results this morning and this is my quick take. I will have a more detailed update later after the conference call. The results were disappointing relative to my expectations. Advanced wound care products were up only 11% versus my expectations of 30%. Traditional wound care products were up 18%, which was above my expectations of 6%. This was due to inventory building in DSCI’s Canadian subsidiary and is clearly not sustainable.
Management said that Medihoney sales increased 16% versus my expectation of 30%. This was attributed to what management said was a negative advertising campaign against the product. It guided for full year sales of $20 million which would represent a 25% increase, again below my estimate of 30%.
TCC-EZ was also below expectations as sales increased 19% versus my estimate of 30+%. This was attributed to an adverse impact from Medicare Outpatient Prospective Payment System (OPPS) reimbursement rates which took effect January 2014. Management in its press release was not more specific.
The Company lowered 2014 sales guidance for 2014 from $92 million to $86 million. This is an 8% increase versus my expectation of 15%. It expects advanced wound care product sales to increase 15% which compares to my estimate of 30%; this does not include sales of AMNIO products. With the inclusion of AMNIO products, sales of advanced wound care are expected to increase 20%. Traditional wound care is expected to increase between 2% and 5% which is in line with my expectations.
Management in its press release stated that these were temporary issues that can be overcome going forward. I am more than curious to hear their reasoning on the conference call at 11 AM. I am going from a buy to a hold on the stock. It has been my experience that when a company encounters a negative surprise in its operations that it is best to go to the sidelines until there is clear evidence that operations are back on track. Hence, I am withdrawing my buy recommendation. I own the stock and intend to hold it. I am just not inclined to add to my position or encourage others to add to theirs at this point. I believe that the long term thesis remains in tack and anticipate that I will upgrade the stock at some later point
Tagged as Derma Sciences, DSCI, Medihoney, TCC-EZ + Categorized as Smith On Stocks Blog
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Derma Sciences: Sales Guidance for 2014 is Lowered Again; 2015 Sales Guidance is Given for the First Time (DSCI, Hold, $9.40) | Expert Financial Analysis and Reporting | Smith on Stocks
[…] been surprised by weakness in its core business during the year for reasons that I explained in my August 7, 2014 report.The lowering of sales guidance from $85.0 million to $83.7 million in just two months raises the […]
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11/11/14
Larry; Looking at the stock price reaction, this was worse than expected… thoughts?
(I still own it)
Derma Sciences posts 3Q loss
Derma Sciences posts loss of $11.2 million in 3rd quarter
PRINCETON, N.J. (AP) _ Derma Sciences Inc. (DSCI) on Monday
reported a loss of $11.2 million, or 45 cents per share, in its third quarter.
The company, based in Princeton, New Jersey, posted revenue of $20.2 million in the period.
Derma Sciences expects full-year revenue of $85 million.
Derma Sciences shares have fallen 16 percent since the beginning of the year. The stock has fallen 24 percent in the last 12 months.
The results were below management expectations and obviously disappointing. My best judgment is that despite these issue, the business model remains viable. I think that business decline has bottomed. I would hold the stock. I need to see signs of an upturn before I would go to a buy.