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Expert Financial Analysis and Reporting

Derma Sciences: Sales Guidance for 2014 is Lowered Again; 2015 Sales Guidance is Given for the First Time (DSCI, Hold, $9.40)

Derma Sciences announced preliminary sales results for 2014 of $83.7 million which represents a 5% increase over 2013. This was lower than guidance announced on November 10, 2014 that 2014 sales would approach $85.0 million. It was sharply lower than guidance given on January 16, 2014 that 2014 sales would reach $92.0 million, which would have been a 16% increase. Clearly, the Company has 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 concern that they still have not been able to understand fully and correct the weaknesses in their business.

The Company also issued initial guidance for 2015 for sales of $88.1 million. This would represent year over year growth of 5%. Specifically, they are looking for the key advanced wound care business to increase 15% to $43.8 million while the mature traditional wound care business is expected to decline by 3% to $38.1 million. They attribute the decline in traditional wound care to the loss of a significant customer. Net sales are expected to show year over year increases by quarter, but sequential growth could be impacted by ordering patterns and delivery dates, particularly in the traditional wound care business.

The stock has declined 3% to $9.43 today on this news in the face of a major market advance. I went to a hold on the stock last August. The reason was that one of my mentors trained me that when a Company gets surprised by weakness in its business, they often are overly optimistic about their ability to resolve the issue. This can result in a string of lowering of expectations as has occurred with Derma Sciences. He told me to be patient and wait until the Company at least meets or exceeds expectations once and preferably twice before upgrading the stock. I am still positive on the business model, but remain on the sidelines for the reason just cited. I am watching for the opportunity to upgrade the stock and expect to do so in 2015.

Tagged as , + Categorized as Company Reports


  1. peter brophy says:

    5-19-15 Co announced today at half way point on Ph III aclerastide enrollment, targeting June, 2016 “for the last subject to be randomized in the pivotal program”. Is this a further timing delay, or is this in line with more recent guidance on this study? Also, fwiw, looking through the 3/31/15 holdings filed, just released over weekend, one large seller – Teacher’s Advisors – sold 3,494,371 shares in the quarter, the largest change by a wide margin and probably was a factor in the recent slide.

  2. short interest has come down from June peak of 1.565mm shares to 939,000 currently, or about 3.7% of float and 11 days to cover The short interest was 1.545mm shares in July 2014, and hovered between ~1mm and 1.5mm in the subsequent 12 months.. Thus the current level of short interest is at the low end of that range. Noticed in mutual fund ownership, Royce Micro Cap fund initiated a 91k position in June Q, and Dreyfus Select Managers Small Cap Value added 48k in June, bringing total pos to 140k. Also in June quarter, two iShare ETFs sold ~ 400k, probably as a result of Russel re-balancing. On institutional holdings, very little changes reported – have to await June Q filing updates in mid-Aug.
    If the company can re-establish a sales growth trajectory in June Q, after flat 1Q, maybe stock can climb out of doldrums. Drivers might be getting Medihoney reimbursement back (although that came late in 2Q), continued progress with TCC-EZ and Amnioexcel and Amniomatrix sales (from April LCD determination by Novitas Solutions – the largest MAC). Issue of distributor inventory rebalancing in 1Q should be less of a negative factor in 2Q, while industry consolidation may continue to hurt y/y comps. They have not published a 2Q release date, but, based on 1Q, it would probably come on Aug 10-12. Very competitive markets here, clearly. Larry, do you have any handle on rate of slowdown in traditional wound care…stable, slowing or accelerating?


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