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Masimo's (MASI) Q2 Earnings Surpass Estimates, Margins Down

Zacks Equity Research
·6-min read

Masimo Corporation MASI delivered adjusted earnings per share (EPS) of $1.35 in the second quarter of 2022, up 43.6% year over year. The figure surpassed the Zacks Consensus Estimate by 13.5%.

The adjustments include acquisition, integration and related costs, and acquired intangible asset amortization expenses, among others.

GAAP EPS for the quarter was 33 cents, down by 62.5% from the year-earlier figure.

Revenues in Detail

Masimo registered revenues of $565.3 million in the second quarter, up 85.3% year over year on a reported basis. The figure also surpassed the Zacks Consensus Estimate by 4.3%.

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Per management, the year-over-year uptick in revenues was primarily driven by strength in its healthcare business.

Per management, shipments of non-invasive technology boards and instruments, excluding handheld and fingertip pulse oximeters, were 77,100 in the second quarter of 2022, up 6.3% from the prior-year period.

Segmental Details

Masimo derives its revenues from two business sources — healthcare and non-healthcare.

Healthcare revenues in the second quarter were $357 million, representing growth of 17% on a reported basis and 19% at constant exchange rate (CER).

Non-healthcare revenues in the second quarter were $208 million.

Masimo Corporation Price, Consensus and EPS Surprise

Masimo Corporation Price, Consensus and EPS Surprise
Masimo Corporation Price, Consensus and EPS Surprise

Masimo Corporation price-consensus-eps-surprise-chart | Masimo Corporation Quote

Margin Analysis

In the quarter under review, Masimo’s gross profit rose 33.9% to $258.2 million. Gross margin contracted a huge 1755 basis points (bps) to 45.7%.

Selling, general & administrative expenses jumped 100.5% to $188.3 million. Research and development expenses went up 41% year over year to $47.8 million. Total operating expenses of $236.1 million increased 84.7% year over year.

Total operating profit totaled $22.1 million, reflecting a 66.1% decline from the prior-year quarter. Operating margin in the second quarter contracted a huge 1743 bps to 3.9%.

Financial Position

Masimo exited second-quarter 2022 with cash and cash equivalents of $218 million compared with $720.1 million at the end of first quarter. Long-term debt at the end of second quarter was $922.4 million.

Cumulative net cash flow from operating activities at the end of second-quarter 2022 was $25.6 million compared with $85.2 million a year ago.

During the second quarter of 2022, Masimo repurchased 3 million shares of its common stock for $401 million, per the share repurchase program approved in the third quarter of 2021.

2022 Guidance

Masimo has lowered its full-year 2022 financial outlook and provided projections for the third quarter.

For the full year, total revenues are now projected in the range of $1,985 million to $2,045 million, lower than the earlier projections of $2,000 million-$2,060 million. The Zacks Consensus Estimate for the metric is currently pegged at $2.04 billion.

Healthcare revenues are expected to lie within $1,330 million to $1,345 million, reflecting 7-9% reported growth and 10-11% growth at CER, whereas non-healthcare revenues are likely to be within $655 million to $700 million for the year.

Adjusted EPS for 2022 is now projected to be within $4.34-$4.57, lower than the previous projection of $4.46-$4.73. The Zacks Consensus Estimate for the same is pegged at $4.61.

For the third quarter of 2022, Masimo expects its total revenues in the range of $515 million to $545 million. The Zacks Consensus Estimate for the metric is currently pegged at $567.4 million.

Healthcare revenues are expected to lie within $320 million to $330 million (reflecting 4-7% reported growth and 7-11% growth at CER) whereas non-healthcare revenues are likely to be within $195 million to $215 million for the quarter.

Adjusted EPS for the third quarter is projected to be within 85-97 cents. The Zacks Consensus Estimate for the same is pegged at $1.15.

Our Take

Masimo exited the second quarter of 2022 with better-than-expected results. Robust uptick in the top line and its healthcare business is encouraging. The company recorded robust order shipments during the reported quarter, which is encouraging. Expansion of the company’s installed base is also impressive. The company closed the acquisition of Sound United in April, raising our optimism. The launch of its W1 biosensing health watch under a limited market release in May is also promising. A slew of favorable studies on Masimo’s products and enhancement to its telehealth capabilities are also promising.

On the flip side, the company continuing to face supply chain challenges related to component shortages is concerning. Contraction of both margins in the quarter does not bode well. The company lowering its full year top-line and bottom-line outlook is worrying as well. Masimo faces fierce competition from MedTech bigwigs, raising our apprehensions.

Zacks Rank & Key Picks

Masimo currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Quest Diagnostics Incorporated DGX, AMN Healthcare Services, Inc. AMN and Zimmer Biomet Holdings, Inc. ZBH.

Quest Diagnostics, carrying a Zacks Rank #2 (Buy), reported second-quarter 2022 adjusted EPS of $2.36, which beat the Zacks Consensus Estimate by 9.8%. Revenues of $2.45 billion outpaced the consensus mark by 7.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Quest Diagnostics has an earnings yield of 6.9% compared with the industry’s 3.9%. DGX’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, the average being 12.1%.

AMN Healthcare, sporting a Zacks Rank #1, reported second-quarter 2022 adjusted EPS of $3.31, which beat the Zacks Consensus Estimate by 11.8%. Revenues of $1.43 billion outpaced the consensus mark by 4.8%.

AMN Healthcare has an estimated long-term growth rate of 3.2%. AMN’s earnings surpassed estimates in all the trailing four quarters, the average being 15.7%.

Zimmer Biomet reported second-quarter 2022 adjusted EPS of $1.82, which surpassed the Zacks Consensus Estimate by 11.7%. Second-quarter revenues of $1.78 billion outpaced the Zacks Consensus Estimate by 3.5%. It currently has a Zacks Rank #2.

Zimmer Biomet has an estimated long-term growth rate of 5%. ZBH’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, the average being 7.4%.


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