ConvaTec Group PLC (LON:CTEC) shares hit the skids on Thursday after the colostomy bag maker disappointed the market with its full-year results and guidance for 2019.
Last year was a difficult one for ConvaTec, which parted ways with its chief executive Paul Moraveic in October after issuing a profit warning after a slump in third-quarter sales.
READ: Boss resigns as ConvaTec issues shock profit warning
At the beginning of 2018, the FTSE 250 company was forecasting organic revenue growth of between 2.5-3% and a slight drop-off in margins due to higher investment in its advanced wound care division.
But that all changed in the autumn when the biggest buyer of its insulin pumps changed its inventory policy, which triggered a shock profit warning and a sharp sell-off in the stock.
In the end, ConvaTec posted a 0.2% rise in organic revenue to US$1.83bn in the 12 months ended 31 December, while adjusted underlying earnings (EBITDA) fell 6% to US$429.4mln as margins slipped to 23.4% from 25.9% a year earlier.
Results miss and guidance disappoints
Analysts at UBS said those numbers represented an “underlying miss”, while new CEO Rick Anderson, the former chairman of Johnson & Johnson, agreed that the results were “disappointing”.
“I have undertaken an extensive review of the business since my appointment as CEO and it is clear that swift and strong action is required to address the failures in execution which have caused the company to underperform,” he told investors.
The medical devices maker failed to lift the mood with its guidance for organic revenue growth of between 1-2.5% and an adjusted margin of 21-22.5% for 2019.
“This compares with consensus forecasts for group organic growth of 2.4% and adjusted EBIT margin of 22.9% for 2019,” noted City broker Peel Hunt.
Analysts chop targets
“Assuming growth and margin at the mid-point of the guidance range (including the transformation costs), [that] would imply a 15% reduction to our 2019 EBIT forecast to US$353mln (vs US$416mln currently) and 17% cut to EPS to 13.0 US cents (vs 15.8 US cents currently),” added Peel Hunt.
UBS echoed those thoughts and warned that the City’s number crunchers would likely be trimming their 2019 estimates by around 15-20%, while forecasts for as far out as 2022 could be cut by as much as 5%.
Peel Hunt analysts said they expected a “strong negative reaction” to the results, and they weren’t wrong – the stock dropped almost a quarter of its value in early trading to sit at 116.6p.