ICU Medical Earnings: Solid First Quarter Buoyed by Strong Hospital Admissions

Narrow-moat ICU ICUI Medical posted solid first-quarter results buoyed by strong healthcare utilization in the U.S. and a somewhat favorable comparison period in the pumps business. Overall, the company looks on track to meet (or even exceed) our 2023 expectations, and we retain our long-term optimism on margins once the Smiths business turns around and certain infrastructure integrations are completed. At first glance, we do not expect to change our fair value estimate of $195 per share based on this announcement.

The firm consolidated its seven segments across the legacy ICU business and Smiths Medical into three new segments: consumables, infusion systems, and vital care, and on a constant currency basis, total revenue in the first quarter rose by 7% year over year led by infusion systems, which grew at 21% and represents 29% of total revenue. Gross margins improved by 200 basis points as supply chain issues eased year over year.

During the years of the pandemic, we think the barrier for healthcare facilities to switch vendors strengthened, as many hospitals initially imposed limitations on in-person sales visits from vendors out of contagion concerns. Even after in-person restrictions were lifted, we believe facility operators have been particularly hesitant to disrupt existing workflows due to pressures on staff from the lingering labor shortage. This all may have worked in ICU’s favor, as Smiths’ recent customer losses during its rocky integration might have been worse, and as hospital pressures begin to stabilize going forward, we think that business remains in a decent turnaround position. We think margins have a long runway for improvement once Smiths rises to the ICU quality standard. Margin improvement may include some pricing and operating leverage but will be primarily based on reduced variable and fixed costs once operations are fully streamlined.