Cantel Medical Corp. Posts Double-Digit Growth Across the Board

By Brian Orelli Markets Fool.com

On Thursday, Cantel Medical (NYSE: CMD) reported revenue and earnings for its second fiscal quarter, posting solid double-digit growth on both the revenue and earnings line.

Continue Reading Below

Cantel Medical results: The raw numbers

Metric

Q2 2017

Q2 2016

Year-Over-Year Change

Revenue

$184.8 million

$158.3 million

16.8%

Income from operations

$28.6 million

$22.3 million

17.3%

Earnings per share

$0.43

$0.37

16.2%

Data source: Cantel Medical.

What happened with Cantel Medical this quarter?

  • Most of Cantel's revenue growth -- 12.1 percentage points -- came from organic growth, with 5.8 percentage points coming from acquisitions. If you're doing the math at home, that's more than the overall 16.8% year-over-year growth due to a negative 1.1% impact from changes in currency.
  • Cantel's heathcare disposal segment was the highest-growing segment with sales up 35.6% year over year. Most of that growth came from the acquisition of Accutron; organic growth for the segment was up just 6.5% year over year.
  • Meanwhile, Cantel's endoscopy segment is getting it done internally with organic growth of 16%.
  • Rounding out the segments, growth in sales in the water purification and filtration segment was below the company average, but still a healthy 9.6% year over year. The company is constrained in how fast it can build and install the capital equipment with the backlog reaching record levels, suggesting there should be solid growth in the segment for the rest of the fiscal year.
  • Gross margins increased 220 basis points, to 47.9%, partially due to the selling of more higher-margin products, but improving efficiency also contributed to a higher fraction of the revenue falling to the income line.
  • Cantel continues to pay down debt -- $12 million in the most recent quarter -- that was taken on during recent acquisitions of Accutron and its Canadian distributor.

Continue Reading Below

Image source: Getty Images.

What management had to say

Cantel continues eliminating international distributors and selling directly to customers.Jorgen Hansen, Cantel's president and CEO, described this in detail:

Looking at market expansion, we continue to build our international capabilities, most notably with investments in our direct sales operation in Germany and China. Also we're pleased to announce last month that we entered into a definitive agreement to acquire all procedure products in endoscopy processing business from our Australian distributor, CR Kennedy.

On the potential for more acquisitions, Seth Yellin, executive VP of strategy and corporate development, stressed that Cantel is actively looking:

I think that we feel pretty good about our pipeline [of potential acquisition targets] overall and our expectation I think is to -- or our ambition is to execute three to four transactions a year.

Looking forward

Cantel continues to make progress on its way to its goal of doubling sales and profits between 2016 and 2021. Management noted that the second half of the 2016 fiscal year was fairly strong, making for a hard year-over-year comparison for the upcoming quarters, but didn't provide guidance. Ultimately, hitting the revenue and earnings goal will likely require some of those aforementioned acquisitions to come to fruition.

10 stocks we like better than Cantel Medical
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Cantel Medical wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of February 6, 2017

Brian Orelli has no position in any stocks mentioned. The Motley Fool recommends Cantel Medical. The Motley Fool has a disclosure policy.