Q2 Earnings Report: ICU Medical

San Clemente, CA-based ICU Medical nearly doubled net income despite stagnating top line growth and a poor-performing critical care business.

Second quarter revenue was $48.6 million, compared to $48.9 million in the same period last year. Net income was $4.8 million, compared to $2.5 million in Q2 2007. Gross margins expanded 3 percentage points to 43%.

Custom system sales were up 12% during the second quarter, compared to last year, while sales from new products, including oncology, increased over 65% on a sequential basis. This growth was offset by continued weakness in critical care products that the company manufactures for Hospira (in 2005, ICU paid $35 million to buy a 450,000-square-foot plant from Hospira). Excluding critical care, revenue grew 9% year-over-year.

Scott Lamb, ICU’s CFO commented, “As evidenced by our recently renewed agreement with MedAssets Supply Chain Systems, we are well positioned to expand our distribution network for our CLAVE, Custom and oncology products. These agreements validate our reputation as a low-cost and quality leader in the industry and create additional growth opportunities for years to come.”

MedAssets is one of the nation’s largest group purchasing organizations. Under the terms of the amended agreement, MedAssets will continue to co-market ICU’sCLAVE and MicroClave Needleless IV systems along with Specialty custom sets for a minimum of three additional years, through September, 2011.

ICU has a pile of cash on hand; as of June 30th, cash and investments totaled $109 million and working capital was $148 million. I’d expect ICU to fund future expansion by strategically exploiting this position, preferably through acquisition of product lines or companies.

2008 revenue guidance was in the $190 – $200 million range. The company expects annual gross margins to be approximately 43% and diluted earnings per share to be in the range of $1.35 – $1.45.

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