Medical Industry Strengthens Finances in Second Quarter

Gardner Intelligence reviewed the medical industry using its proprietary data and the financial filing results of nearly 70 publicly traded medical firms for the second quarter of 2018. The review indicates an industry experiencing growth in revenues, earnings, free cash flow and capital expenditures. The latest quarterly results* signaled a slight increase in the growth rate of capital expenditures. The most significant financial improvement in the industry was in earnings growth, which turned positive during the second quarter after contracting during the preceding two quarters.

The most significant financial improvement in the industry was in earnings growth, which turned positive during the second quarter after contracting during the preceding two quarters.

Capital expenditures, which includes spending on manufacturing and equipment, grew from 2.8 percent at the end of the first quarter of 2018 to 3.7 percent by the end of the second quarter of 2018. This reverses the slowing growth trend in capital expenditures that began after capital spending growth reached a peak of more than 17 percent in the first half of 2017. An analysis of quarterly data between the fourth quarter of 2014 and the second quarter of 2018 indicates a statistically significant relationship between revenue change in a given quarter and capital expenditure change in the following quarter. Assuming an accurate forecast of revenues based on the consensus Wall Street forecast, this simple linear regression analysis—which considers no other factors—predicts total capital spending growth of 3.6 percent during calendar year 2018 before expenditures contract by 1.4 percent in 2019.

Gardner Business Index data from manufacturers supplying the medical industry is copacetic with Wall Street’s near-term optimism. According to Gardner Intelligence’s survey data in the year-to-date period ending in August 2018, manufacturers serving the medical industry have experienced strong growth in new orders, production and—more recently—supplier deliveries.

Several of the business components that constitute the Gardner Business Index, including backlogs and exports, have experienced unusually long periods of continuous expansion. Backlogs have continued to expand every month since July 2017, representing the longest continuous stretch of medical manufacturing backlog expansion in recorded history. Similarly, one would have to go back to 2012 to find a stretch of time during which medical manufacturing exports expanded for more than eight consecutive months. On-going expansion in new orders and production, along with many months of growing backlogs, suggests that manufacturers are highly likely to close out 2018 in very good condition.

On-going expansion in new orders and production, along with many months of growing backlogs, suggests that manufacturers are highly likely to close out 2018 in very good condition.

*All quarterly results are calculated based on the trailing twelve months. Comparisons between two quarters one year apart represents a 12/12 rate of change.