TOP CONTRIBUTORS

Will Shikani

TFX AT A GLANCE

P/E ► 20.1 AVG EV/EBITDA ► 10.7 AVG ROA ► 4.8% AVG ROE ► 6.2% AVG Debt to Equity ► 1.46 AVG Current Ratio ► 2.90 AVG Interest Coverage Ratio ► 2.52 AVG

 

 

 

 

 

 

Teleflex is a manufacturing conglomerate that earns most of its money making disposable medical supplies like catheters and oxygen masks. Although medical devices made up 54% of FY 2007 Revenue and 72% of FY 2007 Operating Income,^[1] the company makes a host of other industrial products, from jet engine blades and airline baggage systems, to boat and commercial truck engine parts.

Revenue from Teleflex's aerospace products (23% of FY 2007 Revenue, 19% of FY 2007 Operating Income) ^[2] is dependent on the commercial airline industry demand for aircraft parts. While strong demand for aircraft construction helped boost core revenue growth by 7% in FY 2007, and despite record backlogs at airplane manufacturers such a Boeing, ^[3] the FAA predicts new commercial aircraft construction will slow in 2008 and 2009^[4] because of weakness in the overall economy and among passenger airlines specifically.

Business Financials

The company's revenue increased by 14% in FY 2007 due exclusively to acquisitions (11%) and currency appreciation (3%) . Core revenue growth was zero over the same period. ^[5] Revenue increases from acquisitions came primarily from the $2.1 billion acquisition of medical products company Arrow International. ^[6]

^[7]

^[8]

Medical (54% of FY 2007 Revenue, 72% of FY 2007 Operating Income)

Teleflex’s Medical segment businesses produce devices used in surgeries, critical care, and cardiac care, as well as parts and instruments for other companies’ medical devices. The largest revenue source in this segment is Critical Care Products (60% of segment revenue in FY 2007), which sells under the names Arrow, Rüsch, HudsonRCI, Gibeck and Sheridan. ^[9] The next largest revenue source in this segment is Surgical Products (25% of segment revenue in FY 2007), which sells under the names Deknatel, Pleur-evac, Pilling, Taut and Weck. ^[10] The third revenue source in this segment is Devices for Original Equipment Manufacturers (13% of segment revenue in FY 2007), which sells under the names TFX OEM, Beere, Deknatel, KMedic, and SMD. ^[11]

The products in the Medical segment are manufactured in the Czech Republic, Germany, Malaysia, Mexico and the United States and sold to hospitals and healthcare providers all over the world. As a result, only 51% of revenue comes from North America; 37% comes from Europe, the Middle East, and Africa, and 12% comes from Asia and Latin America. ^[12]

^[13]

Aerospace (23% of FY 2007 Revenue, 19% of FY 2007 Operating Income)

Revenue in the Aerospace segment comes from engine repair products and cargo handling systemst for commercial aviation. ^[14] Engine Repair (56% of segment revenue in FY 2007), produces parts and services for flight turbines through a majority-owned venture with GE Aircraft Engines called AirFoil Technologies International (ATI). ^[15] Cargo Handling Systems and Equipment (44% of segment revenue in FY 2007) acquired Nordisk Aviation Products in November 2007 to improve global market presence and produces cargo systems and spare parts under both the names Nordisk and Telair. ^[16] Major sites for the Aerospace segment are in England, Germany, Norway, Singapore and the United States. ^[17]

Commercial (23% of FY 2007 Revenue, 9% of FY 2007 Operating Income)

The Commercial segment produces driver controls and engine and drive assemblies for boats, as well as fuel management systems for automotive, rail, and industrial vehicles, and rigging products. Manufacturing sites are in Canada, Europe, Singapore, and the United States. The Marine part of this segment (54% of segment revenue in FY 2007) sells products under the names Teleflex Marine, SeaStar, BayStar, and Sierra.^[18] Fuel Management systems (27% of segment revenue in FY 2007) are sold under the names ComfortPro, Proheat, and Teleflex GFI. ^[19] Rigging systems (19% of segment revenue in FY 2007) produces cables and other rigging equipment for applications such as oil drilling and marine transportation. ^[20]

Annual Data

In FY 2007, sales increased by $243.5 million, 14.4%, to $1.93 billion. This is entirely, however, due to acquisitions and currency movements. Core growth in FY 2007 was zero because of an increase of 7% in Aerospace and decreases of 1% and 5% in Medical and Commercial, respectively. ^[21] Net Income before divestitures fell in FY 2007 partially due to the increase in interest expense (from $41.2 million to $74.9 million) related to the acquisition of Arrow. When divestitures are taken into account, income growth has been small over the past three years.

Teleflex's 2007 acquisition of Arrow International to add to the Medical segment coupled with divestitures in both the Aerospace and Commercial segments have shifted the company much more heavily its towards Medical segment and away from its Commercial segment ^[22] Only two years ago, the revenue breakdown was 47% Commercial, 33% Medical, and 20% Aerospace. ^[23]

^[25]

Key Trends and Forces

Aerospace

• Revenue in the Aerospace Segment is Highly Dependent on the Aerospace Industry, Particularly the Commercial Airline Industry: New construction of aircraft from companies like Boeing and Airbus helped segment core revenues to rise by 7% in FY 2007 because as demand for more aircraft rises, so does demand for more parts. On the other hand, rising costs in the commercial airline industry, driven largely by increases in the price of oil, and the 2007-2008 slowdown of the US economy, led the FAA to predict flat operations growth by airlines (new construction of commercial aircraft is expected to fall in 2008 and continue into 2009) and stalling consumer demand for travel in the airline industry for 2008. ^{[26] [27]} Such weakness in both operations and consumer demand leads to reduced spending on everything from airplanes and parts to expenditures on airport improvements. This cyclicality of the Aerospace industry affects demand for everything related to the industry, including Teleflex’s airline engine repair parts and cargo handling systems.

Multi-Segment

• The Strength of the Dollar Can Significantly Alter Reported Revenues: In FY 2007, Teleflex garnered 56% of revenue from sales outside of the United States. ^[28] Currency fluctuations can consequently cause large changes in reported US dollar revenue. 21% of the the revenue increase in FY 2007, for example, was attributable to changes in currency exchange rates.

• Interest Rates impact Teleflex’s ability to pay off its substantial debt load: Teleflex has a significant amount of debt as a result of its acquisition strategy, which amounted to $1.7 billion at the end of 2007. ^[29] This has given the company a debt-to-equity ratio of 123.98, which is significantly higher than the industry average of 25.12. ^[30]

Competition

Teleflex’s business segments are diverse, so it competes with different companies in each of its segments.

Medical

• Johnson & Johnson (JNJ) Johnson & Johnson is the second largest health care product manufacturer in the world. Production of medical devices accounted for 36% of revenue in FY 2007, totaling $21.7 billion. It competes in wide range of medical devices and diagnostics, however, separating it in this respect from Teleflex’s focus on single-use and disposable devices. ^[31]
• Vital Signs (VITL) Vital Signs manufactures a variety of medical devices, including single-use and disposable products. It is a much smaller company than Teleflex, with a FY 2007 revenue of $217 million and net income of $21 million. ^[32]

Aerospace

• Barnes Group (B) produces components for industrial and aerospace applications. Its Aerospace segment produces aircraft frames and jet engines, as well as parts. It competes with Teleflex in engine repair products. Its sales were $392 million in FY 2007, compared with the $449 million Teleflex earned from its Aerospace segment. ^[33]

Commercial

• Tomkins plc (TKS) is an England-based engineering and manufacturing company. The Fluid Systems branch of its Industrial & Automotive business competes with Teleflex in the production of fuel management systems.

References

1. ↑ Teleflex Incorporated 10-K 2007. Section 1 - Business. pg 3
2. ↑ Teleflex Incorporated 10-K 2007. Section 1 - Business. pg 3
3. ↑ Boeing News Release on FY 2008 Q1 earnings
4. ↑ "FAA predicts stalling airline demand for FY2008." eTurboNews. March 16, 2008
5. ↑ Teleflex Incorporated 10-K 2007. Section 2 - Management's Discussion and Analysis of Financial Condition and Results of Operation. pg 25
6. ↑ Teleflex Incorporated 10-K 2007. Section 2 - Management's Discussion and Analysis of Financial Condition and Results of Operation. pg24
7. ↑ Teleflex Incorporated 10-K 2007. Section 1 - Business. pg 3
8. ↑ Teleflex Incorporated 10-K 2007. Section 4 - Exhibits, Financial Statement Schedules. pg F-43
9. ↑ Teleflex Incorporated 10-K 2005. Section 1 - Business. pg 4
10. ↑ Teleflex Incorporated 10-K 2007. Section 1 - Business. pg 6
11. ↑ Teleflex Incorporated 10-K 2007. Section 1 - Business. pg 4
12. ↑ Teleflex Incorporated 10-K 2007. Section 1 - Business. pg 7
13. ↑ Teleflex Incorporated 10-K 2007. Section 1 - Business. pg 7
14. ↑ Teleflex Incorporated 10-K 2007. Section 1 - Business. pg 8
15. ↑ Teleflex Incorporated 10-K 2007. Section 1 - Business. pg 8
16. ↑ Teleflex Incorporated 10-K 2007. Section 1 - Business. pg 8
17. ↑ Teleflex Incorporated 10-K 2007. Section 1 - Business. pg 8
18. ↑ Teleflex Incorporated 10-K 2007. Section 1 - Business. pg 9
19. ↑ Teleflex Incorporated 10-K 2007. Section 1 - Business. pg 9
20. ↑ Teleflex Incorporated 10-K 2007. Section 1 - Business. pg 9
21. ↑ Teleflex Incorporated 10-K 2007. Section 2 - Management's Discussion and Analysis of Financial Condition and Results of Operation. pg 25
22. ↑ Teleflex Incorporated 10-K 2007. Section 1 - Business. pg 3
23. ↑ Teleflex Incorporated 10-K 2005. Section 1 - Business. pg 3
24. ↑ Teleflex Incorporated 10-K 2007. Section 6 – Selected Financial Data. pg 22
25. ↑ Teleflex Incorporated 10-K 2007. Section 6 – Selected Financial Data. pg 22
26. ↑ Keeton, Ann. "Draconian Cuts In Air Service Could Hurt Business Travel." CNN Money. June 20, 2008
27. ↑ "FAA predicts stalling airline demand for FY2008." eTurboNews. March 16, 2008
28. ↑ Teleflex Incorporated 10-K 2007. Section 1 - Risk Factors. pg 13
29. ↑ Teleflex Incorporated 10-K 2007. Section 1 - Risk Factors. pg 13
30. ↑ Reuters Report of Teleflex Key Financial Ratios
31. ↑ Johnson & Johnson Wikinvest Article
32. ↑ Yahoo Summary of Vital Signs Financials
33. ↑ Constellation Brands Wikinvest Profile