Merit Medical Systems Inc: Navigating Trade Headwinds in a High-Growth Market

Merit Medical Systems (NASDAQ: MMSI) reaffirmed its fiscal 2025 revenue guidance despite headwinds from geopolitical trade policies, highlighting a resilient core business and explosive growth in its Endoscopy segment. However, the company’s decision to lower its non-GAAP earnings per share (EPS) forecast underscores the fragility of profitability in today’s globalized supply chain environment.

Reaffirmed Revenue, Revised Profitability

For fiscal year 2025, Merit maintained its net sales guidance of $1.470 billion to $1.490 billion, a 8% to 10% increase over 2024. This confidence stems from strong organic growth in its cardiovascular business and the surging Endoscopy division, which now accounts for nearly 5% of total revenue. .

However, the company revised its non-GAAP EPS outlook downward to $3.29–$3.42, a 1% to 5% decline year-over-year, compared to earlier projections of $3.58–$3.70 (4% to 7% growth). The revision reflects the impact of U.S. trade policies and currency fluctuations, which added 0.4% to sales growth but eroded margins. Management attributed the dilution to higher logistics costs and compliance expenses tied to trade restrictions.

Segment Performance: Cardiovascular Steadfast, Endoscopy Rocketing

The Cardiovascular segment, representing 93% of total revenue, grew organically by 7%–9% in Q1, driven by its Peripheral Intervention and Custom Procedural Solutions subcategories. Notably, the OEM division—now including spine devices after a strategic realignment—showed robust momentum.

The Endoscopy segment, however, stole the spotlight with 34%–37% Y/Y growth, exceeding prior guidance of 36%–40%. This outperformance is fueled by recent acquisitions, including EndoGastric Solutions (July 2024) and Cook Medical (November 2024), though organic Endoscopy growth (excluding acquisitions) still reached 6% in Q1, signaling strong underlying demand.

Balance Sheet Strength and Cash Flow Concerns

Merit’s balance sheet remains robust, with $395.5 million in cash and $697 million in available credit, despite no debt reduction. However, free cash flow dropped 20.5% to $19.5 million in Q1, reflecting increased capital expenditures and operational investments. Investors should monitor whether this trend persists, as it could constrain future dividend growth or acquisition activity.

Key Risks and Strategic Focus

1. Trade Policy Uncertainty: The revised EPS guidance directly ties to trade-related costs, which could escalate if global tensions persist.
2. Currency Volatility: While foreign exchange benefits boosted revenue growth, it also complicates margin management.
3. Execution in High-Growth Areas: The Endoscopy segment’s success hinges on integrating acquisitions and scaling innovation without overextending resources.

Conclusion: A Story of Growth Amid Uncertainty

Merit Medical’s Q1 results paint a dichotomy: revenue resilience contrasts with profitability pressures, reflecting broader macroeconomic challenges. The company’s reaffirmed sales targets and Endoscopy segment’s meteoric rise suggest long-term potential, but near-term earnings volatility remains a risk.

Investors should weigh the 5.3% dividend yield (as of March 2025) against the risks of margin compression. With $1.47 billion in revenue guidance and a balance sheet capable of weathering turbulence, Merit is positioned to capitalize on its strengths—if it can navigate trade headwinds without sacrificing growth.

In sum, Merit Medical’s story is one of disciplined execution in a fractured global landscape. For those willing to accept near-term uncertainty, the company’s diversified portfolio and high-margin Endoscopy opportunities may offer compelling upside in the years ahead.