Greatbatch, Inc. 's ( GB ) first-quarter 2013
adjusted earnings per share (excluding one-time expenses) of 44
cents beat the Zacks Consensus Estimate by a penny. It also
exceeded the year-ago adjusted earnings of 37 cents by an
impressive 19%, led by improved gross margins and continued focus
on R&D expenses.
The company's net income (as reported) increased 26.7% year over
year to $5.7 million (or 23 cents per share) in the quarter. The
results reflect a marked turnaround from the net loss of $5.6
million reported in the fourth quarter of 2012.
However, revenues dropped 7% year over year to $148.3 million in
the first quarter, which is also down 6.8% sequentially. Revenues
missed the Zacks Consensus Estimate of $164 million by 9.6% and was
below the company's expectations. Management claims that the
disposition of certain non-core orthopedic product lines amounting
to $4.2 million, led to the year-over-year decline.
However, adjusting for this sale, on an organic basis, revenues
decreased 4% in the quarter. This was mainly due to the prevailing
softness in the underlying cardiac and neuromodulation market along
with shifts in customer market share and inventory build up in the
fourth quarter. The inventory build in the fourth quarter of 2012
resulted in lower orders in the first quarter of 2013.
In the reported quarter, revenues from the core Implantable
Medical segment (75% of total sales) dropped 5% to $111.4 million.
Within Implantable Medical, CRM/Neuromodulation sales declined 5%
year over year to $71.2 million, reflecting sustained softness in
the underlying market. However, the company expects the business to
grow in the long term on the back of new products and enhanced
sales and marketing efforts.
Revenues from Vascular Access dipped 9% to $10.6 million due to
adjustments in customer inventory. Sales are expected to normalize
from the second quarter of 2013, partially offset by product
Orthopedic sales fell 5% year over year to $29.6 million due to
sale of certain non-core orthopedic products which lowered sales by
$4.2 million. On an organic constant currency basis, orthopedic
sales jumped 11% because of market share gain in implants and new
cases and tray product launches. This was partially offset by the
transfer of operations from Switzerland to other facilities.
Management claims that consolidation is complete and should benefit
the company in the next 2 quarters.
Revenues from Greatbatch's smaller Electrochem segment declined
11% to $36.9 million due to tough year-over-year comparables in the
energy, military and other markets. The Micro Power product line
has been integrated into Greatbatch as Portable Medical offerings.
Portable medical sales grew only 1% in the quarter, despite
favorable market dynamics. Management claims that product launches
and customer inventory builds in the previous quarter reduced order
intake rates in the first quarter and the segment will pick up pace
going forward. Sales from Energy and Other product lines declined
17% and 27% to $12.3 million and $5.7 million, respectively.
Gross margin surged 340 basis points in the first quarter to 32.9%
of total sales on the back of improved production volumes and cost
savings realized from consolidation of Swiss facilities. Selling,
general and administrative expenses, as a percentage of sales,
increased to 13.6% from 11.9% in the prior-year quarter led by the
company's efforts to optimize synergies from acquisitions as well
as facility consolidation.
Net research, development and engineering costs (RD&E), as a
percentage of sales, inched down to 7.5% from 8.7% a year ago as
the company is leveraging its RD&E expenses. Adjusted operating
margin improved to 13.0% from 9.8% a year ago, on the back of
improved gross margin and improved operational efficiency.
Balance Sheet and Cash Flows
Greatbatch ended first quarter 2013 with cash and cash equivalents
of $10.1 million, up 6.3% year over year. The company reported
operating cash flow of $7.6 million in the quarter versus $0.4
million in the year-ago quarter. Long-term debt in the quarter was
$233.0 million, down 2.3% year over year.
Moving ahead, Greatbatch expects revenues for 2013 towards the
lower end of $660-$680 million due to the disposition of non-core
orthopedic assets worth $15 million. On an organic basis, total
sales are expected to be up by 5%-8%.
The company continues to expect adjusted earnings per share in the
range of $1.90 to $2.00 (up 7%-13% year over year) for 2013.
Moreover, Greatbatch foresees adjusted operating margin of
12.0%-12.5% for the year.
The current Zacks Consensus Estimates for revenue and earnings per
share for full year 2013 are $649 million and $1.97,
Greatbatch is a leading producer and supplier of batteries,
capacitors and components used in implantable medical devices. The
company's top customers include Medtronic ( MDT ) and St.
Jude Medical ( STJ ) among
Consolidation of the Swiss facility is now complete, which is
encouraging. This in turn is helping to leverage operational
efficiency as well as the bottom line. However, a soft CRM market
and pricing pressure remain headwinds for the company.
In an effort to boost its top line, Greatbatch is focusing on
R&D investments to improve its legacy business. The company's
pipeline is healthy with a number of products currently in
development that are expected to support growth in the long run.
The company has forged strategic long-term agreements with its OEM
clients to secure healthy revenue growth.
Greatbatch, Inc. currently retains a Zacks Rank #3 (Hold). While
we remain on the sidelines for Greatbatch, semi-discretes company
Cree, Inc. ( CREE ) with a Zacks
Rank #2 (Buy) warrants a look.CREE INC (CREE): Free Stock Analysis ReportGREATBATCH INC (GB): Free Stock Analysis ReportMEDTRONIC (MDT): Free Stock Analysis ReportST JUDE MEDICAL (STJ): Free Stock Analysis
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