) fourth-quarter 2012 adjusted earnings per share of 53 cents
beat the Zacks Consensus Estimate of 50 cents and significantly
exceeded the year-ago adjusted earnings of 39 cents (up 36% year
over year). Earnings growth was led by gross margin expansion
along with controlled RD&E spending.
Adjusted earnings exclude one-time items such as medical
device design verification testing ("DVT") costs associated with
the development of a neuromodulation platform along with
consolidation and optimization expenses, and integration charges.
It also excluded the loss of the Swiss tax holiday due to the
discontinuation of manufacturing in Switzerland.
The company reported net loss of $5.6 million (or a loss of 23
cents) compared with net income of $5.6 million in the year-ago
quarter. Operational hazards at Greatbatch's Swiss Orthopedic
facilities resulted in the reported net loss. According to
management, results are likely to improve from the first quarter
For 2012, adjusted earnings of $1.77 a share (up 5%
year-over-year) also exceeded the Zacks Consensus Estimate by a
Revenues grew 12% year over year to $159.2 million in the
fourth quarter but missed the Zacks Consensus Estimate of $163
million. Accretion from recent acquisitions of about $20.3
million and growth in the vascular business offset an organic
constant currency decline of 2% due to lower Cardiac and
For the full year, sales climbed 14% year over year to $646.2
million, also behind the Zacks Consensus Estimate of $650
million. Above market growth in the cardiac and vascular
businesses were dampened by operational issues in the Orthopedic
In the reported quarter, revenues from the core Implantable
Medical segment (75% of total sales) dropped 2% year over year to
Within Implantable Medical, CRM/Neuromodulation sales
decreased 5% year over year to $73.7 million due to sustained
market headwinds, strong shipments in the prior quarter as well
as tough year-over-year comparables. Increased focus on sales and
marketing coupled with product development is expected to boost
CRM sales. However, management is cautious of the short-term
headwinds from key Original Equipment Manufacturer ("OEM")
Revenues from Vascular Access jumped 14% to $14.2 million on
the back of market share gains and solid demand in the underlying
However, Orthopedic sales dipped 2% year over year (flat in
constant currency) to $30.9 million. Healthy implant sales were
offset by soft instrument sales due to the transition of the
Swiss facility. Currency fluctuations negatively impacted
orthopedic sales by $0.6 million in the quarter. On a positive
note, Orthopedic sales increased 14% sequentially because of the
seasonal shut-downs at the company's European facilities.
Revenues from Greatbatch's smaller Electrochem segment nearly
doubled on a year- over-year basis to $40.3 million on the back
of acquisitions and new products. On a pro forma basis, revenues
from Portable Medical products soared 38% in 2012. Further,
revenues from the Energy/Environmental segment grew 19% to $15.6
The segment is benefiting from a shift in focus from clinical
settings to cater to the home and aging population by developing
lightweight and portable devices, which is in high demand in the
Portable Medical market. Management believes that the company's
advanced portable medical offerings will bolster future revenue
Gross margin increased 110 basis points year over year to
32.6%, benefiting from increased sales volume and a favorable
shift in mix to higher margin products. Selling, general and
administrative expenses, as a percentage of sales, inched up to
13.2% from 13.1% in the prior-year quarter led by expenses
associated with the acquisitions.
Net research, development and engineering costs (RD&E), as
a percentage of sales, inched down to 7.0% from 9.0% a year ago
as the company is leveraging its RD&E expenses. RD&E
expenses include contributions to the company's acquisitions as
well as investments for the development of complete medical
devices (including DVT costs for the neuromodulation platform).
Adjusted operating margin increased to 13.3% from 11.1% a year
ago, led by sales growth and improved operating activities.
Balance Sheet and Cash Flows
Greatbatch ended fourth quarter 2012 with cash and cash
equivalents of $20.3 million, down 44.4% year over year. The
company reported operating cash flow of $25 million in the
quarter versus $31 million in the year-ago quarter. This allowed
the company to repay an additional long-term debt of $8 million.
Long-term debt in the quarter was $225.2 million, down 4.5%.
Moving ahead, Greatbatch expects revenues for 2013 in the band
of $660-$680 million, up 2%-5% year over year. On an organic
basis, total sales is expected to be up by 5%-8%.
The company expects revenues from CRM & Neuromodulation to
be flat to up 2% in 2013. Vascular access sales are forecast to
climb 7%-13% while Orthopedic revenues are expected to be flat to
down 5%. Organic sales growth expectation from the Orthopedic
division is 8%-14% due to the disposition of non-core offerings
worth $15 million in 2012.
Revenues from the Portable Medical segment is expected to grow
roughly 15%-20% in 2013 and Energy and Other product lines is
anticipated to be up 6%.
Greatbatch expects 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 current Zacks Consensus Estimates for revenue and earnings
per share for full year 2013 are $677 million and $1.92,
Greatbatch is a leading producer and supplier of batteries,
capacitors and components used in implantable medical devices.
The company's top customers include
St. Jude Medical
) among others.
The company has successfully integrated both Micro Power and
Neuro Nexus in its business and completed the consolidation of
its facilities. These achievements should propel growth going
The company's pipeline is healthy with a number of products
currently in development that are expected to support growth in
the long run. Greatbatch is also focusing on sales and marketing
to improve its legacy business and has leveraged its RD&E
expenses by discontinuing certain non-core projects.
Additionally, the company has also forged strategic long-term
agreements with its OEM clients to secure healthy revenue
However, issues in the Orthopedic business, a soft CRM market
and pricing pressure remain headwinds for the company. It is
aggressively investing in production and consolidation
initiatives to drive bottom-line growth.
Greatbatch, Inc. currently retains a Zacks Rank #3 (Hold).
While we remain on the sidelines for Greatbatch, semi-discretes
) with a Zacks Rank #2 (Buy) warrants a look.
CREE INC (CREE): Free Stock Analysis Report
GREATBATCH INC (GB): Free Stock Analysis
MEDTRONIC (MDT): Free Stock Analysis Report
ST JUDE MEDICAL (STJ): Free Stock Analysis
To read this article on Zacks.com click here.