Greatbatch Beats on Q1 Earnings - Analyst Blog

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Greatbatch, Inc. 's ( GB ) 2014-first quarter adjusted earnings per share of 54 cents exceeded the year-ago level of 44 cents by 22.7% as well as the Zacks Consensus Estimate of 50 cents by 8.0%. Adjusted net earnings rose 30.0% to $14.0 million from $12.6 million in the first quarter of 2013.

On a reported basis, GB earned $14.9 million or 58 cents per share in the quarter compared with $5.7 million or 23 cents per share in the first quarter of 2013.

Revenues

Net revenues in the quarter improved 17.5% (17% on an organic constant currency basis) to $174.3 million, exceeding the Zacks Consensus Estimate of $158.0 million by a wide margin of 10.3%.

The increase in revenues was attributable to the easier comparisons with the prior year quarter, as well as strong contribution from the sales force. These were partially offset by the shutdown of the company's Swiss Orthopaedic facility as well as the timing of customer orders.

Product LinesResults

Revenues from Cardiac/Neuromodulation product went up 23.1% to $86.8 million in the quarter. The increase was attributable to core product portfolio, which benefited from product launches as well as easier quarter over quarter comparisons due to the timing of customer orders and inventory replenishments. The company saw strong growth in batteries, capacitors, molded components and assembly revenues.

Revenues from Orthopaedic product increased 23.0% to $36.4 million. On an organic constant currency basis, orthopaedic product line sales grew 20% from the first quarter of the prior year. The increase was driven by sales force productivity, marketing efforts, and market growth. Sales in the quarter were also impacted by Swiss orthopaedic facility consolidation.

Revenues from Portable Medical inched up 1.7% to $19.2 million. The marginal increase was attributable to discontinued or reduced volumes in some lower margin products, offset by market share gains in certain products and the timing of customer orders.

Revenues from Vascular product rose 22.8% to $13.05 million. The increase reflects the continued adoption of GB's medical device products and the re-launch of a vascular medical device at the end of 2013 which was voluntarily recalled in the fourth quarter of 2012.

Revenues from Energy, Military and Environmental (EME) business rose marginally by 0.9% to $18.1 million in the quarter. The business benefited from strong growth (8%) in energy sales, partially offset by a fall in military and environmental sales due to the timing of customer orders.

Overall, revenues from Greatbatch Medical (which includes the above-mentioned product lines) escalated 17.6% to $173.6 million.

Revenues from QiG , which includes sales of neural interface technology, components and systems to the neuroscience and clinical markets, spiked 6.7% to $686 thousand in the quarter.

Margins

Gross profit scaled up 18% to $57.6 million in the quarter from $48.7 million in the comparable period a year ago. Gross margin was flat at 33.0% compared with the prior year as production efficiencies were offset by contractual price concessions and higher performance-based compensation.

Adjusted operating income, which excludes other operating expenses, rose 17.9% to $34.6 million from $29.4 million in prior-year quarter. Like gross margin, adjusted operating margin was also flat at 19.9% during the quarter compared with the year-ago level.

Financial Position

GB had cash and cash equivalents of $38.3 million as of Apr 4, 2014, up 8.1% from $35.5 as of Jan 3, 2014. Long-term debt declined 1.3% to $195.0 million compared with $197.5 million as of Jan 3, 2013.

In the quarter, cash flows from operating activities were $7.0 million compared with an outflow of $7.6 million for the first quarter of 2013. This increase was primarily attributable to higher level of operating income.

2014 Guidance

GB believes that it will achieve the upper-end of its earnings and revenues guidance provided at the beginning of this year. According to the guidance, revenues will be in the range of $685 to $705 million, reflecting a 3 to 6% rise over 2013. The Zacks Consensus Estimate of $695 million for the year lies within the guided range.

GB anticipates adjusted operating margin between 13.0 and 13.3%, reflecting a 50 to 80 bps rise from 2012. Capital expenditures are expected in the range of $25 to $35 million for the year.

Finally, GB expects adjusted earnings per share in the range of $2.25-$2.35, indicating a 7 to 12% rise over 2013. The current Zacks Consensus Estimate of $2.32 lies within the guided range.

Our Take

We remain impressed by GB's earnings beat and double-digit bottom line growth in earnings on the back of strategic restructuring efforts along accretive investments in sales and marketing. We believe that the company's realignment plan will help it to focus on investing in its core business as well as develop innovative products by combining the resources of the integrated unit.

However, GB faces significant customer concentration as Johnson & Johnson ( JNJ ), Medtronic, Inc. ( MDT ) and St. Jude Medical ( STJ ) collectively accounted for a significant portion of the company's sales. Currently, GB retains a Zacks Rank #3 (Hold).



GREATBATCH INC (GB): Free Stock Analysis Report

JOHNSON & JOHNS (JNJ): Free Stock Analysis Report

MEDTRONIC (MDT): Free Stock Analysis Report

ST JUDE MEDICAL (STJ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: EME , GB , JNJ , MDT , STJ

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