) third-quarter 2013 adjusted earnings per share of 57 cents
comfortably beat the Zacks Consensus Estimate of 54 cents.
Earnings also exceeded the year-ago adjusted earnings by an
impressive 24%, driven by solid organic revenue growth, improved
gross margins and lower medical device spending, along with
benefits from effective tax rate. Reported net income in the
quarter was $11.1 million or 44 cents per share, rebounding from
a loss of $7.6 million or 32 cents in the year-ago quarter.
Revenues grew 4% year over year to $167.7 million in the third
quarter, marginally surpassing the Zacks Consensus Estimate of
$167 million. On a constant currency organic basis, revenues
increased 5% in the quarter.
Gross margin improved 170 basis points (bps) in the third quarter
to 33.3% from 31.6% in the prior-year quarter. The improvement
came on the back of higher production volumes and a favorable
Selling, general and administrative expenses rose 6.4% to $21.6
million in the quarter, led by the company's sales and marketing
initiatives and higher performance-based compensation, partially
offset by synergies realized from the consolidation of the Swiss
Net research, development and engineering costs (RD&E) rose
4% to $13.8 million in the quarter. Adjusted operating margin
escalated 150 bps to 13.1% on the back of improved gross margin
and lower consolidation and optimization costs.
In the reported quarter, revenues from the core Implantable
Medical segment (77% of total sales) increased 7% to $129.3
million. Within the segment, Cardiac/Neuromodulation revenues
climbed 8% year over year to $87.0 million. Improvement in the
underlying market and strategic relationships with Original
Equipment Manufacturer (OEM) partners drove the sales growth.
Revenues from the segment's Orthopedic business grew 11% to $30.1
million in the third quarter. On an organic constant currency
basis, orthopedic sales jumped 22% due to market share gains in
implants, and cases and tray offerings. However, revenues from
the Vascular product line fell 10% to $12.3 million, owing to a
On a disappointing note, revenues from Greatbatch's smaller
Electrochem segment dipped 5% to $38.4 million. This is mainly on
account of soft portable medical sales, which declined 4% to
$19.3 million in the quarter.
Environmental and military product sales were also weak owing to
the company's increased pricing discipline and reduced government
funding on certain military and environmental projects. However,
revenues from Energy business improved 4% to $13.6 million,
reflecting normalization of customer ordering patterns. Other
product lines revenues plunged 22% to $5.4 million in the
Balance Sheet and Cash Flows
Greatbatch ended third-quarter 2013 with cash and cash
equivalents of roughly $5.0 million, significantly down from
$20.3 at the end of 2012. Long-term debt was $210.0 million
compared with $225.4 million at the end of 2012.
Cash flow from operating activities increased to $24.7 million in
the third quarter of 2013 compared with $16.0 million generated
in the third quarter of 2012, due to higher operating income.
Year-to-date cash flow totaled $60 million.
Moving ahead, Greatbatch reiterated its revenue outlook for 2013
toward the lower end of $660-$680 million. On an organic basis,
total sales are expected to be up by 5% to 8%, after adjusting
for the disposition of non-core orthopedic assets worth $15
million. The Zacks Consensus Estimate for 2013 is pegged at $663
Moreover, management expects its adjusted earnings per share to
be closer to the middle to higher end of its guided range of
$2.05-$2.15 based on the company's strong performance in the
first nine months of 2013. The current Zacks Consensus Estimate
of $2.09 for 2013 lies within the guided range.
Moreover, GB continues to expect adjusted operating margin of 13%
for the year. Adjusted tax rate is forecasted at 31% and share
count should be approximately 25 million.
We remain impressed by GB's double-digit bottom line growth 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.
We are also encouraged by Greatbatch's effort to transform into a
medical devices company. Almost 80% of its revenues are generated
from medical devices companies. 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 has a
Zacks Rank #3 (Hold).
GB has forged strategic long-term agreements with its OEM clients
to secure healthy revenue growth. Its top customers include
leading players such as
St. Jude Medical
). Among these stocks, BSX has a Zacks Rank #2 (Buy), while both
MDT and STJ carry a Zacks Rank #3 (Hold).
BOSTON SCIENTIF (BSX): Free Stock Analysis
GREATBATCH INC (GB): Free Stock Analysis
MEDTRONIC (MDT): Free Stock Analysis Report
ST JUDE MEDICAL (STJ): Free Stock Analysis
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