) reported second-quarter 2012 adjusted (excluding one-time items)
earnings per share of 43 cents, in line with both the Zacks
Consensus Estimate and the year-ago adjusted earnings.
Profits (as reported) plunged 55% year over year to roughly $3.9
million (or 16 cents a share) due to higher operating expenses.
Revenues rose 14% year over year to a record $166.5 million in
the second quarter, beating the Zacks Consensus Estimate of $162
million. Revenues were driven by the Micro Power acquisition,
unexpected gains in the Cardiac Rhythm Management
("CRM")/Neuromodulation segment along with double-digit growth
across the company's Vascular Access business.
Foreign currency movements negatively contributed $3 million to
Orthopedic revenues in the quarter. However, on an organic basis,
revenues inched up 1%, given lower Orthopedic sales.
In the reported quarter, revenues from the core Implantable
Medical segment (75% of total sales) remained roughly flat year
over year at $125.4 million.
Within Implantable Medical, CRM/Neuromodulation sales rose 3%
year over year to $80 million, led by new product launches.
Increased focus on sales and marketing coupled with product
development is expected to further boost CRM sales. Revenues from
Vascular Access soared 16% to $12.5 million on the back of
commercialization of new medical devices.
Orthopedic sales plunged roughly 13% (down 5% in constant
currency) to $32.9 million due to pricing pressure, lack of product
expansion and development initiatives among other operational
issues within the Swiss facility. Currency exchange swings
negatively impacted orthopedic sales by $3 million in the quarter.
However, on a positive note, Orthopedic revenues rose 6%
sequentially and the company expects improved segment performance
in the next 18 months.
Revenues from Greatbatch's smaller Electrochem segment more than
doubled year over year to $41.2 million on the back of Micro Power
acquisition. The Micro Power product line has been integrated into
Greatbatch as Portable Medical offerings.
Gross margin edged down to 31.2% from 31.8% a year ago. Margin
dropped mainly due to pricing pressure, higher sale of lower margin
products and operational snags at the European Orthopedic
Selling, general and administrative expenses, as a percentage of
sales, inched up to 12.5% from 12% in the prior-year quarter, as a
result of acquisitions. Net research, development and engineering
costs (RD&E), as a percentage of sales, increased to 8.5% from
7.7% a year ago mainly due to investments for the development of
complete medical devices. Adjusted operating margin fell to 11.2%
from 12.6% a year ago.
Balance Sheet and Cash Flows
Greatbatch ended second quarter 2012 with cash and cash
equivalents of $11.1 million, down 69.5% year over year. The
company reported operating cash flow of $24 million in the quarter
versus $13 million in the year-ago quarter. This allowed the
company to repay a long-term debt of $8 million. Long-term debt in
the quarter was $233.4 million, down 1%.
Guidance and Recommendation
Greatbatch reiterated its sales guidance for full year 2012. The
company expects revenues for 2012 in a band of $645 million and
$665 million, leading to a year-over-year growth of 13% to 17%. The
company expects to achieve its sales growth target on the back of
higher CRM and Portable Medical sales despite the Orthopedic
segment likely to trail the annual forecast.
The company forecasts adjusted earnings per share in a range of
$1.75 to $1.85. Moreover, Greatbatch foresees adjusted operating
margin of 11.5%-12.5% for the year. However, given the sluggish
performance of the Orthopedic business, Greatbatch now expects
adjusted operating margin and adjusted diluted earnings to be at
the lower end of the guided ranges.
The current Zacks Consensus Estimates for revenue and earnings
per share for full year 2012 are $651 million and $1.76,
Greatbatch is a leading producer and supplier of batteries,
capacitors and components used in implantable medical devices. The
company's top customers include
Johnson & Johnson
St. Jude Medical
Greatbatch has been acquiring complementary businesses over the
last few years to expand. The company successfully completed the
integration of Micro Power as Portable Medical in the reported
quarter. Its 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.
The company recently opened a new Orthopedic manufacturing
facility in Fort Wayne, Indiana to improve its Orthopedic
operations. Moreover, Greatbatch established a research and
development (R&D) center in Singapore to implement its strategy
of expanding in the Asia-Pacific region.
However, soft Orthopedic markets and pricing pressure remain
headwinds. Greatbatch, Inc. currently retains a Zacks #3 Rank,
which translates into a short-term Hold rating. We maintain our
Neutral recommendation on the shares of GreatBatch.
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