Orthopedic devices maker
Wright Medical Group
) reported fourth-quarter adjusted (excluding one-time items
other than stock-based compensation expense) earnings per share
of 1 cent, which was better than the Zacks Consensus Estimate of
loss of 1 cent per share. For 2012, adjusted earnings per share
of 24 cents beat the Zacks Consensus Estimate of 20 cents per
The company witnessed net profit of $5.4 million (or 14 cents
per share) in the quarter versus net income of $1.2 million (or 3
cents per share) in the prior-year quarter.
Net sales in the quarter were $123.5 million, down 3% year
over year in reported terms (down 2% on a constant currency
basis), beating the Zacks Consensus Estimate of $121 million. For
2012, net sales were down 5.7% to $483.8 million, ahead of the
Zacks Consensus Estimate of $481 million.
During the reported quarter, the company's growth in worldwide
ankle and foot franchise was negated by loss of client base in
OrthoRecon segments in the domestic market and pricing pressure
in the high focus Japanese market.
Geographically, revenues from the domestic market came in at
$70.7 million (57.2% of total sales), down 3.6% year over year,
while revenues from the overseas market declined 1.5% in reported
terms (flat on a constant currency basis) on a year-over-year
basis to $52.8 million (42.8% of total revenues) in the fourth
Wright Medical earlier restated its segments to broadly
comprise Extremities and OrthoRecon segments. OrthoRecon
comprises Hips, Knees and Other. The Extremities segment is
composed of Foot and Ankle, Upper Extremity, Biologics and Other
OrthoRecon comprised 53% of sales in the reported quarter with
Hips contributing 29%, Knees 23% and Other 1%. Extremities
constituted 47% of revenues with Foot and Ankle contributing 29%,
Upper Extremity 5%, Biologics 12% and Other 1%.
In terms of constant currency, OrthoRecon sales declined 11%
year over year in the fourth quarter. Among its components, Hips
fell 14%, while Knees dropped 8% and Other increased 30%.
Sales of Extremities segment clambered 11% year over year in
constant currency in the reported quarter. Among its
constituents, Foot and Ankle improved 20%, Upper Extremity was
down 10% while Biologics dipped 2% and Other rose
Gross margin in the quarter came in at 67.9% compared with
67.7% in the year-ago quarter. Adjusted operating margin declined
to 3% in the quarter versus 10.1% a year ago. Operating margin
for OrthoRecon segment was 6.4% in the reported quarter versus
17.9% in the prior year quarter. Operating margin for Extremities
segment was 23.5% versus 22.8% in the year-ago quarter.
Selling, general and administrative expenses increased 2.5%
year over year to $74.2 million in the quarter, while research
and development expenditure rose 17.8% year over year to $7.5
Wright Medical exited the fourth quarter with cash, cash
equivalents and marketable securities of a total of $333.1
million, almost double the earlier total on a year-over-year
basis. Long-term obligations shot up 55% year over year to $258.5
million in the quarter. Free cash flow increased more than
five-fold from the year-ago period to $5 million.
Excluding the effect of the acquisition of BioMimetic
Therapeutics, for 2013, Wright Medical forecast net sales in a
band of $485 million to $495 million (including an adverse
currency impact of about 2%). The company issued its expected
adjusted earnings per share (including stock-based compensation
expenses) for 2013 in the range of 0 cent to 6 cents.
Adjusted earnings for 2012 exclude expenses associated with
restructuring of costs, and transition costs with regard to
converting a substantial part of foot and ankle business
interests to direct and potential acquisitions. It also excludes
costs concerning government investigation related to Profemur hip
offerings, non cash interest charges related to convertible notes
and certain other contingencies. Wright Medical forecasts
non-cash, stock-based compensation charge of about 19 cents per
share for 2013. The company expects free cash flow for 2013 in
the band of $35 million and $40 million.
Including the effect of BioMimetic, there is no alteration of
the sales band of $485 million to $495 million for 2013. The deal
adversely affects earnings per share by about 32 cents to 34
cents resulting in adjusted loss per share in the range of 26
cents to 34 cents (including stock based compensation expense)
for 2013. Free cash flow is expected in the range of nil to $5
Orthopedics is one of the largest medical device market
segments worldwide. Lukewarm demand is exacerbated by sustained
pricing pressure. In particular, the reconstructive market
fundamentals (pricing and volume) have languished in the recent
past but are showing signs of recovery. The joint replacement
market has been hit by patient deferral of elective procedures,
leading to weak demand for hip and knee implants.
Pricing compressions on hips, knees and spine products, which
have impaired the performances of several orthopedic companies,
remains a key concern at the macro level. We note that Wright
Medical's inadequacy to post sales growth in recent times.
Our views on the company are moderated by intense competition
from larger players and pricing pressure. Wright Medical
competes with much bigger names such as
Smith & Nephew
). The stock carries a Zacks Rank #3 (Hold).
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