Orthopedic devices maker Wright Medical Group
Inc. ( WMGI ) reported first
quarter 2013 adjusted (excluding one-time items other than
stock-based compensation expense) loss per share of 2 cents, which
was narrower than the Zacks Consensus Estimate of loss of 6 cents
per share. The year ago earnings per share was 17 cents.
The company witnessed net income of $8.4 million (or 20 cents
per share) in the quarter versus net income of $4.6 million (or 12
cents per share) in the prior year quarter. Reported net income
includes several extraordinary and one-time items in both
Net sales in the quarter were $120.4 million, down 5% year over
year in reported terms (down 3% on a constant currency basis),
missing the Zacks Consensus Estimate of $123 million.
During the reported quarter, the company's growth in worldwide
ankle and foot franchise was negated by loss of client base in
OrthoRecon segment in the domestic market and pricing pressure in
the high focus Japanese market.
Geographically, revenues from the domestic market came in at
$67.8 million (56% of total sales), down 3.2% year over year.
Revenues from the overseas market declined 7.1% in reported terms
(down 3% on a constant currency basis) on a year-over-year basis to
$52.6 million (44% of total revenues) in the first quarter.
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 sub segments.
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 11% and Other 1%.
In terms of constant currency, OrthoRecon sales declined 11%
year over year in the first quarter. Among its components, Hips
fell 11% while Knees dropped 9% and Other decreased 35%.
Sales of Extremities segment increased 7% year over year in
constant currency in the reported quarter. Among its constituents,
Foot and Ankle improved 19%, Upper Extremity was down 6% while
Biologics dipped 10% and Other slid 1%.
Adjusted operating margin declined to (0.7)% in the quarter
versus 10.6% a year ago. Operating margin for OrthoRecon segment
was down to 11.7% in the reported quarter from 19.4% in the prior
year quarter. Operating margin for Extremities segment slid to
15.2% from 25.9% in the year-ago quarter.
Selling, general and administrative expenses dropped 10.2% year
over year to $65 million in the quarter while research and
development expenditure rose 8.6% year over year to $6.8
Balance Sheet and Cash Flow
Wright Medical exited the first quarter with cash, cash
equivalents and current marketable securities of a total of $279.5
million, down 16.1% on a sequential basis. Long-term obligations
rose 0.8% year over year to $260.6 million in the quarter. Free
cash flow declined to (8.9) million from $14.5 million in the
There is no alteration of the sales band of $485 million to $495
million for 2013. The company continues to estimate adjusted loss
per share in the range of 26 cents to 34 cents (including stock
based compensation expense of about 19 cents and the effect of
BioMimetic acquisition) for 2013. Adjusted earnings per share
exclude several one-time expenses. Free cash flow is expected in
the range of nil to $5 million for 2013.
Orthopedics is one of the largest medical device market segments
worldwide. Lukewarm demand was exacerbated by pricing pressure. The
joint replacement market was hit by patient deferral of elective
procedures, leading to weak demand for hip and knee implants. In
particular, the reconstructive market fundamentals (pricing and
volume) have languished in the recent past but are showing signs of
recovery. We note 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 Zimmer Holdings,
Inc. ( ZMH
) and Stryker Corporation ( SYK ).
The stock carries a Zacks Rank #3 (Hold). Conceptus,
Inc. ( CPTS ) carries a Zacks
Rank #1 (Strong Buy) and is expected to do well.CONCEPTUS INC (CPTS): Free Stock Analysis
ReportSTRYKER CORP (SYK): Free Stock Analysis ReportWRIGHT MEDICAL (WMGI): Free Stock Analysis
ReportZIMMER HOLDINGS (ZMH): Free Stock Analysis
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