Orthopedic devices maker
Wright Medical Group
) reported second quarter 2013 adjusted loss per share from
continuing operations of 13 cents, which was in line with the
Zacks Consensus Estimate. The loss was wider than the year-ago
level of 2 cents per share. The company has considered its
OrthoRecon unit as a part of its discontinued operations due to
its recent agreement to divest the latter.
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WMGI witnessed reported net loss from continuing operations of
$15.5 million or 34 cents per share in the quarter versus $1.4
million or 4 cents per share in the prior-year quarter.
Net revenues from continuing operations in the quarter were $60.6
million, up 17% year over year. However, it significantly missed
the Zacks Consensus Estimate of $123 million. Revenues were
mainly driven by 30% growth in the worldwide ankle and foot
Geographically, revenues from the domestic market rose 4.7% to
$42.6 million (70% of total sales). On a reported basis, revenues
from the overseas market jumped 59.5% to $17.9 million (30% of
total revenues) in the first quarter.
Product Line Results
Wright Medical has provided the details of its revenues from
continuing operations in 4 separate businesses viz. Foot and
Ankle, Upper Extremity, Biologics and Others. Revenues from Foot
and Ankle (62% of total sales) increased 29.2% (30% at constant
exchange rate or CER) to $37.3 million. U.S. sales climbed 15% in
the quarter, while international sales surged 94% at CER,
primarily driven by an initial stocking order from a new
China-based distribution partner.
Revenues from Upper Extremity (10% of total sales) dropped 4.1%
(down 2% at CER) to $6.1 million. Revenues from Biologics (25% of
total sales) dropped 2.3% (down 2% at CER) to $15.1 million. On
the other hand, revenues from Other (3% of total sales) jumped
62.2% (62% at CER) to $2.1 million.
Gross margin declined 110 basis points (bps) to 76.3% in the
quarter due to adverse geographic mix. Selling, general and
administrative expenses rose 40.7% to $50.5 million and research
and development expenditure surged 68.6% to $5.9 million.
Adjusted operating loss was $7.9 million in the quarter versus
adjusted operating income of $454 million in the year-ago period.
Balance Sheet and Cash Flow
Wright Medical exited the second quarter with combined cash and
marketable securities of $304.6 million compared with $333.0
million at the end of 2012. Long-term obligations rose to $262.7
million from $258.5 million at the end of 2012.
Cash flow from operations declined significantly to $5.8 million
in the first six months of 2013 from the year-ago level of $41.1
million. Free cash flow use in the period was $4 million compared
with a free cash flow $32.5 million in the year-ago level.
WMGI revised its outlook for 2013 following the OrthoRecon
divestment agreement with MicroPort. Sales from continuing
operations (Extremity and Biologics) are expected in the range of
$235 million-$240 million, assuming some minor short-term
dis-synergies due to the MicroPort transaction.
Further, adjusted loss per share from continuing operations
(including stock-based compensation) are projected between 55
cents and 59 cents. Although the amount of non-cash stock-based
compensation charges is expected to vary, the company currently
estimates that the after-tax impact of those expenses will be
roughly 14 cents per share for the year.
We remain on the sidelines regarding WMGI due to multiple
internal changes in the company. Although the divestment of the
OrthoRecon business bodes well for the company, we remain
skeptical regarding associated risks. However, we are impressed
with the worldwide growth in the Foot and Ankle business and
expect the BioMimetic acquisition to boost revenues going
WMGI carries a Zacks Rank #3 (Hold). Other medical stocks such as
) carry a Zacks Rank #1 (Strong Buy).
) with a Zacks Rank #2 (Buy) is also worth considering.