We maintain our Neutral recommendation on
Wright Medical Group
). The company reported second quarter and adjusted (excluding
one-time items other than stock-based compensation expense)
earnings per share of 8 cents, beating the Zacks Consensus Estimate
of 3 cents.
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The company reported net income of $0.7 million (or 2 cents per
share) in the quarter, compared with $6.1 million (or 16 cents per
share) in the prior year quarter. Net income includes after tax
impact of $3.4 million associated with non-cash stock based
compensation, $2.1 million related to deferred prosecution
agreement (DPA), distributor conversion charges of $0.8 million as
well as restructuring charges of $0.7
Net sales for the quarter were $123.3 million, down 7% year over
year in reported terms (down 5% on a constant currency basis),
surpassing the Zacks Consensus Estimate of $122 million.
Revenues from the domestic market totaled $69.2 million (56.1% of
total sales), down 8.1% year over year. Domestic sales were
negatively impacted by earlier announced distributor
transformation, which occurred in the third quarter of 2011 and
issues connected with the enhancement of Wright Medical's
compliance systems. International revenues declined 5.4% to $54.1
million (43.9% of sales).
OrthoRecon comprised 58% of sales in the reported quarter with Hips
contributing 33%, Knees 24% and Other 1%. Extremities constituted
42% of revenues with Foot and Ankle contributing 23%, Upper
Extremity 5%, Biologics 13% and Other 1%.
OrthoRecon sales dipped 9% year over year in constant currency in
the second quarter. Among its components, Hips fell 10% while Knees
and Other declined 8% and 18% respectively.
Sales of Extremities segment clambered just 1% year over year in
constant currency in the second quarter. Among its constituents,
Foot and Ankle rose 13%, Upper Extremity was down 8% while
Biologics and Other decreased 13% and 14%, respectively.
Wright's focus on niche technologies lends some support amid
economic cyclicality. Moving forward, revenue growth will be
supported by new product launches. Moreover, new deals in
extremities are expected to bolster growth in this segment. The
company's restructuring initiatives should also boost future
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
). Moreover, the company remains exposed to procedure volume
headwind. Our Neutral recommendation is supported by a short-term
Zacks #3 Rank (Hold).