Orthopedic devices maker
Wright Medical Group
) reported second quarter and adjusted (excluding one-time items
other than stock-based compensation expense) earnings per share of
8 cents, easily beating the Zacks Consensus Estimate of 3 cents but
trailing the year ago earnings per share of 19 cents.
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 within the
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).
The company 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 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 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.
Gross margin for the quarter came in at 68.8% compared to 68.7%
in the year-ago quarter. Adjusted operating margin declined to 8.3%
in the quarter versus 11.8% a year ago.
Selling, general and administrative expenses increased 2.9% year
over year to $72.9 million in the quarter while research and
development expenditure declined 13.6% year over year to $6.7
Wright Medical ended second quarter with cash, cash equivalents
and marketable securities with a total of $192.9 million, up 10.6%
on a year over year basis. Long-term obligations were $150.7
million in the quarter, down 11.9% year over year. Free cash
flow more than doubled from the year ago period to almost $18
million in the quarter.
For 2012, Wright Medical forecast net sales in a band of $476
million to $485 million compared to the prior guidance in the band
of $472 million and $ 489 million. The company also revised its
expected adjusted earnings per share for 2012 in the range of 32
cents to 36 cents per share, compared to the earlier range of 26
cents to 36 cents per share.
Adjusted earnings for 2012 exclude expenses associated with
restructuring of costs, transition costs with regard to converting
a substantial part of foot and ankle business interests to direct
and potential acquisitions. It also excludes restructuring of costs
emanating from the deferred prosecution agreement, stock-based
compensation and certain other contingencies.
Wright Medical forecasts non-cash, stock-based compensation
charge of about 18 cents per share for 2012. Consequently, adjusted
earnings per share, including stock-based compensation, is
estimated in a band of 14 cents and 18 cents.
The company also updated its expected free cash flow for 2012 in
the band of $40 million and $45 million. The revised guidance
reflects an annual growth rate in the range of 176% to 211%.
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
). We are currently Neutral on the stock, backed by a short-term
Zacks #3 Rank (Hold).
SMITH & NEPHEW (SNN): Free Stock Analysis
STRYKER CORP (SYK): Free Stock Analysis Report
WRIGHT MEDICAL (WMGI): Free Stock Analysis
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