Shares of Wright Medical Group N.V.WMGI increased almost 4% in after-hour trading on Aug 2, following impressive second-quarter 2016 results. The company reported adjusted loss of 18 cents per share, much narrower than the loss of 36 cents reported in the year-ago quarter and the Zacks Consensus Estimate of a loss of 32 cents.
Net sales increased 13.7% year over year (up 12% on constant currency) to $170.7 million, which missed the Zacks Consensus Estimate of $173 million.
Wright Medical has entered into a binding offer with Corin Orthopaedics Holdings Limited for the divestiture of its large joints (hip/knee) business.
Wright Medical now report revenues under only one segment: Total Extremities & Biologics. Total Extremities & Biologics sales in the U.S. increased 15.7% from the year-ago quarter to almost $122 million.
International sales were up 9% year over year to $48.8 million, driven by strong growth in European, Canadian and Australian markets, partially offset by slower growth in Asia and Latin America.
Total Extremities & Biologics include four sub-segments, namely, Lower Extremities, Upper Extremities, Biologics and Sports Med & Other.
Lower Extremities sales in the U.S increased 6.3% from the year-ago quarter to $52 million, driven by improved sales across the legacy Wright portfolio, including 33% growth in total ankle products.
Although the company noted the impact dis-synergies in segment sales during the quarter, management expects it not to exceed Wright Medical's original guidance of $25--$30 million.
Lower Extremities nternational sales improved 7.4% to $16.2 million in the quarter.
Upper Extremities sales in the U.S. increased almost 17% year over year to roughly $50 million on the back of increased sales of Ascend Flex and the SIMPLICITI shoulder system (up 20%). International sales increased 17.6% from the year-ago quarter to almost $24 million.
WRIGHT MED GRP Price, Consensus and EPS Surprise
Biologics had strong U.S. sales with almost 52.1% year-over-year growth to $17.8 million, primarily owing to increased AUGMENT sales. International sales however declined 10.6% to $4.9 million in the quarter.
U.S. sales in Sports, Med & Other increased 5% from the year-ago quarter to $2.2 million. International sales declined 2% to $3.8 million.
Per Wright Medical, gross margin expanded 230 basis points (bps) to 78.5%, driven by favorable mix, leverage along with lowered levels of excess and obsolete inventory reserves.
Selling, general, and administrative expenses as percentage of revenues were 73.9% as compared with 83.3% in the year-ago quarter. The decline was primarily driven by higher cost synergies. Research & Development expense was $12 million, down from $13.3 million in the year-ago quarter.
Adjusted EBITDA was $12.2 million in the quarter.
Wright Medical noted that it has made significant progress toward the resolution of the legacy Wright metal-on-metal hip litigation and the related insurance litigation. In June, the company reached a confidential settlement in principle with a subgroup of three insurance carriers and settlement discussions with the remaining insurance carriers is currently ongoing.
Wright Medical continues to discuss a possible settlement plan with plaintiffs of the litigation. The company has set aside $150 million to $198 million, net of expected recoveries from the insurance settlement, as possible loss from the anticipated settlement. Accordingly, the company recognized a $150 million charge within discontinued operations in the second quarter results.
For the third quarter of 2016, EBITDA is anticipated to decline sequentially based on lower sales due to seasonality and additional dys-synergies.
Wright Medical now expects net sales in the range of $675 million to $685 million, up from the company's previous guidance range of $668 million to $678 million for full-year 2016.
Adjusted EBITDA is now estimated in the range of $40--$45 million, up from the earlier guided range of $30-$35 million.
Wright Medical anticipates cost synergies to be in the range of $20 million, up from previous expectation of $10 to $15 million for full-year 2016. The company still anticipates $40 to $45 million of annualized cost synergies in year three, post the closing of the Tornier acquisition.
For full year 2016, Wright Medical forecasts gross margin expansion of approximately 100 bps to almost 78%. SG&A as percentage of sales is now expected to decrease almost 600 bps from full-year 2015. R&D as percentage of sales is still anticipated to be in the 8% range.
Wright Medical forecasts adjusted loss from continuing operations (including share-based compensation) to be in the range of 54 cents to 47 cents per share.
Zacks Rank & Other Key Picks
Currently, Wright Medical carries a Zacks Rank #4 (Sell).
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