SYK Stryker Corp

Orthopedic devices maker, Wright Medical Group (WMGI) reported fourth quarter and fiscal 2011 adjusted (excluding one-time items other than stock-based compensation expense) earnings per share of 13 cents and 70 cents, respectively, beating the corresponding Zacks Consensus Estimates of 11 cents and 66 cents.

The company reported minor net income of $1.2 million (or 3 cents per share) in the reported quarter. Net income for the quarter included $3.4 million of expenditure associated with Wright Medical’s deferred prosecution agreement, $2.8 million of expenses in conjunction with the previously disclosed cost restructuring plan, $2.4 million of stock based compensation expense and $1 million of income tax provision for an estimated IRS audit liability.

Revenues

Net sales for the quarter were $126.9 million, down 8% year over year in reported terms (down 9% on a constant currency basis), beating the Zacks Consensus Estimate of $123 million. In fiscal 2011, net sales were $512.9 million, down 1.2% year over year, ahead of the Zacks Consensus Estimate of $510 million.  

Revenues from the domestic market totaled $73.3 million (57.8% of total sales), down 9.7% year over year. Domestic sales were negatively impacted by earlier announced distributor transitions, which occurred in the third quarter and issues connected with implementing enhancement to Wright Medical’s compliance systems. International revenues declined 6.1% (down 8% in constant currency) to $53.6 million (42.2% of sales).

Segment-wise Results

Wright Medical reports sales in four major segments, namely Hip, Knee, Extremity and Biologics, which accounted for 34%, 24%, 28% and 12%, respectively, of net revenues for the quarter.

Hip product revenues dropped 9% year over year in constant currency while Knee sales shrunk 13% in the quarter. Extremity recorded a modest 4% growth. Biologics sales slipped 22% in constant currency.

Margins

Adjusted operating income was $12.8 million in the reported quarter, approximately down 33.3% year over year. Adjusted operating margin was 10.1%, lower than 13.9% in the year-ago quarter.

Balance Sheet

Cash, cash equivalents and marketable securities totaled $167.2 million, down 3% year over year. Long-term obligations stood at $167 million, as of December 31, 2011, down 17.3% year over year.  

Outlook

Wright Medical forecasts net sales in a band of $472 million to $489 million for fiscal 2012. The company projects adjusted earnings per share, for fiscal 2012, in the range of 26 cents to 36 cents per share. Adjusted earnings for fiscal 2012 excludes expenses associated with cost restructuring, non-compete and transition costs with regard to converting a substantial portion of independent foot and ankle areas to direct, potential future acquisitions, costs associated with the deferred prosecution agreement, stock-based compensation expense and certain other contingencies.    

Wright Medical forecasts that non-cash, stock-based compensation charge will be about 18 cents per share for fiscal 2012. Consequently, adjusted earnings per share, including stock-based compensation, is estimated in a band of 8 cents and 18 cents.

Our views are moderated by intense competition from larger players and pricing pressure. Wright Medical competes with much bigger names such as Zimmer Holdings (ZMH), Stryker (SYK) and Smith & Nephew (SNN). We are currently Neutral on the stock, backed by a short-term Zacks #3 Rank (Hold).

 
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