WMGI Loss Narrower than Est. - Analyst Blog
May 01 2013 - 4:09AM
Zacks
Orthopedic devices maker
Wright Medical Group Inc. (WMGI) reported first
quarter 2013 adjusted (excluding one-time items other than
stock-based compensation expense) loss per share of 2 cents, which
was narrower than the Zacks Consensus Estimate of loss of 6 cents
per share. The year ago earnings per share was 17 cents.
The company witnessed net income of
$8.4 million (or 20 cents per share) in the quarter versus net
income of $4.6 million (or 12 cents per share) in the prior year
quarter. Reported net income includes several extraordinary and
one-time items in both periods.
Revenues
Net sales in the quarter were
$120.4 million, down 5% year over year in reported terms (down 3%
on a constant currency basis), missing the Zacks Consensus Estimate
of $123 million.
During the reported quarter, the
company’s growth in worldwide ankle and foot franchise was negated
by loss of client base in OrthoRecon segment in the domestic market
and pricing pressure in the high focus Japanese market.
Geographically, revenues from the
domestic market came in at $67.8 million (56% of total sales), down
3.2% year over year. Revenues from the overseas market declined
7.1% in reported terms (down 3% on a constant currency basis) on a
year-over-year basis to $52.6 million (44% of total revenues) in
the first quarter.
Segment-wise
Results
Wright Medical 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 53% of sales
in the reported quarter with Hips contributing 29%, Knees 23% and
Other 1%. Extremities constituted 47% of revenues with Foot and
Ankle contributing 29%, Upper Extremity 5%, Biologics 11% and Other
1%.
In terms of constant currency,
OrthoRecon sales declined 11% year over year in the first quarter.
Among its components, Hips fell 11% while Knees dropped 9% and
Other decreased 35%.
Sales of Extremities segment
increased 7% year over year in constant currency in the reported
quarter. Among its constituents, Foot and Ankle improved 19%, Upper
Extremity was down 6% while Biologics dipped 10% and Other slid
1%.
Margins
Adjusted operating margin declined
to (0.7)% in the quarter versus 10.6% a year ago. Operating margin
for OrthoRecon segment was down to 11.7% in the reported quarter
from 19.4% in the prior year quarter. Operating margin for
Extremities segment slid to 15.2% from 25.9% in the year-ago
quarter.
Selling, general and administrative
expenses dropped 10.2% year over year to $65 million in the quarter
while research and development expenditure rose 8.6% year over year
to $6.8 million.
Balance Sheet and Cash
Flow
Wright Medical exited the first
quarter with cash, cash equivalents and current marketable
securities of a total of $279.5 million, down 16.1% on a sequential
basis. Long-term obligations rose 0.8% year over year to $260.6
million in the quarter. Free cash flow declined to (8.9) million
from $14.5 million in the year-ago quarter.
Outlook
There is no alteration of the sales
band of $485 million to $495 million for 2013. The company
continues to estimate adjusted loss per share in the range of 26
cents to 34 cents (including stock based compensation expense of
about 19 cents and the effect of BioMimetic acquisition) for 2013.
Adjusted earnings per share exclude several one-time expenses. Free
cash flow is expected in the range of nil to $5 million for
2013.
Orthopedics is one of the largest
medical device market segments worldwide. Lukewarm demand was
exacerbated by pricing pressure. The joint replacement market was
hit by patient deferral of elective procedures, leading to weak
demand for hip and knee implants. In particular, the reconstructive
market fundamentals (pricing and volume) have languished in the
recent past but are showing signs of recovery. We note Wright
Medical’s inadequacy to post sales growth in recent times.
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 Zimmer Holdings, Inc. (ZMH) and Stryker
Corporation (SYK).
The stock carries a Zacks Rank #3
(Hold). Conceptus, Inc. (CPTS) carries a Zacks
Rank #1 (Strong Buy) and is expected to do well.
CONCEPTUS INC (CPTS): Free Stock Analysis Report
STRYKER CORP (SYK): Free Stock Analysis Report
WRIGHT MEDICAL (WMGI): Free Stock Analysis Report
ZIMMER HOLDINGS (ZMH): Free Stock Analysis Report
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