Greatbatch Beats, Reaffirms View – Analyst Blog

Greatbatch Inc. (GB) reported second quarter 2010 results on July 28, with earnings per share of 40 cents on an adjusted basis (excluding one-time charges such as consolidation and integration costs) beating the Zacks Consensus Estimate by a penny while coming in line with the year-ago earnings. Net income surged roughly 19% year over year to $7.8 million (or 33 cents a share) on account of higher sales.

 

 

Improving trends across Vascular and Electrochem markets contributed to a 5% growth in quarterly revenues that registered $140.8 million, ahead of the Zacks Consensus Estimate of $136 million. Greatbatch Medical revenue inched up 1% year over year to $120.3 million as higher Vascular Access sales were partly masked by a decline in Orthopedic business.

 

Within Greatbatch Medical, Orthopedic sales declined 3% year over year to $30.5 million, impacted by foreign exchange headwinds (stemming from a weak euro) which are expected to continue to affect the unit’s sales for the remainder of fiscal 2010.

 

On a positive note, Vascular sales soared 24% to $11 million, primarily due to higher introducer and catheter sales and a favorable ordering trend. CRM/Neuromodulation sales grew 1% to $78.8 million, helped by higher penetration of the Q series batteries that combine better longevity and shorter charge time.

 

Greatbatch’s Electrochem segment had a solid quarter with revenues cruising 27% year over year to $20.5 million, favored by a sustained recovery in the Energy and Portable Medical markets with customers raising their inventory levels in the quarter.

 

 

Gross margin improved to 32.3% from 30.8% a year ago, boosted by the synergies from cost-cutting and restructuring initiatives as well as better sales mix. Adjusted operating margin increased to 12.7% from 11.1% a year ago, driven by higher revenues and operational efficiencies.

 

 

Greatbatch exited the first half of fiscal 2010 with cash and cash equivalents of roughly $45.7 million, an increase from $19 million a year ago. Operating cash flows for the period doubled year over year to $44 million, partly due to lower consolidation and integration expenses. Healthy cash flows helped the company repay debt worth $30 million in the quarter. As a result, total long-term debt trimmed 9.6% sequentially to $263.7 million.  

 

 

Greatbatch has reaffirmed its revenue growth forecasts across the board for fiscal 2010. CRM/Neuromodulation, Orthopedic, Vascular Access and Electrochem revenues are expected to grow in the range of 2%–5%, 3%–7%, 3%–7% and 0%–5% year over year, respectively. In addition, the company expects adjusted operating margin to range between 12.0% and 13.5%.

 

Greatbatch envisions revenue growth for the rest of 2010 to be hindered by seasonality, currency exchange headwinds and stabilized inventory levels. The company remains positive in maintaining gross margins at the current level through fiscal 2010. Moreover, Greatbatch expects to continue using cash flows to repay debt and meet capital expenditure requirements.