Greatbatch, Inc. (GB) reported third quarter fiscal 2009 earnings per share of 32 cents, lower than the Zacks Consensus Estimate of 38 cents and the year-ago earnings of 44 cents.
Sales
Total sales in the reported quarter declined 11% year over year to $121.5 million. Excluding CRM/Neuromodulation, negative sales growth was witnessed across all business segments.
CRM/Neuromodulation revenues increased 5% year over year to $74.1 million. Growth can be attributed to higher demand for medical batteries due to increased market growth of these products. This was partly offset by lower capacitor sales as a result of inventory adjustments made by Original Equipment Manufacturer (OEM) customers during the quarter.
Orthopaedic revenues declined 39% year over year to $23.2 million. The decline was due to lower spending on elective procedures and the clients’ tight inventory management owing to the global economic recession.
Electrochem sales declined 16% year over year to $15.8 million. This was due to a slowdown in the Energy and Portable Medical markets that resulted in customers lowering their inventory levels and deferring projects.
Vascular Access sales declined 5% year over year to $8.4 million. Inventory adjustments by customers resulted in lower introducer sales in this category.
Margins
Gross margin in the reported quarter increased 160 basis points (bps) year over year to 32.2%. Growth was driven by the greater percentage of higher margin CRM/Neuromodulation products in the product-mix and the positive impact of consolidation initiatives completed over the past year.
Selling, general and administrative expenses as a percentage of sales increased 150 bps year over year to 13.0%. Research, development and engineering expenses as a percentage of sales increased 300 bps year over year to 8.0%. The increase was due to the company’s strategic decision to develop new technologies for long-term growth.
Greatbatch incurred $34.5 million litigation charges for the Electrochem lawsuit in the reported quarter. Excluding this and other one-time charges, adjusted operating margin declined 300 bps year over year to 11.2%.
Balance Sheet and Cash Flow
Greatbatch ended the quarter with cash and cash equivalents of $29.5 million, an increase of roughly 34% in the first nine months of the year. Cash flow from operations was approximately $29 million.
Guidance
Greatbatch has provided guidance for fiscal 2009. For the full year, revenues are expected between $520 and $535 million. Adjusted operating margin should range between 11.0% and 13.0%.
Greatbatch, Inc., headquartered in Clarence, NY, is a leading producer and supplier of batteries, capacitors, and components used in implantable medical devices. The company also produces batteries for commercial and industrial applications such as oil and gas exploration, oceanographic equipment, seismic surveying equipment, and others. The National Aeronautics and Space Administration (NASA) uses Greatbatch batteries in its aerospace programs.
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