Greatbatch (GB) posted fourth-quarter fiscal 2010 adjusted (excluding one-time items) earnings per share of 46 cents, beating the Zacks Consensus Estimate of 42 cents and exceeding the year-ago earnings of 40 cents.
For the full year, adjusted earnings per share of $1.51 also topped the Zacks Consensus Estimate of $1.46 while were a penny shy of the year-ago earnings.
The Clarence, New York-based company booked a profit of $13.8 million (or 59 cents per share) in the quarter compared to a net loss of $1.5 million (or 7 cents a share) a year-ago.
The turnaround is partly attributable to a $9.5 million gain associated with the settlement of litigation on the company’s Electrochem unit. Moreover, the year-ago quarter’s bottom line was hit by a trade-name write-down charge of $15.9 million.
Revenue Analysis
Solid growth across the company’s Vascular Access and Orthopedic businesses contributed to a 6% year-over-year improvement in revenues in the quarter that came in at $133.1 million. However, sales narrowly missed the Zacks Consensus Estimate of $134 million.
For fiscal 2010, revenues rose 2% year over year to $533.4 million, also modestly below the Zacks Consensus Estimate of $534 million. Revenues for both periods were affected by unfavorable currency exchange rate swings.
Revenues from the company’s core Greatbatch Medical unit climbed 9% year over year to $118.9 million in the fourth quarter on the back of higher sales across the board.
Within this segment, CRM/Neuromodulation sales nudged up 3% to $78.4 million, supported by increased revenues of medical batteries backed by the higher penetration of the Q series batteries.
Orthopedic revenues sailed 22% to $30.8 million as a recovery in the orthopedic market boosted growth across all product lines. However, unfavorable foreign exchange translation (stemming from a weak euro) reduced sales by roughly $1 million. The Vascular Access business posted the highest growth with revenues cruising 29% to $9.8 million, led by higher introducer sales.
Healthy results at Greatbatch Medical were partly ebbed by a double-digit decline in the company’s Electrochem segment. Revenues from this business tumbled 17% in the quarter to $14.2 million, impacted by customer purchasing patterns. Although the decline was expected, Greatbatch anticipates sales to normalize in first-quarter 2011.
Gross margin for the quarter inched up to 33.4% from 33.1% a year-ago, supported by higher sales, improved productivity and better sales mix, partly offset by pricing pressure. Adjusted operating margin improved narrowly to 13.3% from 13.1% a year-ago.
Financial Condition
Greatbatch ended fiscal 2010 with cash and cash equivalents of roughly $22.9 million, down roughly 40% year over year. Adjusted (excluding Electrochem litigation settlement) operating cash flows for the year climbed 30% year over year to $93.1 million (including $21.1 million in the fourth quarter).
The company used its cash flows to retire debt worth $78.5 million (including $21 million in the fourth quarter). As a result, total long-term debt trimmed roughly 24% year over year to $220.6 million.
Outlook
Moving forward, Greatbatch anticipates revenues for fiscal 2011 between $540 million to $560 million along with adjusted earnings per share of $1.55 to $1.65. CRM/Neuromodulation sales for the year are expected to be flat year over year.
Vascular Access revenues have been forecast to grow 10%-20% while Orthopedic sales are expected to increase 2%-10%. Electrochem sales growth has been projected at 2%-5%.
Moreover, adjusted operating margin for 2011 has been pegged at 12%-13%. The current Zacks Consensus Estimates for revenue and earnings per share for fiscal 2011 are $555 million and $1.63, respectively.
Greatbatch is a leading producer and supplier of batteries, capacitors and components used in implantable medical devices. The company has been acquiring complementary businesses over the last few years to boost sales.
Greatbatch, in 2010, extended its tie-up with St. Jude Medical (STJ), which has provided it an exclusive supplier status of filtered feedthroughs (used in CRM devices) through 2017.
While operating results are expected to be supported by the rebound across the Orthopedic and Vascular operations going forward, a soft CRM market may prove to be challenging for the company.
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