Greatbatch’s (GB) third-quarter fiscal 2010 adjusted (excluding one-time charges including consolidation and integration costs) earnings per share of 34 cents missed the Zacks Consensus Estimate of 37 cents while improving from the year-ago earnings of 32 cents.
Net income was $5.96 million (or 25 cents a share) compared to a net loss of $20.69 million (or 90 cents a share) a year-ago, which was hit by a $34.5 million legal charge on the company’s Electrochem unit.
Revenue Analysis
Strong contributions from the Electrochem and Orthopedics businesses contributed to a 5% year over year growth in revenues that registered $127.5 million. However, sales were below the Zacks Consensus Estimate of $131 million. Revenues from Greatbatch Medical edged up 1% year over year to $106.5 million as higher Vascular Access and Orthopedic sales were partly masked by the decline in CRM/Neuromodulation business.
Within Greatbatch Medical, Orthopedic sales surged 21% year over year to $28 million as a resurgent orthopedics market boosted growth across all product lines. However, unfavorable foreign exchange translation (stemming from a weak euro) reduced sales by roughly $1 million in the quarter.
Vascular sales soared 8% to $9.1 million, primarily due to higher introducer sales and an improving ordering trend. However, CRM/Neuromodulation sales dipped 6% to $69.4 million, impacted by the general sluggishness in the CRM market and pricing pressure.
Greatbatch’s Electrochem segment had a solid quarter with revenues cruising 33% year over year to $21 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 32.9% from 32.2% a year ago, supported by higher sales, synergies from cost-cutting and restructuring initiatives as well as better sales mix. Adjusted operating margin increased narrowly to 11.3% from 11.2% a year ago.
Financial Health
Greatbatch exited the quarter with cash and cash equivalents of roughly $43 million, up 46% year over year. Operating cash flows decreased 3% to $28 million. The company used its cash flow to repay debt worth $27 million in the quarter. As a result, total long-term debt trimmed 9.3% sequentially to $239.2 million. Greatbatch expects to continue using cash flows to repay debt and meet capital expenditure requirements.
Outlook
Greatbatch has revised its revenue growth forecasts for the CRM/Neuromodulation and Electrochem divisions for fiscal 2010. CRM/Neuromodulation revenues are now expected to be flat year over year (versus forecasted growth of 2% to 5% earlier), while Electrochem sales growth has been projected to be modestly above the previously-forecasted 0 to 5% range.
Based on these growth estimates and sluggish market conditions, Greatbatch expects revenues for fiscal 2010 to be at the lower end of its earlier projected range of $532 million to $551 million. Moreover, adjusted operating margin has been also forecasted to be at the lower end of its prior guidance range of 12% to 13.5%. The current Zacks Consensus Estimates for revenue and EPS are $537 million and $1.51, respectively.
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