Greatbatch (GB) reported first-quarter fiscal 2011 adjusted (excluding one-time items) earnings per share of 46 cents, topping the Zacks Consensus Estimate of 39 cents and the year-ago earnings of 32 cents. Profit (as reported) more than doubled year over year to $11.9 million (or 51 cents a share) as the Clarence, New York-based company’s revenues increased at a double-digit clip.


Revenues soared 13% year over year to $148.8 million led by solid growth across the company’s Vascular Access, Orthopedic and Electrochem businesses. Sales outpaced the Zacks Consensus Estimate of $136 million. Foreign currency movements favorably impacted sales in the quarter.

Results by Segment

The company’s core Greatbatch Medical division posted sales of $128.1 million, a surge of 12% year over year. Solid growth across Orthopedic and Vascular Access franchises was, in part, masked by a somewhat weak CRM/Neuromodulation business.

CRM/Neuromodulation sales edged up 1% year over year to $78 million. The sluggish growth reflects sustained pricing pressure and general softness in the market.

Orthopedic revenues cruised 34% to $39.6 million as a recovery in the orthopedic market coupled with customer inventory build-up/product launches boosted growth across all product lines. Moreover, favorable foreign exchange translation supported the growth. Revenues from the Vascular Access business sailed 28% to $10.5 million owing to higher introducer sales.

Revenues from Greatbatch’s Electrochem segment climbed 19% to $20.7 million as customers in the energy markets raised their inventory levels in the quarter.


Gross margin rose marginally to 31.7% from 31.6% a  year ago as higher revenues were partly offset by unfavorable sales mix and pricing concessions made to customers. Selling, general and administrative expenses, as a percentage of sales, increased to 12.5% from 11.9% in the prior-year quarter. Adjusted operating margin improved to 12.6% from 11.4% a year ago.

Financial Condition

Greatbatch ended the first quarter with cash and cash equivalents of roughly $51.7 million, down 8% year over year. Operating cash flows for the first quarter climbed 18% year over year to $25 million. Total long-term debt reduced roughly 15% year over year to $223.1 million.


Greatbatch has backed its financial forecasts for fiscal 2011 issued at the beginning of the year. The company projected revenues between $540 million to $560 million for the year along with adjusted earnings per share of $1.55 to $1.65. Adjusted operating margin for 2011 was forecast in the range of 12% to 13%.

The company added that, based on the first quarter results and its expectations for the rest of 2011, the results are trending towards the top end of its guidance ranges. The current Zacks Consensus Estimates for revenue and earnings per share for fiscal 2011 are $552 million and $1.64, respectively.

Greatbatch is a leading producer and supplier of batteries, capacitors and components used in implantable medical devices. It has been acquiring complementary businesses over the last few years to boost sales. The company’s top customers include Boston Scientific (BSX), Johnson & Johnson (JNJ), Medtronic (MDT) and St. Jude Medical (STJ).

We feel that operating results, moving forward, would be supported by the rebound across the Orthopedic and Vascular operations. Moreover, synergies from cost-cutting and restructuring initiatives are expected to support margin expansion. However, a soft CRM market and pricing pressure remain headwinds. Currently, we are Neutral on the stock.

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