We reiterate our Neutral recommendation for Greatbatch Inc. (GB - Analyst Report). Second-quarter fiscal 2011 earnings per share of 43 cents met the Zacks Consensus Estimate. Revenues rose 4% year over year to $146.5 million, topping the Zacks Consensus Estimate of $141 million.
Sales were boosted by solid double-digit growth at the company’s Orthopedic franchise backed by favorable foreign exchange translation, which offset declines across other businesses. Greatbatch lifted its revenue and earnings forecast for the full year.
Orthopedic revenues surged 24% in the quarter, fueled by customer product launches, market share gains as well as favorable foreign currency impact. Vascular Access sales fell 2% while CRM/Neuromodulation revenues edged down 1%, hurt by sustained pricing pressure and sluggishness in the CRM market. Revenues from Greatbatch’s Electrochem segment dipped 2% in the quarter.
Greatbatch de-leveraged its balance sheet during the second quarter by repaying long-term debt worth $20 million. The company plans to continue to use its cash flows to fund R&D initiatives and repay debt.
Greatbatch is a leading producer and supplier of batteries, capacitors and components used in implantable medical devices. The company’s top customers include Boston Scientific (BSX - Analyst Report), Johnson & Johnson (JNJ - Analyst Report), Medtronic (MDT - Analyst Report) and St. Jude (STJ - Analyst Report).
Greatbatch has been acquiring complementary businesses over the last few years to boost sales. Moreover, the company’s pipeline is healthy with a number of products currently under development that are expected to support growth in the long run. Greatbatch continues to invest in developing medical devices for its major OEM clients.
A rebounding orthopedic market, market share gains coupled with customer inventory build-ups and product launches are contributing to growth in the company’s Orthopedic business. Greatbatch expects these factors to continue to boost its orthopedic sales through 2011.
We feel that operating results, moving forward, will be supported by the company’s strong Orthopedic business and strategic investments. Moreover, synergies from cost-cutting and restructuring initiatives are expected to support margin expansion.
However, a soft CRM market may prove to be challenging for Greatbatch for the remainder of 2011. We are also cognizant of the pricing headwind. Our recommendation on the stock is backed by a short-term Zacks #3 Rank (Hold).