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Orthopedic devices maker, Wright Medical Group (WMGI - Analyst Report) reported first quarter and adjusted (excluding one-time items other than stock-based compensation expense) earnings per share of 17 cents beating the Zacks Consensus Estimate of 9 cents.

The company reported net income of $4.6 million (or 12 cents per share) in the reported quarter compared with $3.6 million (or 9 cents per share) in the year-ago quarter. Net income includes after tax impact of items such as the deferred prosecution agreement as well as restructuring of the cost base of the company.      

Revenues

Net sales for the quarter were $126.7 million, down 6% year over year in reported terms (down 6% on a constant currency basis), beating the Zacks Consensus Estimate of $125 million.

Revenues from the domestic market totaled $70.1 million (55.3% of total sales), down 10.1% year over year. Domestic sales were negatively impacted by earlier announced distributor transformation, which occurred in the third quarter of 2011 and issues connected with the enhancement of Wright Medical’s compliance systems. International revenues declined 1.5% to $56.6 million (44.7% of sales).

Segment-wise Results

The company restated its segments to broadly comprise Extremities and OrthoRecon segments.  OrthoRecon comprises Hips, Knees and Other. Extremities segment is composed of Foot and Ankle, Upper Extremity, Biologics and Other sub segments.

OrthoRecon formed 58% of sales in the reported quarter with Hips contributing 33%, Knees 25% and Other 1%. Extremities constituted 42% of revenues with Foot and Ankle contributing 23%, Upper Extremity 5%, Biologics 12% and Other only 1%.   

OrthoRecon sales dropped 8% year over year in constant currency in the first quarter. Among its components, Hips fell 10% while Knees and Other dropped 5% each.

Sales of Extremities segment declined 4% year over year in constant currency in the first quarter. Among its constituents, Foot and Ankle rose 11%, Upper Extremity was down 13% while Biologics and Other moved down 21% and 14%, respectively.   

Margins

Adjusted operating income was $15.8 million in the reported quarter, approximately down 6.5% year over year. Adjusted operating margin was 12.5%, flat on a year over year basis.

Balance Sheet

Cash, cash equivalents and marketable securities totaled $187.5 million, up 12.1% on a sequential basis. Long-term obligations stood at $164.7 million, as of March 31, 2012, up 1.3% sequentially.  

Outlook

Wright Medical continues to forecast net sales in a band of $472 million to $489 million for fiscal 2012. The company expects adjusted earnings per share, for fiscal 2012, in the range of 26 cents to 36 cents per share.

Adjusted earnings for fiscal 2012 exclude expenses associated with restructuring of costs, transition costs with regard to converting a substantial portion of foot and ankle areas to direct, potential acquisitions, costs emanating from the deferred prosecution agreement, stock-based compensation and certain other contingencies.    

Wright Medical forecasts non-cash, stock-based compensation charge of about 18 cents per share for fiscal 2012. Consequently, adjusted earnings per share, including stock-based compensation, is estimated in a band of 8 cents and 18 cents.

Our views on the company are moderated by intense competition from larger players and pricing pressure.  Wright Medical competes with much bigger names such as Zimmer Holdings (ZMH - Analyst Report), Stryker (SYK - Analyst Report) and Smith & Nephew (SNN - Snapshot Report). We are currently Neutral on the stock, backed by a short-term Zacks #2 Rank (Buy).

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