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Greatbatch (GB) Beats Q4 Estimates, Sales Improve Y/Y

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Greatbatch Inc. reported adjusted earnings of 92 cents per share in the fourth quarter of 2015, which beat the Zacks Consensus Estimate of 81 cents and increased 19.5% from the year-ago quarter. The rise was primarily buoyed by increased sales and reduced compensation expenses.

Notably, details on the reported quarter have been adjusted after taking the Lake Region Medical acquisition into consideration.
Segment Details

Sales surged 87.1% year over year to $317.6 million. This rise includes two months of operations from Greatbatch’s acquisition of Lake Region Medical, which added $138.6 million to sales. Rise in sales at different segments also attributed to the rise in total sales.

Cardiac/Neuromodulation products sales grew 44.5% to $107.6 million, owing to the launch of the neuromodulation customer product.

Sales from Cardio and Vascular products increased to $105.9 million in the fourth quarter of 2015 compared with $15.6 million in the prior-year quarter. The increase was primarily driven by customers building safety stock in accordance of the company’s product line transfers to their Tijuana, Mexico facility in the first quarter of 2016.

In fourth-quarter 2015, Advanced Surgical, Orthopaedics and Portable Medical sales increased $36.2 million from the prior-year quarter. The sales figure includes $37.9 million of sales from the newly acquired Lake Region Medical. However, the increase at this product line was partially offset by foreign exchange volatility which hurt sales by about $2.5 million.

Electrochem sales also declined 43% in fourth-quarter 2015 primarily due to the slowdown in the energy markets, which caused customers to reduce drilling and exploration volumes.

In fiscal 2015, total sales increased 16.3% to $800.4 million compared with $687.8 million in fiscal 2014.

In fiscal 2015, Advanced Surgical, Orthopaedics, and Portable Medical sales increased 2% year over year on an organic constant currency basis primarily due to market growth and Cardio and Vascular sales decline of 7% on an organic constant currency basis owing to the end of life for some legacy products

However, in fiscal 2015, Cardiac/Neuromodulation sales increased 2% on an organic constant currency basis from 2014 levels on the back of benefits from the neuromodulation product launch.

In fiscal 2015, Electrochem sales declined 27% from fiscal 2014.

Margin Details

Gross profits increased 27.8% year over year to $73.1 million primarily because of increased sales and lower performance-based compensation.  

Gross profits, as a percentage of sales, in the fourth quarter of 2015 was 23.0% compared with 33.7% in the fourth quarter of 2014.

Selling, general and administrative (SG&A) expenses increased 34.9% year over year to $33.5 million. However, excluding the impact of the Lake Region Medical acquisition which added $12.6 million, SG&A expenses decreased $3.9 million. The decline was primarily led by lower performance-based compensation ($2.1 million) and cost savings through different consolidation initiatives.

Research and Development (R&D) expenses also rose 32.4% year over year to about $13 million.

Operating margin declined in fourth-quarter 2015, accounting for 3.3% of total sales compared to 10.3% of total sales in the year-ago quarter.

Zacks Rank & Key Picks

Currently, Greatbatch carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the industry include Abiomed (ABMD - Free Report) , CryoLife (CRY - Free Report) and Edwards Lifesciences (EW - Free Report) . All the three stocks sport a Zacks Rank #1 (Strong Buy).

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