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Why Is Wright Medical (WMGI) Down 1.2% Since Last Earnings Report?

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A month has gone by since the last earnings report for Wright Medical Group (WMGI - Free Report) . Shares have lost about 1.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Wright Medical due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers. <p style="text-align: justify;">Wright Medical reported second-quarter 2018 adjusted loss of 3 cents, narrower than the Zacks Consensus Estimate of a loss of 7 cents. Notably, the company had reported loss per share of 7 cents in the year-ago quarter.</p><p style="text-align: justify;">Second-quarter revenues came in at $205.4 million, which beat the Zacks Consensus Estimate by 5.7%. Revenues also improved 14.3% year over year.</p><p style="text-align: justify;"><strong>Segment Details</strong></p><p style="text-align: justify;"><em>Lower Extremities</em></p><p style="text-align: justify;">This segment posted worldwide revenues of $75.1 million, up 8.7% year over year. Sales in the United States increased 9.4% to $59.5 million on a year-over-year basis. International sales totaled $15.7 million, up 6.2% year over year.</p><p style="text-align: justify;">The upside can be attributed to 15% growth in total ankle and a return to growth in the core lower extremity business.</p><p style="text-align: justify;">Management expects the launch of the PROstep Minimally Invasive Surgery System in the third quarter to provide momentum. The company also received PMA approval for AUGMENT Injectable Bone Graft and initiated its launch in the United States.</p><p style="text-align: justify;"><em>Upper Extremities</em></p><p style="text-align: justify;">Revenues in this segment totaled $99.3 million, up 23.3% from the prior-year quarter. In the United States, sales were up 22% on a year-over-year basis to $70.2 million. Internationally, the segment raked in revenues worth $29.1 million, up 26.8% year over year.</p><p style="text-align: justify;">Per management, growth was driven by 24% growth in the company&rsquo;s U.S. shoulder business. The quarter also witnessed strong contribution of flagship products like SIMPLICITI shoulder and PERFORM Reversed Glenoid.</p><p style="text-align: justify;">Management is optimistic about the BLUEPRINT acquisition, which is expected to boost growth in the shoulder line of products till 2019.</p><p style="text-align: justify;"><em>Biologics</em></p><p style="text-align: justify;">Worldwide Biologics sales totaled $26.8 million, up 9.9% on a year-over-year basis. While international revenues in the segment rose 28.3% to $6.6 million, U.S. sales were $20.2 million, up 5% year over year.</p><p style="text-align: justify;"><em>Sports Med &amp; Other</em></p><p style="text-align: justify;">This segment posted worldwide sales of $4.1 million, down 26.9% on a year-over-year basis. The segment&rsquo;s U.S. sales declined 4.2% to $1.7 million, while international sales tanked 37.4% to $2.4 million.</p><p style="text-align: justify;"><strong>Margin Analysis</strong></p><p style="text-align: justify;">In the quarter under review, gross profit totaled $159.8 million, up 12.9% year over year. Gross margin was 73% of net revenues, which contracted 580 bps from the year-ago quarter.</p><p style="text-align: justify;">Selling, general and administrative expenses were $140.8 million, up 7.7% year over year.</p><p style="text-align: justify;">Research and development expenses were $14.7 million, up 16.9% year over year.</p><p style="text-align: justify;">Net operating expenses in the second quarter of 2018 were $161.5 million, up 7.4% year over year.</p><p style="text-align: justify;"><strong>Guidance Raised</strong></p><p style="text-align: justify;">Wright Medical raised the revenue guidance to the band of $808-$820 million, significantly higher than the previous $800-$812 million. This represents growth of 10-12% on a constant-currency basis.</p><p style="text-align: justify;">The company expects 2018 adjusted loss per share within 14-21 cents, narrower than the previous guidance of 16-23 cents.</p><p style="text-align: justify;">Full-year adjusted EBITDA is anticipated in the range of $106-$113 million, much higher than the previous $104-$111 million.</p>

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -21.72% due to these changes.

VGM Scores

Currently, Wright Medical has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Wright Medical has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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