Wright Eclipses Zacks Estimate

By Zacks Equity Research
On 12:08 pm EDT, Friday October 30, 2009

Wright Medical Group, Inc. (NasdaqGS: WMGI - News) reported third-quarter earnings per share of 19 cents, surpassing the Zacks Consensus Estimate of 9 cents. The company had earned 19 cents per share in the year-ago quarter.

Symbol	Price	Change
JNJ	62.31	+0.37

SNN	47.53	-0.44

SYK	48.73	-0.09

WMGI	18.39	+0.39

ZMH	56.92	+0.06

Sales

Net sales in the reported quarter increased 6% year over year to $117.7 million. Growth was fueled by strong demand for the company’s extremity, hip and knee products that increased 18%, 7%, and 5% year over year, respectively. This was partly offset by lower biologics sales that declined 4% year over year.

On a geographic basis, the U.S. contributed approximately 63% to total revenues and increased 4% year over year. International sales increased 9% year over year.

Margins

Gross margin declined 170 basis points (bps) year over year to 69.5% due to higher cost of goods sold. Selling, general and administrative expenses as a percentage of sales declined 160 bps year over year to 54.1%. Research and development expenses as a percentage of sales declined 20 bps year over year to 7.3%.

Wright was able to considerably lower its operating expenses as a percentage of sales. This resulted in higher operating margin that increased 80 bps year over year to 7%.

Balance Sheet

Wright ended the quarter with cash, cash equivalents and marketable securities of approximately $161.7 million, an increase of roughly 11% in the first nine months of the year.

Guidance

Wright has provided guidance for the fourth quarter and fiscal 2009. For the fourth quarter, net sales are estimated between $122 and $127 million, representing an increase of roughly 2% to 6% from the year-ago period. Earnings per share is expected in the range of 22 to 26 cents.

For fiscal 2009, net sales should range between $480 and $485 million, increasing approximately 3% to 4% year over year. Earnings per share should be in the range of 80 to 84 cents.

Wright Medical is a global orthopedic devices company specializing in the design, manufacture, and marketing of reconstructive joint devices and bio-orthopedic materials. The orthopedic industry is highly competitive, and Wright Medical faces challenges from large players, such as Zimmer Holdings Inc. (NYSE: ZMH - News), Stryker Corp. (NYSE: SYK - News), Johnson & Johnson/De Puy (NYSE: JNJ - News), Smith & Nephew plc. (NYSE: SNN - News) and Biomet.