Why Is Wright Medical (WMGI) Up 9.2% Since the Last Earnings Report?

More than a month has gone by since the last earnings report for Wright Medical Group N.V. WMGI. Shares have added about 9.2% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Wright Medical Group N.V. reported adjusted loss of $0.07 per share in the second quarter of 2017, narrower than the Zacks Consensus Estimate of a loss of $0.09.

Also, loss narrowed by $0.02 on a year-over-year basis.

Net sales in the second quarter totaled $179.7 million, which surpassed the consensus mark of $178 million.

Meanwhile, in three of the last four quarters, the company delivered positive earnings surprises, the average being 15.04%.

Quarter in Detail

Wright Medical currently reports revenues under the Total Extremities & Biologics segment.

Consolidated sales at the segment in the U.S. increased 9.1% from the year-ago quarter to almost $132.9 million. Internationally, sales in the extremities and biologics business were down 4.3% year over year to $46.8 million.

Total Extremities & Biologics includes four sub-segments, namely, Lower Extremities, Upper Extremities, Biologics and Sports Med & Other.

Lower Extremities: Sales at the segment increased 1.3% on a year-over-year basis to $69.1 million in the quarter.

The U.S. lower extremities business sales increased 4.5% in the second quarter. Per management, growth in the U.S. lower extremities was driven by total ankle growth rates and reduced headwinds from dis-synergies resulted in a 4.5 percentage point improvement from the first quarter growth rate.

Internationally, lower extremities sales fell 9.1% on a year-over-year basis.

Upper Extremities: Sales at the segment increased 9% on a year-over-year basis to $80.5 million in the quarter under review.

The U.S. upper extremities business grew 15.3% on a year-over-year basis, driven by the ongoing launch of the PERFORM Reversed glenoid along with the expanded BLUEPRINT surgical planning modules that became available during the quarter.

However, Upper extremities sales decreased 4% on a year-over-year basis internationally.

Biologics: Sales at the segment rose 7.7% on a year-over-year basis to $24.4 million in the quarter.

The U.S. biologics business grew 8.3% to $19.3 million in the quarter. Per management, AUGMENT had an impressive quarter with improvement in average daily revenue when compared to the first quarter, whereas the core biologics portfolio continued to be challenging. Management expects growth in the U.S. biologics business in the second half of 2017 through both the sales force expansion initiative in lower extremities and cross-selling programs of core biologic products with the upper extremities sales force.

Sales at the segment grew 5.4% internationally on a year-over-year basis.

Sports Med & Other: Sales at the segment dropped 5.1% to $5.7 million from the year-ago quarter.

The U.S. sports med & other segment sales declined 17.7% to $1.8 million and increased 2.1% internationally in the second quarter.

Margin Details

Adjusted gross margin, as a percentage of revenues, is pegged at 78.8% for the quarter, expansion of roughly 30 basis points (bps) on a year-over-year basis.

Selling, general and administrative expenses accounted for 71.1% of total revenues in the second quarter, totaling $130.8 million, a contraction of 280 bps from the year-ago quarter.

Notably, expenses on Research and Development (R&D) were $12.5 million in the second quarter, up 3.6% on a year-over-year basis.

Guidance

Wright Medical reiterated its full-year guidance.

The company continues to expect net sales for full-year 2017 in the band of $755 million to $765 million, representing growth of 9% to 11%. This includes a negative impact from foreign currency exchange of approximately 1%. Notably, the midpoint of the net sales guidance represents constant currency growth of approximately 13%.

The company forecasts full-year 2017 adjusted EBITDA from continuing operations in the range of $78.5 million to $85.5 million.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.

Wright Medical Group N.V. Price and Consensus

 

Wright Medical Group N.V. Price and Consensus | Wright Medical Group N.V. Quote

VGM Scores

Currently, Wright Medical's stock has a great Growth Score of A, though it is lagging a bit on the momentum front with a B. Charting a somewhat similar path, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for growth investors than momentum investors.

Outlook

While estimates have been broadly trending downward for the stock, the magnitude of these revisions has been net zero. The stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.

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