Wright Medical (WMGI) Beats Q4 Earnings & Revenue Estimates

Wright Medical Group N.V. WMGI reported adjusted fourth-quarter earnings per share (EPS) of 10 cents, outpacing the Zacks Consensus Estimate by 150%. Earnings improved from a loss of 6 cents in the year-ago quarter.

Total revenues in the reported quarter were $218 million, reflecting 11.2% growth at constant currency. The figure beat the Zacks Consensus Estimate by 1.1%.

The surge in revenues was mainly backed by strong sales of U.S. Upper Extremities, led by the launch of Perform Reversed Glenoid. It also includes continued contribution from the company’s SIMPLICITI shoulder system.

However, international Lower Extremities sales continued to decline in the reported quarter.

Segment Details

The Upper Extremities business recorded net revenues (domestic and international) of $997.8 million, reflecting a year-over-year increase of 25.2%.

Lower Extremities business net revenues came in at $832.9 million, showing a year-over-year increase of 2.6%. However, international revenues in the Lower Extremities segment declined 3.8% to $161 million.

The Biologics segment raked in net revenues of $286 million, up 7.9% on a year-over-year basis.

The Sports Med &Other segment registered net sales of $6309 million, indicating a year-over-year increase of 5.1%.

Margins

Gross margin in the reported quarter came in at 78.8%, reflecting an expansion of 120 basis points (bps) on a year-over-year basis.

Operating expenses in the fourth quarter accounted for 64.5% of net revenues, down from 68.7% in the year-ago quarter. This can be attributed to continued leverage from incremental revenues.

Adjusted EBITDA from continuing operations was $38 million.

Financial Position

Wright Medical exited the fourth quarter with cash and cash equivalents of $167.7 million.

FY17 at a Glance

For 2017, Wright Medical delivered revenues worth $745 million, reflecting a year-over-year increase of 7.9%.

The Upper Extremities segment recorded sales worth $334.7 million, up 16.2%.

The Lower Extremities segment registered sales of $286.5, up 0.3%.

The Biologics segment revenues totaled $100.6 million, up 7.6%.

The Sports Med & Other segment recorded revenues of $23.2 million, up 0.1%.

Full-year adjusted EBITDA from continuing operations was $88 million.

Guidance

Wright Medical expects full-year net sales of $800 million to $812 million. The figure is higher than the Zacks Consensus Estimate of $808.9 million. Per management, the primary growth drivers will be PERFORM Reversed shoulder, SIMPLICITI shoulder and the recently-completed acquisition of BLUEPRINT.

The company further expects adjusted loss per share of 16-23 cents in 2018. However, the range compares unfavorably with the Zacks Consensus Estimate of flat earnings.

The company expects full-year 2018 EBITDA margin expansion of 250-300 basis points. Management believes it is on track to achieve its goal of 20% EBITDA margin in the second half of 2019.

Our Take

Wright Medical ended the fourth quarter of 2017 on a positive note. Strong performance by the U.S. Upper Extremities segment buoys optimism. Additionally, the company witnessed a strong top-line performance in the Perform Reversed Glenoid platform and continued contribution from the company’s SIMPLICITI shoulder system. Management is also quite optimistic about its recent acquisition of BLUEPRINT.

However, lackluster performance by the Lower Extremities segment in the international front is a major concern. Dwindling gross margins in the fourth quarter adds to the woes. Supply constraints related to third-party vendors in the fourth quarter also affected the total ankle business.

Other Key Picks

A few other stocks that reported solid results this earnings season are athenahealth Inc. ATHN, PetMed Express, Inc. PETS and Centene Corporation CNC.

athenahealth reported adjusted earnings of $1.11 per share in the fourth quarter of 2017, up a whopping 79% on a year-over-year basis. Revenues increased 14.2% to $329 million.

PetMed reported third-quarter fiscal 2018 adjusted earnings per share of 44 cents, up 88.3% from the prior-year quarter. Revenues rose 13.7% on a year-over-year basis to $60.1 million.

Centene reported fourth-quarter 2017 adjusted net income per share of 97 cents, which surpassed the Zacks Consensus Estimate by 3.2%. Also, total revenues grew 8% to $12.8 billion from the year-ago quarter.

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