Wright Medical (NSDQ:WMGI) beat Wall Street’s earnings expectations, narrowed its 3rd-quarter losses by ⅔ and boosted its outlook for 2012, but missed sales numbers prompted investors to shave more than 3% from its share price today.
The Arlington, Tenn.-based joint replacement maker posted losses of $5.3 million, or 14¢ per share, on sales of $110.4 million during the 3 months ended Sept. 30, narrowing losses by 66.7% despite a 6.6% top-line slide.
Excluding 1-time items, adjusted earnings per share were 1¢, well ahead of analysts’ -5¢ consensus. But Wall Street boffins were also looking for about $1.6 million more in sales. The news erased and then some the 2.6% gain WMGI shares posted yesterday, ahead of Wright’s post-market earnings announcement. WMGI shares were trading at $20.29 apiece as of about 3:40 p.m., down 2.9% on the day and half a percent under its $29.37 closing mark Nov. 2.
President & CEO Robert Palmisano said Wright is making progress on its plan to reorganize the business, a process embarked on after a damaging federal kickbacks beef that led to the ouster of former CEO Gary Henley and chief technology officer Frank Bono. Wright brought Palmisano in to clear up the mess in September 2011.
"We continued to make excellent progress on implementing our transformational changes in our business during the 3rd quarter. In addition to our 3rd consecutive quarter of accelerating global foot and ankle growth, we continue to generate strong cash flow. We also completed the conversion of a major portion of our foot and ankle distributor territories to direct sales representation. With this conversion now complete, coupled with the favorable response to our recent new product launches and increased medical education programs, we believe we are well positioned to exit the year at well above market growth rates and improve sales productivity in our foot and ankle business," Palmisano said in prepared remarks.
Analyst Richard Newitter said the company does seem to be making progress in its recovery, citing the growth in foot & ankle implant sales and the increased free cash flow.
"We continue to believe WMGI is moving onto a path of improved performance/execution. But there’s still work ahead, and to us the current valuation already seems to reflect better-than-expected turnaround execution – at least to some degree. Nearer-term we think multiple expansion from current levels could be limited without additional signs that WMGI’s sales growth, operating margin and cash flow improvement initiatives are all tracking more meaningfully ahead of plan," Newitter wrote in a note to investors today, maintaining the investment bank’s "market perform" rating and raising its price target from $20 to $23.
Wright reaffirmed its 2012 sales guidance of $476 million to $485 million and boosted its adjusted EPS outlook from 32¢-36¢ to 34¢-40¢.
Newitter added that the Oct. 8 expiration of a deferred prosecution agreement over the kickbacks beef – which was extended by a year in October 2012 – "removes a legal overhang."
But another overhang remains – a federal probe into its Profemur metal-on-metal hip implant and a raft of personal injury lawsuits over the device. Wright, estimating its liability for the older titanium Profemur model at $23 million to $37 million, set aside $23 million to cover those costs over the next 4 years, according to a regulatory filing.
Wright’s insurer hasn’t said whether it will cover the Profemur claims, according to the filing, but said its carrier could decide to cover those claims under the policy inked the year the 1st claim was filed. That was the call for personal injury cases filed over another of Wright’s metal-on-metal hip implants called Conserve. Wright recorded an estimated $3.8 million insurance recovery for Profemur cases, against an estimated $7.1 million in open claims. The new insurance policy specifically excludes coverage of lawsuits filed over the titanium Profemur device, according to the filing.
WMGI shares closed down 3.4% at $20.20 today.
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