Greatbatch Posts Gains in Q3

The third quarter was a good one for Frisco, Texas-based Greatbatch Inc.

Sales for the third-quarter (ended Sept. 27) sales increased $6.4 million to $167.7 million. After adjusting sales by $3.2 million for the divestiture of certain non-core orthopedic product lines during the first quarter of 2013 and approximately $1 million for the positive impact of foreign currency exchange rate fluctuations in comparison to the prior year, sales increased $8.6 million or 5 percent organically.

“The third quarter proved to be another solid performance from the team with top line organic growth and operating leverage yielding an 18 percent increase in adjusted operating income and a 24% improvement in adjusted diluted EPS (earnings per share),” said Thomas J. Hook, president and CEO. “Our sales and marketing investments and consolidation initiatives are contributing to our revenue improvement and operating margin expansion. For the fifth consecutive quarter, we have increased our adjusted operating income and adjusted diluted earnings per share in comparison to the prior year. We expect these initiatives to continue to pay dividends for the remainder of 2013 and will position Greatbatch to meet its long-term objective of maintaining at least 5 percent constant currency organic revenue expansion and at least double that growth rate for adjusted diluted EPS over time.”

Company officials noted that growth primarily was due to increased sales (8 percent growth) from  cardiac/neuromodulation products, as well as implant and cases and tray market share gains, which helped drive 22 percent organic constant currency growth in the company’s orthopedic product line. This growth partially was offset by a $1.4 million and $1.9 million decline in sales of vascular devices and Electrochem battery technology, respectively, due to the previously disclosed voluntary recall of two vascular medical devices and the loss of low-margin Electrochem business.

Gross profit increased $4.9 million to $55.9 million in the third quarter, compared with $51 million for the 2012. The improvement, company officials noted, was driven by “increased operational leverage” due to higher sales volumes, as well as a mix of higher margin products. As a result, gross profit as a percentage of sales for the current quarter increased 170 basis points to 33.3 percent from 31.6 percent for the third quarter of 2012. It is the fourth consecutive quarter the company’s gross profit margin has increased in comparison to the prior year.

By product line, cardiac/neuromodulation devices sold $86.9 million for the quarter, up 8 percent. Orthopedic products generated $30.1 million, up 11 percent. Vascular products fell by 10 percent to $12.3 million. Portable medical technology also dropped slightly—by 4 percent—to $19.3 million.

“For the fourth consecutive quarter, our gross margins have improved in comparison to the prior year and totaled 33.3 percent for the current quarter. Most notably, increased operational leverage and a better sales mix, as well as productivity enhancements from our Swiss consolidation and business restructuring have led to our continued progress,” noted Michael Dinkins, executive vice president and chief financial officer. “This volume leverage, along with continued productivity, cost controls, functional alignment and excellent execution also drove a 150 basis point improvement in adjusted operating margins to 13.1 percent in the quarter.”

Greatbatch operates three divisions: Greatbatch Medical, Electrochem and QiG Group. Greatbatch Medical develops and manufactures critical medical device technologies for the cardiac, neuromodulation, vascular and orthopedic markets. Electrochem designs and manufactures batteries for high-end niche applications in the portable medical, energy, military, and other markets. The QiG Group designs and develops new medical devices for the company’s core markets.