VOL. 127 | NO. 151 | Friday, August 3, 2012
Wright Medical Profit Drops in Q2
By Andy Meek
Wright Medical Group Inc. earned a second-quarter profit of $0.7 million, or $0.02 per diluted share, down from $6.1 million or $0.16 per diluted share in Q2 2011, the global orthopedic medical device maker reported Wednesday, Aug. 1.
The Arlington-based company’s net income for Q2 included the after-tax effects of $3.4 million of non-cash stock-based compensation expense, $2.1 million of expenses associated with the company’s deferred prosecution agreement, $0.8 million of charges associated with distributor conversions and non-competes and $0.7 million of charges associated with its cost restructuring plan.
During the quarter, Wright said its U.S. sales were hurt by previously announced distributor transitions that occurred in Q3 2011, challenges related to enhancing the company’s compliance processes, and the impact of a previously announced agreement with Kinetic Concepts Inc. The company also has updated its anticipated net sales for 2012 to be in the range of $476 million to $485 million, compared to the previously announced guidance of $472 million to $489 million.
Among other things, the company’s earnings target excludes costs associated with Wright’s deferred prosecution agreement as well as possible future acquisitions.
In a prepared statement about the quarter, Wright president and CEO Robert Palmisano said the company made significant progress implementing important changes to the business and delivering significant shareholder return.
“Although we are early in the execution phase of our plan, we are very encouraged by the initial results on our key measures with global foot and ankle constant currency growth of 13 percent and outstanding free cash flow generation for the first half of the year,” he said. “In addition to significant foot and ankle sales growth, the conversion of a major portion of our foot and ankle distributor territories to direct sales representation is ahead of schedule, and we are pleased with our execution to date. We believe this increase in U.S. direct foot and ankle sales representation, coupled with our large and growing product portfolio and our increased investment in medical education, will enable us to continue improving our foot and ankle growth rate throughout 2012 and to exit the year at well above market growth rates.”
Wright has now completed the cost restructuring plan announced in September, incurring charges of $18.5 million. That’s in line with the previous estimate of $18 million to $20 million.
From a cash flow perspective, Wright has upwardly revised its anticipated 2012 free cash flow to be in the range of $40 million to $45 million. That’s compared with the previously announced guidance of $25 million to $30 million.
“We are pleased with our progress for the first half of the year, and we will continue to focus on executing our key strategic initiatives with excellence,” Palmisano said. “During the second half of the year, we will make increased investments to accelerate foot and ankle growth, improve customer satisfaction in our Ortho-Recon business and increase cash generation capabilities. We also expect continued progress on our inventory reduction initiatives and on improving U.S. foot and ankle sales productivity, both of which we anticipate will accelerate in 2013. We are very enthusiastic about our execution so far in 2012 and believe we will continue to build momentum against our key priorities for the remainder of this year and beyond.”