Medical device maker Wright has 21% sales growth

The Commercial Appeal
July 29, 2008
By Daniel Connolly

Second-quarter revenue at Wright Medical Group rose 21 percent on stronger sales in the United States and abroad, and the company increased its predictions for sales and earnings for the year.

But accounting charges caused the firm to lose $2.4 million this quarter, or 6 cents per share. That's 13 percent worse than the year-ago quarter, when charges related to the shutdown of a plant in France led to a quarterly loss.

This time, Wright recorded $13.3 million in charges related to several factors: the French plant closure, stock-based compensation, a court ruling in favor of a former consultant and a Department of Justice inquiry into Wright's consulting agreements with doctors.

Excluding these items, Wright said it would have earned $7.2 million, or 19 cents per share, an 18 percent increase over adjusted earnings from a year ago.

Analysts surveyed by Thomson Financial had predicted earnings of $4.5 million, or 11 cents per share, on revenue of $115.6 million.

"In total, it was great," said Raj Denhoy, an analyst with Thomas Weisel Partners.

Sales growth in products for the human extremities maintained a rapid pace, rising 49 percent to $21.9 million.

Wright has made several acquisitions and reorganized its sales force in its efforts to become the world's dominant player in the extremities niche, which includes products for the ankle, foot and wrist.

The Arlington-based medical device maker increased both its earnings and revenue outlook for the year, saying it expected to earn between 88 to 92 cents per share, compared to earlier predictions of 87 to 91 cents per share.

It said it expected sales of $465 million to $470 million per share, up from $455 million to $465 million per share.

However, litigation is pushing up the cost of closing the French plant. The company expects charges of $28 million to $32 million, of which it has already spent $23.8 million.

Changes in French law have made it easier for employees to challenge layoffs, chief financial officer John K. Bakewell said in a conference call with investors.

Wright Medical shares had a boost last week when competing firm Zimmer Holdings Inc. told doctors to suspend use of Durom Cup products because too many patients needed followup surgeries after hip replacements.

Wright makes similar devices, and Wachovia analyst Michael Matson said in a research note that he expected many surgeons to switch to Wright products.

Wright shares rose 3 percent to $31.15 on Wednesday, the day after Zimmer made its announcement, but settled back to pre-announcement levels by Friday.

On Monday, Wright shares closed at $30.17, a decline of less than 1 percent.

President and CEO Gary D. Henley didn't directly address Durom in a conference call with investors, but he said Wright is trying to make sure that surgeons know about its products.

"We've got a very compelling product line," he said.

Overall, the company is in strong shape, he said.

"Prospects appear really good that we'll continue this through the second half of 2008 and beyond," he said.

Wright Medical earnings

Wright Medical sales by product, second quarter 2008 compared to second quarter 2007:

Hip surgery products: $41.4 million, up 20 percent

Knee surgery products: $31.2 million, up 21 percent

Extremities products (for the feet, ankles, shoulder, wrist, etc.): $21.9 million, up 49 percent

Biologics (products that promote tissue growth): $20.7 million, up 4 percent

Other products: $3.2 million, up 4 percent

Contact Daniel Connolly at 529-5296.