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Greatbatch's stock falls on earnings, forecast Restructuring moves should boost profits

Greatbatch Inc.'s shares tumbled by nearly 7 percent on Thursday after the Clarence battery maker's fourth-quarter profits came in lower than expected and the company said earnings this year would be less than most analysts were forecasting.

Greatbatch's profits were slightly better than break-even during the fourth quarter as the company absorbed $4.4 million, or 13 cents per share, in expenses as it consolidates its operations from seven plants to four.

Greatbatch officials said those restructuring moves, while hurting earnings now, will save the company more than $10 million a year beginning in 2007, which should enhance its profitability as its main markets continue growing.

"We're coming out of '05 and into '06 with a solid platform and a positive outlook," said Edward F. Voboril, Greatbatch's chairman and chief executive officer. "We are very much on track to realize the benefits from consolidation going forward."

For now, though, those expenses cut Greatbatch's profits to $68,000, or less than a penny per share, although that was an improvement from its loss of $180,000, or 1 cent per share, a year earlier.

Still, Greatbatch's earnings of 13 cents per share excluding the restructuring costs were 6 cents less than analysts were expecting, with the company's operating profits dragged down by the costs of scrapping a production run that officials feared were defective.

"It was a very difficult management decision to make," said Thomas Hook, Greatbatch's president and chief operating officer, who noted that an analysis of the suspect products later found that they were not defective.
While Greatbatch predicted that the company's sales would rise this year by 2 percent to 10 percent to between $245 million and $265 million, it said profits will range between 95 cents and $1.15, not counting 45 cents to 56 cents in restructuring and stock-based compensation expenses. Analysts were expecting earnings of $1.15, according to Thomson Financial/First Call.

Greatbatch's stock closed down $1.71 to $23.03 after tumbling as much as 17 percent earlier in the day.

In the fourth quarter, Greatbatch's sales grew by 27 percent to $58.9 million from $46.5 million, as sales of implantable cardiac defibrillator batteries grew by 30 percent and capacitor sales jumped by 58 percent. Overall, medical component sales, which account for 87 percent of Greatbatch's revenues, grew by 27 percent.

Voboril said he would be "disappointed" if the company did not make an acquisition in the next year. Greatbatch officials are focusing on profit-enhancing deals that would add leading products or technology and help reduce its dependence on the three major medical device manufacturers that now account for about 70 percent of its sales, he said.

Greatbatch estimates that $10 million to $15 million of its sales last year were related to inventory build-up stemming from implantable defibrillator recalls by its biggest customer, Guidant Corp. Despite Guidant's problems, the medical device maker accounted for 35 percent of Greatbatch's sales last year, down slightly from 36 percent in 2004.


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