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Greatbatch earnings soar as it lowers costs

Greatbatch Inc.’s profits jumped by 27 percent during the first quarter as lower research spending and productivity improvements from the move of its Swiss orthopedics business to North America offset a 7 percent dip in sales, the battery and medical device manufacturer said.

Greatbatch’s profits rose to $5.7 million, or 23 cents per share, from $4.5 million, or 19 cents per share, a year ago. Sales slid to $148.3 million from $159.1 million as revenues from cardiac rhythm management products dipped by 5 percent, and commercial battery revenues fell by 11 percent.

The company’s adjusted earnings per share, which exclude expenses for things like plant consolidation and new product testing, strengthened to $10.7 million, or 44 cents per share, from $8.7 million, or 37 cents per share, a year ago. That topped analyst forecasts of 42 cents per share.

While Greatbatch executives said they are sticking with their previous forecast that the company’s adjusted operating profits would rise by between 7 percent and 13 percent this year to $1.90 to $2 per share, they warned that the weak first-quarter sales mean that revenues this year likely will be at the low end of their forecast range of $660 million to $680 million.

“The magnitude of the decline in our sales was more than we anticipated,” said Thomas J. Hook, Greatbatch’s president and chief executive officer.

Greatbatch’s shares fell by nearly 5 percent, dropping $1.42 to $27.42, after analysts at investment firm Craig-Hallum downgraded the shares to “hold.”

But because the company’s move to close its troublesome orthopedic products factories in Switzerland and shift those operations to plants in Tijuana, Mexico, and Fort Wayne, Ind., is already making a significant impact in improving Greatbatch’s overall profitability, the company expects to still be able to meet its earnings targets even with sales at the lower range of its forecast, said Michael Dinkins, Greatbatch’s chief financial officer, during a conference call.

Sales of batteries and other components for implantable cardiac and neuromodulation products, which account for a little less than half of Greatbatch’s overall revenues, fell by 5 percent to $71.2 million.

Orthopedic product sales slipped by 5 percent to $29.6 million as the company ramped up production at its Mexico and Indiana plants after shutting its Swiss factories. “We had expected that we were going to have a shortfall on orthopedic revenues,” Hook said.

Vascular product sales dropped by 9 percent to $10.6 million as customers reduced their inventories. Commercial battery revenues fell by 11 percent to $37 million as sales to energy industry customers tumbled by 17 percent.