The news from Orthofix International NV over the last month has been mostly about legal settlements as the company cleans up problems related to marketing activities under previous leadership.
But the company got back to business with a second quarter sales report on July 26 that showed a 5% rise in revenue to $119.5 million. The sales number was slightly below consensus due to currency headwinds, but profits beat expectations.
Spine Continues Growth
Overall on a constant currency basis, biologics and implant sales rose 4%. Spine stimulation sales posted their best growth in seven quarters at 9%, which is significant as this is the company’s largest product line. Orthopedic sales only rose 2% as the company saw increased competition in Brazil and slower growth in Southern Europe.
Spine growth improved for the third consecutive quarter and company margins have moved significantly higher following the sale of Breg.
Upcoming new product launches such as foot and ankle implants should benefit orthopedic growth in coming quarters and are a notable move for the company as it moves into extremities.
|
Orthofix International NV 2Q12 |
Sales ($ in millions) |
% Change* |
|
Total Sales |
$119.5 |
5.0% |
|
Spine Stim |
$43.3 |
9.0% |
|
Implants/Biologics |
$38.5 |
4.0% |
|
Total Spine |
$81.8 |
7.0% |
|
Orthopedic |
$37.7 |
2.0% |
*Constant currency
Source: Orthofix International NV
Bob Vaters, company president and CEO, told analysts on July 26 that, “The second quarter results demonstrate the strength of our Regenerative Solutions and highlights our strategy to leverage our differentiated product offerings across both our Spine and Orthopedic business units. In addition, the close of the Sports Medicine divestiture provides us with the financial capacity and flexibility to make the necessary investments to drive long-term growth.”
Trinity Trumping Infuse
Vaters cited the increasing adoption of the company’s Trinity Evolution in spine applications, leading to 48% increase in sales of the biologics business. Jefferies analyst Raj Denhoy noted that Trinity Evolution sales continue to benefit from safety concerns surrounding Medtronic, Inc.’s, Infuse. He also said the company remains very positive regarding a new biologic product it is working on with partner MTF (private not-for-profit Musculoskeletal Transplant Foundation) that is slated for 2013 and which should provide another tailwind to the biologics business.
Going Shopping
Mike Matson, senior analyst with Mizuho Securities, said the company’s intention to use its new balance sheet to go shopping for an acquisition may be coming at a good time. Matson said he believes that private company valuations have declined and the medical device excise tax starting in 2013 only adds to the pressure on smaller med tech companies.
The company lowered its revenue guidance to $481 million – $491 million from $487 million –$497 million due to the increased currency headwind.
Vaters came in to the company as the chief financial officer in 2008, not chief legal officer. He must be relieved to get back to business.
