Greatbatch lays out cost-cutting plan after $3.4 million first-quarter loss
By David Robinson
NEWS BUSINESS REPORTER
Updated: 05/08/08 6:31 AM
Acquisition-related expenses led to a $3.4 million first-quarter loss at Greatbatch Inc., as the Clarence medical products and battery manufacturer turned its focus to cutting costs and integrating the seven companies it bought over the last year.
Even without the $8.6 million in acquisition-related expenses, Greatbatch’s earnings from its operations of 15 cents per share fell well short of the 26 cents per share that analysts were expecting.
That caused Greatbatch’s stock to tumble Wednesday by 14 percent, or $2.67, to $15.80, their lowest level since October 2004.
“It was below my satisfaction and in line with what I expected,” said Thomas G. Hook, Greatbatch’s president and chief executive officer, in a conference call Wednesday.
In response, Hook outlined a plan for Greatbatch to consolidate some of its manufacturing capacity and reduce overhead in the wake of the seven acquisitions, which helped the company boost its sales by 59 percent to $122 million, despite an 8 percent drop in sales from its existing businesses.
“It got us the revenue we needed,” Hook said. “We have a lot of integration and consolidation work to do.”
As part of that plan, Greatbatch plans to close the IntelliSensing site in Orchard Park that it acquired last year and integrate that operation into its existing facilities. It also will close Engineered Assemblies Corp.
plants in Teterboro, N. J. and Suzhou, China, that it acquired last year.
The company also is trying to revamp its orthopedic products manufacturing system to eliminate production bottlenecks that are causing delays in deliveries, including the eventual consolidation of some of the orthopedic group’s eight plants in Europe and the United States, Hook said.
The company also is looking to shift more of its labor-intensive manufacturing to its lower-cost factory in Tijuana, Mexico, although Hook did not say what those might be.
Despite the first-quarter earnings shortfall, Hook said Greatbatch remains comfortable with its previous earnings guidance that operating profits, excluding one-time items, will range between $1.20 and $1.50 per share.
The acquisitions have broadened Greatbatch’s product line, which traditionally have been centered in cardiac rhythm management products, such as batteries for pacemakers and implantable cardiac defibrillators, to new areas, such as orthopedic products and catheters. Cardiac rhythm management sales dropped below 50 percent of the company’s total revenues during the first quarter for the first time.
That cardiac rhythm management business cooled during the first quarter, with defibrillator battery sales dropping by 14 percent, pacemaker revenues falling by 4 percent and defibrillator capacitor sales sliding by 24 percent.
Medical sales jumped by 57 percent to $103 million from $65 million a year ago, with acquisitions accounting for $44 million in revenues. Without those additions, Greatbatch’s medical sales fell 11 percent.
The company’s commercial sales jumped by 68 percent to $19.6 million, including $7 million in revenues from the Engineered Assemblies acquisition. Excluding that deal, commercial sales rose 7 percent.
