Greatbatch Inc. lost $7.6 million during the third quarter as the costs associated with the shutdown of a pair of poorly performing factories in Switzerland offset what otherwise would have been an improvement in the earnings from the battery and medical device maker’s remaining operations.
The loss resulted from the nearly $15 million in expenses that the company absorbed because of its decision to close its troublesome orthopedic products factories in Switzerland and shift the work to the new orthopedics plant it opened during June in Fort Wayne, Ind., and another in Mexico. That move also cost Greatbatch an additional $5 million in taxes because the company lost the tax holiday it enjoyed in Switzerland when it decided to close the Swiss plants in Orvin and Corgemont.
As a result, Greatbatch, which moved its headquarters from Clarence to Frisco, Texas, during the summer but kept nearly all of its other operations here, lost 32 cents per share during the third quarter, compared with a profit of $7 million, or 30 cents per share, a year ago.
But Greatbatch executives stressed that the restructuring costs associated with the shutdown of the Swiss plants masked improved results at its other operations. Excluding the restructuring costs, Greatbatch’s adjusted operating profits strengthened to $18.7 million, or 46 cents per share, compared with $14.7 million, or 41 cents per share, a year ago. Those adjusted earnings were better than the 44 cents per share that analysts were expecting.
The impact of the shutdown of the Swiss plants, which Greatbatch announced in early July, were more significant during the third quarter because the company has been trying to speed up the consolidation. That meant that Greatbatch absorbed more expenses associated with the consolidation during the third quarter and expects to do the same in the current quarter, effectively shifting more of the costs into this year, said Michael Dinkins, Greatbatch’s chief financial officer, during a conference call. The overall costs of the consolidation, expected to be $40 million to $45 million, have not changed.
Greatbatch’s sales grew by 22 percent to $161.3 million, up from $131.7 million a year ago, partly because of an acquisition it made in its commercial battery business and also because of a 7 percent rise in revenues from its implantable medical products business.
Implantable medical product sales rose to $121 million from $113 million, as cardiac rhythm management and neuromodulation product revenues grew by 13 percent to $80 million, while vascular access product sales jumped by 20 percent to $14 million. Orthopedic product sales fell by 13 percent to $27 million because of the problems at the Swiss plants and fewer product launches and development opportunities from its customers.
The company’s commercial battery business more than doubled its sales to $40 million because of its acquisition of Micro Power, which makes batteries for portable medical devices – a market that CEO Thomas J. Hook said he expects to grow as more patient care shifts from hospital settings to the home and other locations.
Excluding the Micro Power acquisition, commercial battery sales grew by 5 percent.
The company’s push to make and sell its own medical devices has been developing slower than Greatbatch executives expected. The company now expects $8 million to $10 million in medical device sales this year, down from its original forecast of $10 million to $15 million, Hook said.