Wright Medical (NASDAQ:WMGI) seems to be lacking the right stuff these days. It's tough enough to do business as a niche player in a market dominated by very large companies. And missing numbers and experiencing new product setbacks don't help matters.
After the close Tuesday, Wright announced that the company would be missing its guidance for the third quarter. Instead of the $77.6 million average revenue target, the company's results will be coming in around $73 million. That's not so bad -- only about a 5% miss -- but the earnings suffered worse. Management said earnings per share for the quarter would come in around $0.10 or $0.11 -- well below the average analyst estimate of $0.17.
The trouble in the third quarter wasn't really with the reconstructive business. Replacement-hip sales were up 15% (meaning the company is gaining share), knees were up 13% (suggesting that the company is losing a bit of market share), and extremities were up about 14%.
The trouble was in the orthobiologics business, where domestic sales fell 10%. Biologics are a bigger part of Wright's business (about 20% or so of revenue) than at other larger orthopedics companies. While these can be profitable products to sell, the company seems to be in the midst of a transition, as older bone substitutes are declining and new products aren't yet filling the gap.
Wright is in a tricky position, and lowering guidance for the quarter and full year isn't helping matters. On one hand, it has built itself through niche products and has been an innovator in developing advanced surfaces and integrating biologics into orthopedics. On the other hand, it is still a small company with pretty anemic margins when compared with Biomet (NASDAQ:BMET), Stryker (NYSE:SYK), Zimmer (NYSE:ZMH), or even Smith& Nephew (NYSE:SNN).
Although small players can compete effectively with new and advanced products, Wright is starting to come up a bit short here as well. The company still hasn't received an FDA panel date for its new Conserve Plus hip resurfacing product, whereas Smith & Nephew has already received its panel clearance. (Wright actually submitted before Smith & Nephew did.) What's more, the company is having difficulties getting together its approval submission for AdCon Gel, and the pipeline behind it looks a bit dodgy.
I'm certainly not pulling a shroud over this company or its stock, but I don't see any good reason to buy it today in favor of something like Biomet, Zimmer, or Stryker. While there's certainly a possibility that a larger player could buy Wright (particularly once companies feel the brunt of price competition and more selective purchasing decisions), that deal could happen sooner, later, or never, and it's hard to say what the price would be.
Bone up on more orthopedics companies:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
