Greatbatch, Inc. (GB) beat on EPS but missed again on sales for the third quarter ended October 3, 2014 (press release, earnings call). Sales were $171.7M, up 2% Y/Y and up 1% on an organic constant currency basis. This is still sub-par growth and the company continues to underdeliver in sales growth. Forex fluctuations did not have a material impact in Q3 but are expected to be a headwind in Q4 due to strong dollar vs. the euro. Orthopaedic and vascular product lines continued to deliver most of the organic growth, as the company continues to realize the benefits of its sales force productivity, marketing efforts, and market growth.
On the other hand, the portable medical product line continues to be weak. The cardiac and neuromodulation revenue remained roughly flat Y/Y as growth only offset falling sales of legacy products. Gross margin increased 50 basis points to 33.8% due to production efficiencies, higher margin sales mix and the acquisition of CCC Medical Devices. GAAP EPS was $0.54, up 22.7% Y/Y, compared to $0.44. Adjusted EPS reached $0.64, an increase of 12.3% Y/Y from $0.57. Cash flows provided by operating activities were $28.2M, up 14% Y/Y.
Year-to-date sales grew 5%, in line with the company's long-term growth targets. On an organic constant currency basis adjusted EPS is 13% over 2013 YTD, above the company's long-term goal of 10% adjusted EPS growth. Leveraging volume, realizing manufacturing efficiencies and containing operating costs has resulted in an adjusted operating margin of 13.2% on a year-to-date basis. Revenue growth is at or above the industry growth in all product lines, with the exception of portable medical and based on solid Q3 results and positive outlook, the company raised its full-year sales guidance to $695 to $705M and adjusted EPS of $2.32 to $2.38. GAAP EPS should be between $2.10 to $2.18. I am confirming my
