Symmetry Medical reported dismal third-quarter 2014 results with
both revenues and earnings missing the Zacks Consensus Estimate.
Revenue growth was negatively impacted by weak surgical revenues
while improved cost efficiency positively impacted profits. We
believe that the divestiture of the company's underperforming OEM
solutions business is a positive as it will help management focus
on its relatively fast growing and higher margin surgical business.
Nevertheless, we believe that sluggish hospital spending
environment will pose a headwind to top-line growth over the next
several quarters. Moreover, the surgical market is significantly
fragmented. Also, heightened competition will compel Symmetry
Medical to spend on new product development that will hurt margins,
at least in the near term. Given the headwinds, we downgrade our
recommendation from Outperform to Neutral and set a price target of
Headquartered in Warsaw, IN, Symmetry Medical, Inc. (SMA)
provides surgical instruments, orthopedic implants and
sterilization cases and trays. The company operates in two
reportable segments: (1) Original Equipment Manufacturer (OEM)
Solutions and (2) Symmetry Surgical.
Through its OEM business (79.2% of revenues at the end of the
first nine months of 2014) Symmetry Medical offers instruments,
implants and sterilization cases and trays to OEM customers. In Aug
2014, the company announced the sale of the OEM business to Tecomet
for $450 million in cash or $7.50 per share after fees and
elimination of outstanding debt.
Under the terms of the agreement, Symmetry Medical will transfer
its remaining Symmetry Surgical business to its shareholders in a
newly traded standalone public company. Shareholders will receive
one share in the new company for every four Symmetry Medical shares
held. The company expects the transaction to be completed by the
end of 2014.
Surgical business segment (20.8% of revenues at the end of the
first nine months of 2014), headquartered in Nashville, Tennessee,
was created in 2011. The segment developed from integration of the
acquired Codman surgical instruments and Olsen Medical lines with
the company's already existing hospital direct business, Specialty
Surgical Instrumentation (SSI).
Symmetry Surgical offers a broad range of reusable stainless
steel and titanium surgical hand-held instruments and retractor
systems, sterile disposable surgical products (vein strippers,
SECTO dissectors, tonsil sponges and surgical marker pens), and
sterilization containers. These products are typically used in the
surgical specialties of spine, general/obstetrics/gynecology,
microsurgery/neurosurgery, orthopedics, laparoscopy,
cardiovascular, thoracic and general surgery in the hospital
setting as well as surgery centers and in select physician
Symmetry Medical reported revenues of $399.9 million in 2013. In
the nine-month period ended Sep 27, 2014, revenues increased 1.2%
year over year to $294.1 million. Notably, United States accounted
for 72.7% of the revenues.
Symmetry Medical, Inc. (SMA): Read the Full
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
SYMMETRY MEDICL (SMA): Free Stock Analysis
To read this article on Zacks.com click here.