We reiterate our Neutral rating on
Symmetry Medical
(
SMA
). Its first quarter fiscal 2012 adjusted earnings of 7 cents a
share were in line with the ZacksConsensus Estimate. Revenues rose
5.1% year-over-year to $100.7 million, beating the Zacks Consensus
Estimate of $99 million.
Growth in revenues was boosted by higher sales from the
company's Symmetry Surgical business. This was, however, partially
dampened by lower sales in the Original Equipment Manufacturer
("OEM") Solutions division.
Symmetry, in December 2011, completed its $165 million takeover
of the surgical instruments business of Codman & Shurtleff Inc.
("Codman"), a
Johnson & Johnson
(
JNJ
) enterprise. Codman's surgical instrument product line has been
integrated into Symmetry's hospital direct setup, Specialty
Surgical Instrumentation (SSI).
The new segment has since been named "Symmetry Surgical." The
company expects that the combined product line will offer one of
the widest arrays of offerings in the $1 billion business of
general surgical instruments. Besides diversifying its revenue
base, the acquisition enables Symmetry to broaden its global
presence.
Symmetry Medical keeps on introducing new products, which boost
its top line. In February 2012, Symmetry's OEM Solutions unit
launched the Offset Reamer Driver, a minimally invasive device used
in hip replacement surgery. Symmetry Surgical, in March 2012, added
12 new innovative line enhancements to the leading surgical
retractor platform, the Bookwalter Retractor System. This positions
both the Bookwalter product and Symmetry Surgical to garner
attractive revenue opportunity.
The company has initiated many new long-term programs for
improving margins and minimizing costs such as the Excellence
through Quality ("ETQ") for quality management, Win SPC
("Statistical Process Control") software for statistical quality
control, Symmetry Business System and the Epicor-9 for a complete
Enterprise Resource Planning ("ERP") infrastructure.
These strategies will not only increase labor and machine
efficiency and enhance productivity over the coming years, but will
also render Symmetry Medical the best-in-class quality systems.
However, Symmetry Medical's OEM Solutions business has been
reporting double-digit losses for the last couple of quarters,
mainly due to lower capital spending by customers. Orthopedic
implant procedure volume growth remains sluggish. The company
forecasts that its OEM business will stabilize during the latter
part of 2012.
Although Symmetry's significant international presence helps to
widen its customer base among other positives, fluctuations in
currency exchange rates can hurt the company's international sales.
The company expects an unfavourable currency exchange impact of
roughly $3 million in 2012.
Symmetry Medical depends heavily on acquisitions, which may be
difficult to fund during the current soft economic environment. The
company's high spending may continue to weigh on its bottom line.
Furthermore, the company needs to obtain operational synergies from
these acquisitions so that there is no wastage of
resources. Symmetry currently retains a short-term Zacks #2
Rank (Buy).
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