Symmetry Medical Inc.
) posted a 60.0% rise in adjusted earnings per share to 16 cents in
the 2014-second-quarter ended Jun 28, 2014, from 10 cents reported
in the same quarter of 2013. Adjusted earnings per share also
surpassed the Zacks Consensus Estimate of 12 cents by 33.3%.
Adjusted net earnings rose 60.0% to $5.7 million from $3.6 million
in the year-ago quarter. On a reported basis, SMA posted a net loss
of $2.6 million or 7 cents per share in contrast to net earnings of
$1.5 million or 4 cents in the year-ago quarter.
Following the announcement of the impressive earnings figures,
shares of SMA climbed nearly 9.1% to close at $9.61 in the last
Second-quarter revenues totaled $101.3 million, up 2.3% year over
year, edging past the Zacks Consensus Estimate of $99.0 million.
Revenues were primarily driven by higher sales in the company's OEM
Solutions segment, partially mitigated by a decrease in revenues at
the Symmetry Surgical segment.
Revenues from the core
segment stood at $80.9 million, a rise of 5.5% from $76.7 million
in the year-earlier quarter. The increase was driven by higher
revenues across all OEM segments - Implants, Instruments, Cases and
Other. Also, revenues included a benefit of 1.9% from favorable
foreign currency exchange rates. The OEM Solutions segment
continues to experience steady end-market demand with procedural
growth consistent with the company's guidance assumptions.
Revenues from the smaller
segment slid 8.5% to $20.4 million from $22.3 million in the second
quarter of 2013 owing to persistent weakness in the hospital
spending environment. Neutralized for the loss of distribution
rights for the alliance New Wave product line, revenues declined
4.9% year over year. Revenues included a 0.4% benefit from the
favorable impact of foreign currency exchange rates.
OEM Solutions Divestment
SMA announced the sale of its OEM Solutions business to
privately-held Tecomet for $450 million in cash or $7.50 per share
after fees and elimination of outstanding debt, shortly before its
second-quarter earnings announcement.
Under the terms of the agreement, SMA 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.
Subject to customary regulations, SMA expects the transaction to be
completed by the end of 2014. According to the company, the
proposed sale will recognize the value of the OEM Solutions
business and enhance the growth potential of Symmetry Surgical, in
addition to providing liquidity to shareholders.
Margins and Expenses
Gross profit increased 5.7% to $28.2 million from $26.6 million in
the same quarter last year on the back of improved efficiencies in
the OEM Solutions segment, partly hurt by lower revenues at the
company's higher margin Symmetry Surgical segment. Meanwhile, gross
margin expanded 90 basis points (bps) to 27.8% from 26.9% in the
Research and development expenses rose 8.8% to $1.3 million while
general and administrative (G&A) expenses spiked 14.3% to $12.3
million. The hike in G&A expenses was led by higher transaction
related costs and amortization expenses, partially offset by a
decrease in specific healthcare related costs and net gain on
insurance proceeds. Meanwhile, selling and marketing expenses
deteriorated 7.9% to $6.3 million owing to successful cost-control
Adjusted operating earnings improved 12.8% to $11.0 million from
$9.7 million in the second quarter of 2013 while adjusted operating
margin rose 100 bps to 10.8% from 9.8% a year ago.
The upside in adjusted operating earnings was primarily supported
by higher gross margin and lower operating expenses, partially
negated by decreased revenues from the Symmetry Surgical segment.
SMA exited the quarter with cash and cash equivalents of $17.3
million which soared 135.1% from $7.4 million as of Dec 28, 2013.
Long-term debt declined 1.2% to $170.0 million as of Jun 28, 2014
from $172.0 million as of Dec 28, 2013. Consequently, the long-term
debt to capitalization ratio fell 10 bps to 37.6% from 37.7% as of
Dec 28, 2013.
Following the divestiture of The Clamonta Ltd. subsidiary business
on May 22, 2014, SMA updated its outlook for 2014.
SMA anticipates the divestiture to negatively impact 2014 earnings
by approximately 16 cents. However, on the brighter side, adjusted
earnings per share will likely include a favorable impact to the
tune of 2 cents as Clamonta Ltd. was projected to have a negative
impact on earnings in full-year 2014.
Adjusted earnings per share, including stock-based compensation,
are projected between 44 and 50 cents compared to the earlier range
of 42-48 cents. The current Zacks Consensus Estimate of 50 cents
per share coincides with the upper end of the guidance.
On the other hand, SMA lowered its revenue guidance to reflect the
divestment of Clamonta Ltd. which was projected to generate
approximately $15 million in 2014.
For 2014, SMA expects revenues in the band of $393-$403 million as
compared to the prior range of $408-$418 million. The present Zacks
Consensus Estimate of $398 million lies within the projected band.
We are encouraged by SMA'a impressive year-over-year improvement in
earnings and revenues which surpassed expectations in the quarter
under review. Higher sales at the company's core OEM Solutions
business boosted second-quarter revenues. Though performance at the
Symmetry Surgical segment was weak, the segment represents a
continued opportunity for growth, improved margins and cash flow.
SMA's strategic decision to sell its OEM Solutions business
represents an upside potential for its Symmetry Surgical business,
positioning the latter as a standalone company focused on the
global market for surgical instruments.
Currently, SMA carries a Zacks Rank #1 (Strong Buy). Other
well-placed medical product stocks that are worth considering
include Abaxis, Inc. (
), Alere Inc. (
) and AtriCure, Inc. (
). All these stocks carry a Zacks Rank #2 (Buy).
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