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Mixed Bag from Symmetry Medical - Analyst Blog
2/24/2012 9:15:00 AM
Orthopedic implants and instruments maker Symmetry Medical 's ( SMA ) fourth-quarter fiscal 2011 adjusted earnings of a penny a share missed the Zacks Consensus Estimate of 4 cents and came in well below the year-ago adjusted earnings of 14 cents.
Adjusted earnings exclude facility consolidation expenses, acquisition and legal costs, impairment of intangibles, severance costs and management transition expenses. On a reported basis, the Indiana-based company slipped to a loss in the fourth quarter, hurt by these charges. Symmetry logged a net loss of $3.2 million (or 9 cents a share) versus a profit of $4.3 million (or 12 cents a share) a year ago.
For the fiscal, adjusted earnings of 30 cents a share also trailed the Zacks Consensus Estimate by 3 cents and were below the year ago earnings of 43 cents.
Revenues and Margins
Revenues dropped 12% year over year to $84.5 million in the fourth quarter, but beat the Zacks Consensus Estimate of $81 million. For the full year, sales were flat year over year at $359 million, also above the Zacks Consensus Estimate of $355 million.
The decline in the fourth quarter revenues is attributable to lower sales to the company's five biggest OEM customers, which more than offset solid sales in the Symmetry Surgical segment. Revenues from the larger OEM Solutions segment clipped 16% to $73.3 million due to a decline in sales to major orthopedic OEM customers on account of weak procedure growth.
As in the previous quarter, Symmetry saw declines across its implants, instruments and surgical cases businesses in the reported quarter, which fell 13%, 21% and 22%, respectively, to $22.9 million, $27.3 million and $15.9 million, respectively.
Revenues from the smaller Symmetry Surgical unit soared 22% to $11.2 million in the quarter, buoyed by the Olsen Medical acquisition which contributed roughly $1.4 million to the division's sales.
Gross margin slid to 16.4% from 23.4% a year ago on lower sales and manufacturing inefficiencies. Adjusted operating margin declined to 1.8% from 10.8% a year ago.
Symmetry ended the fiscal with cash and cash equivalents of roughly $18.9 million, up 26% year over year. Total long-term debt increased three-fold year over year to $265.2 million.
Guidance and Recommendation
Symmetry has retained its revenue guidance for 2012, issued at the closure of its acquisition of the surgical instruments unit of Codman & Shurtleff, Inc. (Codman), a Johnson & Johnson ( JNJ ) enterprise. The company still expects sales in a band of $410 million and $425 million for the full year.
The earnings per share (on a reported basis) target has been set in a range of 30 cents to 40 cents for 2012. Adjusted earnings per share are expected between 55 cents and 65 cents. The forecast excludes acquisition, facility closure/severance, impairment, amortization and legal charges which are expected to dilute 2012 earnings by roughly 25 cents a share.
The current Zacks Consensus Estimates for revenues and earnings per share for 2012 are $406 million and 52 cents, respectively.
Symmetry is the largest OEM provider of implants and related surgical instruments and cases to orthopedic devices manufacturers. Its major customers include Johnson & Johnson's DePuy, Stryker ( SYK ) and Zimmer Holdings ( ZMH ).
Symmetry has created a distinct competitive niche in the orthopedic devices market with its "Total Solutions Approach." The company is investing in revamping its management structure and enhancing customer collaboration, which should push growth moving forward.
Symmetry, in December 2011, completed its $165 million takeover of the surgical instruments business of Codman. It will absorb, in first-quarter 2012, Codman's surgical instrument product line into its hospital direct setup, Specialty Surgical Instrumentation ("SSI"). Besides diversifying its revenue base, the acquisition enables Symmetry to broaden its global presence.
However, Symmetry still faces price and procedure volume pressure on the orthopedic front. Also, the company's high spending may continue to weigh on its bottom line. Currently, we have a Neutral recommendation on the stock. Symmetry currently retains a short-term Zacks #2 Rank (Buy).
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