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Symmetry's 1Q Mixed, Profits Plunge - Analyst Blog

Posted
5/7/2012 12:16:00 PM
By: Zacks.com
Referenced Stocks:SMA;SYK;ZMH

Symmetry Medical ( SMA ) recorded first-quarter fiscal 2012 adjusted earnings of 7 cents a share, in line with the Zacks Consensus Estimate. Adjusted earnings exclude facility consolidation expenses, acquisitions, debt issuance and legal costs, impairment and amortization of intangibles, severance costs and management transition charges.

Profit in the reported quarter was $0.8 million (or 2 cents a share), down 42.9% year over year.

Revenues and Margins

Revenues rose 5.1% year over year to $100.7 million in the first quarter, beating the Zacks Consensus Estimate of $99 million, boosted by higher sales across the company's Symmetry Surgical business. This was, however, partially dampened by lower sales in the Original Equipment Manufacturer ("OEM") Solutions division.

Revenues from the core OEM Solutions segment dropped 15% to $74 million due to decline in sales to major orthopedic OEM customers on account of weak procedure growth and inventory curtailment.

Among the sub-segments, Symmetry witnessed yet another fall across its implants, instruments and surgical cases businesses in the reported quarter, which fell 9%, 16% and 25% to $24.8 million, $27 million and $15.9 million, respectively.

Revenues from the smaller Symmetry Surgical unit soared almost threefold to $26.7 million in the quarter, buoyed by the Olsen Medical and Codman & Shurtleff, Inc. acquisition, which contributed roughly $16.1 million to the division's sales. 

Margins

Gross margin increased to 25% from 20.2% a year ago, led by higher margin in the Surgical business and was partially offset by lofty production and manufacturing costs associated with the OEM business. However, this did not have much of an impact as the company has regularly undertaken cost controlling measures with respect to labor, consumables and scrap.

Adjusted operating margin was roughly at 10% versus 7.3% a year ago. Selling, general and administrative charges, as a percentage of sales, were 18.6% compared with 16.3% in the prior-year quarter.

Balance Sheet

Symmetry exited first quarter fiscal 2012 with cash and cash equivalents of roughly $23.2 million, up 31.3% year over year. Total long-term debt increased three-fold year over year to $253.8 million.

Guidance and Recommendation

Symmetry has retained its revenue guidance for 2012. The company continues to expect 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 facility closure/severance, acquisition, impairment, amortization and legal charges, which are expected to dilute 2012 earnings by roughly 25 cents a share.

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. 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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