Symmetry 1Q Earnings Disappoint - Analyst Blog
May 03 2013 - 3:31AM
Zacks
Symmetry Medical’s (SMA) first-quarter 2013
adjusted earnings per share (EPS) of 4 cents missed the Zacks
Consensus Estimate of 15 cents. Adjusted earnings exclude one-time
items other than stock-based compensation. It was also lower than
the year-ago adjusted EPS by 42.8%.
In the quarter under review, the company reported net loss of $0.3
million (or a loss of 1 cent a share) versus a net income of $0.8
million (or 2 cents a share) in the year-ago quarter.
Revenues
Revenues dropped 2% year over year to $98.9 million in the first
quarter on account of double-digit decline in Symmetry Surgical
sales, offset by decent gains in the Original Equipment
Manufacturer (“OEM”) Solutions business. Revenues were lower than
the Zacks Consensus Estimate of $106 million.
Segment Review
Revenues from the core OEM Solutions segment grew 4% to $76.7
million, led by higher sales in all of the 3 categories viz.
Instruments, Implants and Cases versus the year-ago quarter.
However, sales growth was partially offset by 3% decline in Other
(Aerospace) category. Foreign currency exchange rates lowered total
revenues of the OEM segment by 0.2%.
Among the sub-categories, Instruments sales grew 4% year over year
to $28.2 million due to healthy capital spending. The Implants
business also posted a growth of 5% to $26.0 million. However, on a
positive note, Cases sales increased 3% in the quarter to $16.4
million on the back of new products.
Revenues from the smaller Symmetry Surgical unit unexpectedly
dropped 16.9% to $22.2 million in the quarter, due to sales
disruptions associated with integration of Codman surgical
instruments business into Symmetry Surgical.
Margins
Gross margin inched up to 25.4% from 25.0% a year ago, led by
margin improvement in the OEM Solutions franchise, largely dampened
by lower percentage of revenue contribution from higher margin
Symmetry Surgical segment. Increased margin in the OEM Solutions
business was driven by the company’s cost control measures with
respect to labor, consumables and scrap.
Selling, marketing, general and administrative (SG&A) charges,
as a percentage of sales, were 20.2% compared with 17.7% in the
prior-year quarter. SG&A expenses were higher because of higher
infrastructure costs in the Surgical business along with increased
healthcare and acquisition related cost. The new Medical Devices
Excise Tax also pushed up expenses by $0.3 million, partially
offset by lower amortization expenses.
Adjusted operating margin was 6.5% versus 8.9% a year ago, mainly
due to lower revenues from Symmetry Surgical.
Balance Sheet
Symmetry exited the first quarter of 2013 with cash and cash
equivalents of roughly $14.9 million, down 35.8% year over year.
Total long-term debt (including current portion) decreased 17.3% to
$209.9 million with a leverage ratio of 3:3. The company generated
operating cash flow of $11.4 million in the quarter.
Guidance
Despite the sales disruption in the Surgical business, Symmetry
reiterated its guidance for 2013, taking into account the present
market situation and currency fluctuations. The company expects
sales in a band of $420 million and $440 million for the full
year.
The earnings per share (on a reported basis) target has been set in
a range of 35 cents to 47 cents for 2013. Adjusted earnings are
expected to be in the range of 64 cents to 76 cents. This includes
a negative impact of the Medical Devices excise tax of 3 cents. The
adjusted earnings forecast excludes one-time items such as facility
closure/severance, acquisition and amortization-related charges,
which are expected to dilute 2013 earnings by roughly 29 cents a
share.
The Zacks Consensus Estimate for 2013 revenues and adjusted
earnings are $434 million and 73 cents, respectively.
Our Take
We were disappointed with the first quarter results, which missed
estimates by a large margin. Symmetry needs to resolve integration
issues related to its latest acquisitions to avoid wastage of
resources. Additionally, fluctuations in foreign exchange rates
remain a cause of concern. However, we are impressed that
Symmetry’s larger OEM Solutions business is growing at a healthy
pace.
Following the earnings release, Symmetry’s share price declined
11.6% on Thursday to close at $10.47.
Symmetry carries a Zacks Rank #3 (Hold). While we remain on the
sidelines regarding Symmetry, companies such as
Conceptus (CPTS), LeMaitre
Vascular (LMAT) and NuVasive (NUVA)
warrants a look. While Conceptus and LeMaitre carry a Zacks Rank #1
(Strong Buy), NuVasive carry Zacks Rank #2 (Buy).
CONCEPTUS INC (CPTS): Free Stock Analysis Report
LEMAITRE VASCLR (LMAT): Free Stock Analysis Report
NUVASIVE INC (NUVA): Free Stock Analysis Report
SYMMETRY MEDICL (SMA): Free Stock Analysis Report
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