We reaffirm our Neutral rating on Symmetry Medical (SMA), an instrument supplier to orthopedic devices makers, following its mixed second-quarter fiscal 2011 results.
Earnings of 16 cents a share for the quarter beat the Zacks Consensus Estimate of 14 cents. Profit dipped roughly 7% year over year on account of sizable facility consolidation and employee severance charges. Sales rose 6.6% year over year, but missed the Zacks Consensus Estimate.
The Indiana-based company witnessed higher customer shipments across its instruments and surgical cases businesses in the second quarter. Higher revenues from its surgical instruments and cases businesses (up 7% and 25%, respectively) were partly neutralized by lower implants sales, which dipped 7% in the quarter.
Charges associated with facility consolidation, management transition and severance payments led to a decline in operating margin in the quarter. The company pared its revenue and earnings forecasts for the full year factoring in the prevailing market trends and its recently announced acquisition of privately-held electrosurgical instruments maker Olsen Medical.
Symmetry expects the Olsen Medical deal to complete by August 15, 2011, and envisions the acquisition to be neutral to its fiscal 2011 results (excluding acquisition-related charges) and accretive to 2012 results.
Symmetry is the largest OEM provider of orthopedic implants and instruments to orthopedic devices manufacturers. Its major customers include Johnson & Johnson’s (JNJ) DePuy, Stryker (SYK) and Zimmer Holdings (ZMH).
Symmetry Medical’s “Total Solutions” approach has differentiated it from other rivals and provided a substantial growth opportunity. Most of its customers are expanding outsourcing, realizing the benefits of a “One-stop shop” solution that allows them to focus their efforts on marketing and R&D.
Symmetry is investing in revamping its management structure and enhancing customer collaboration, which should support growth. Moreover, the company should benefit from higher demand for its solutions as its major customers ramp up spending and accelerate product launches.
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.
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