Symmetry Medical Inc. (SMA) posted adjusted earnings per share of 8 cents for the fourth quarter of 2013 that were in line with the Zacks Consensus Estimate and marginally higher compared with 7 cents in the same quarter of 2012. However, adjusted net earnings rose 16.6% to $3.1 million from $2.6 million in the fourth quarter of 2012.
In the quarter under review, the company reported net loss of $2.2 million or 6 cents per share compared to net earnings of $2.9 million or 8 cents in the year-ago quarter. The loss was attributable to weak revenues in the quarter. Following the earnings release, shares of the company fell 0.6% after the market closed yesterday.
For full year 2013, SMA reported a 42.0% fall in adjusted earnings per share to 29 cents from 50 cents in 2012 and a 41.4% decline in adjusted net earnings to $10.6 million from $18.1 million in 2012. Earnings per share for the year exceeded the Zacks Consensus Estimate by a penny.
Revenues
Revenues declined 5.0% year over year to $101.2 million, falling short of the Zacks Consensus Estimate of $102.0 million. Lower revenues from the company’s Symmetry Surgical segment, led to the downfall, partially offset higher revenues from the Original Equipment Manufacturer (OEM) Solutions segment.
Revenues in the year went down 2.6% to $400.0 million, slightly lower than the Zacks Consensus Estimate of $401 million. Similar to fourth quarter 2013, the decrease was attributable to lower revenues from the Symmetry Surgical segment.
Margins
Gross profit for the quarter dipped 10.7% to $25.8 million from $28.9 million in the same period last year. Gross margin fell 160 basis points (bps) to 25.5%, compared to 27.1% in the fourth quarter of 2012.
The decrease in gross margin was driven by a lower share of revenues from the company's higher margin Symmetry Surgical segment compared to 2012-fourth quarter, and gross margin pressure in the OEM Solutions segment due to operational issues at the Clamonta Ltd. subsidiary (which serves the Aerospace industry and is reported in the Other category) and lower volume in the Instruments segment.
Gross profit decreased 6.4% to $102.1 million while gross margin fell 110 bps to 25.5% for the year. The decline was driven by lower percentage of revenues from the SMA’s higher margin Symmetry Surgical segment compared with 2012.
Adjusted operating profit ebbed 20.4% to $10.1 million from $12.7 million in the 2012-fourth quarter. Adjusted operating margin slid 190 bps to 10.0% from 11.9% in the 2012-quarter. Adjusted operating profit for the year dipped 24.9% to $34.3 million while operating margin decreased 250 bps to 8.6%.
Segment Results
Revenues from the core OEM Solutions segment inched up 0.7% to $78.6 million, owing to higher revenues from the Case business ($16.9 million), partially offset by lower revenues from the Instruments business ($28.8 million) and continued operational issues at the SMA’s Clamonta subsidiary.
SMA reported flat revenues in the Implant product business ($26.5 million) despite the previously announced fire in the Acid Shop at its Sheffield, U.K. implant manufacturing facility, in Sep 2013 and impacted throughput in the fourth quarter.
For full year 2013, revenues from the segment grew 2.5% to $310.8 million. The increase was attributable to stronger demand for Case and Implant products, partially offset by lower Instruments segment volume and operational issues at the Clamonta subsidiary.
Revenues from the smaller Symmetry Surgical segment dropped 20.8% to $22.6 million in the quarter due to the inclusion of one-time purchase of $2.9 million by an OEM solutions customer served by Symmetry Surgical in the 2012-fourth quarter, and sluggish growth on the back of ongoing transition to distributorships outside the U.S.
Revenue from the segment in the year fell 16.8% to $89.2 million, due to transition related sales disruptions for the integration of the Codman surgical instruments business into Symmetry Surgical, and one-time purchase mentioned above.
Financial Position
SMA exited 2013 with cash and cash equivalents of $7.4 million compared with $9.8 million at the end of 2012. Long-term debt decreased 18.6% to $172.0 million as of Dec 28, 2013 versus $211.2 million as of Dec 29, 2012. Long-term debt to capitalization ratio fell 250 bps to 37.7% from 40.2% as of Dec 29, 2012. SMA generated operating cash flow of $1.8 million and incurred $2.2 million as capital expenditures in the quarter.
2014 Outlook
For 2014, SMA expects revenues in the band of $408–$418 million. The Zacks Consensus Estimate for 2014 revenues of $416 million lies within the guided band.
SMA also expects adjusted earnings per share between 42 and 48 cents for the year, including stock based compensation expense. The Zacks Consensus Estimate of 47 cents per share also lies within the guided range.
Our Take
We remain concerned about SMA’s dwindling revenue growth. The sudden drop in the core OEM business due to lower-than-anticipated instrument volume, along with internal issues at the Aerospace category and the unexpected fire in the U.K. facility, posed serious causes of concern. However, the company’s earnings and revenue projections for 2014 were higher than 2013, which brings some confidence on the stock.
SMA presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the medical products industry include Enzymotec Ltd. (ENZY), NuVasive, Inc. (NUVA), and Baxter International Inc. (BAX). Both Enzymotec and NuVasive carry a Zacks Rank #1 (Strong Buy), while Baxter International carries a Zacks Rank #2 (Buy).
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