Orthopedic implants and instruments maker Symmetry Medical’s (SMA) third-quarter fiscal 2011 adjusted earnings per share of 4 cents largely missed the Zacks Consensus Estimate of 12 cents and came in below the year-ago adjusted earnings of 10 cents.
Adjusted earnings exclude facility consolidation expenses, acquisition and legal costs, employee severance payments and management transition costs. Profit (as reported) plummeted 85% year over year to $0.5 million (or a penny a share), hit by these charges.
Revenues and Margins
Revenues dipped 8% year over year to $84 million, missing the Zacks Consensus Estimate of $85 million. The decline is attributable to lower sales to the Indiana-based company’s five biggest OEM customers which more than offset healthy growth with other customers, favorable currency exchange swings and contribution from the Olsen Medical acquisition.
Symmetry completed the acquisition of privately-held electrosurgical instruments maker Olsen Medical in August 2011. The acquisition contributed roughly $0.7 million to its third quarter sales.
Symmetry witnessed declines across its implants, instruments and surgical cases businesses in the quarter. Sales from surgical instruments dipped 7% year over year to $33.6 million. Implants revenues clipped 6% to $26.7 million. Cases business suffered the most with sales tumbling 18% to $17.6 million, hurt by weak customer delivery.
Gross margin fell to 18.7% from 21.7% year-ago on lower sales and other factors including facility closure and lag in customer approval of product transfers. Operating margin declined to 2% from 8.2% a year ago, impacted by charges.
Balance Sheet
Symmetry ended the quarter with cash and cash equivalents of roughly $20.6 million, up 48% year over year. Total long-term debt increased 8% year over year to $95.2 million.
Guidance Shaved
Symmetry has pared its revenue and earnings guidance for fiscal 2011 based on its first nine months results, prevailing market trends and acquisition of Olsen Medical. The company has lowered its revenue forecast to a range of $350 million to $360 million from its earlier expectation of $354 million to $370 million.
Adjusted earnings per share target have been slashed to a band of 31 cents to 35 cents from 43 cents to 57 cents. The forecast excludes acquisition, facility closure/severance, management transition and legal charges which are expected to dilute 2011 earnings by roughly 13 cents a share.
On a reported basis, earnings per share for 2011 are now expected in the range of 18 cents to 22 cents, down from the prior view of 32 cents to 46 cents. The current Zacks Consensus Estimates for revenues and earnings per share for 2011 are $362 million and 49 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 (JNJ) DePuy, Stryker (SYK) and Zimmer Holdings (ZMH). The company has created a distinct competitive niche in the orthopedic devices market with its “Total Solutions Approach.”
Symmetry is investing in revamping its management structure and enhancing customer collaboration, which should push growth moving forward. However, the company is exposed to a soft orthopedic market and its high spending may continue to weigh on its bottom line. Currently, we have a Neutral recommendation on the stock.
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