We retain our Neutral recommendation on Symmetry Medical (SMA), an instrument supplier to orthopedic devices makers, following its tepid third quarter results. Its adjusted earnings for the quarter of 4 cents a share missed the Zacks Consensus Estimate by 8 cents.
Profit tumbled 85% year over year, hurt by facility consolidation expenses, acquisition and legal costs, employee severance payments and management transition costs. Sales dipped 8% year over year to $84 million, also falling short of the Zacks Consensus Estimate.
The Indiana-based company saw declines across its implants, instruments and surgical cases businesses in the third quarter. Symmetry once again pared its revenue and earnings forecasts for the full year to reflect the soft orthopedic market.
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.
The company completed its acquisition of privately-held electrosurgical instruments maker Olsen Medical in August 2011. The acquisition augurs well for Symmetry and fits in with its strategy to diversify its product range and boost direct hospital business. The company envisions the acquisition to be accretive to its 2012 results.
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. Our recommendation is backed by a short-term Zacks #3 Rank (Hold).
