We reiterate our Neutral rating on Symmetry Medical (SMA). Its first quarter fiscal 2012 adjusted earnings of 7 cents a share were in line with the ZacksConsensus Estimate. Revenues rose 5.1% year-over-year to $100.7 million, beating the Zacks Consensus Estimate of $99 million.

Growth in revenues was boosted by higher sales from the company’s Symmetry Surgical business. This was, however, partially dampened by lower sales in the Original Equipment Manufacturer (“OEM”) Solutions division.

Symmetry, in December 2011, completed its $165 million takeover of the surgical instruments business of Codman & Shurtleff Inc. (“Codman”), a Johnson & Johnson (JNJ) enterprise. Codman’s surgical instrument product line has been integrated into Symmetry’s hospital direct setup, Specialty Surgical Instrumentation (SSI).

The new segment has since been named “Symmetry Surgical.” The company expects that the combined product line will offer one of the widest arrays of offerings in the $1 billion business of general surgical instruments. Besides diversifying its revenue base, the acquisition enables Symmetry to broaden its global presence.

Symmetry Medical keeps on introducing new products, which boost its top line. In February 2012, Symmetry’s OEM Solutions unit launched the Offset Reamer Driver, a minimally invasive device used in hip replacement surgery. Symmetry Surgical, in March 2012, added 12 new innovative line enhancements to the leading surgical retractor platform, the Bookwalter Retractor System. This positions both the Bookwalter product and Symmetry Surgical to garner attractive revenue opportunity.

The company has initiated many new long-term programs for improving margins and minimizing costs such as the Excellence through Quality (“ETQ”) for quality management, Win SPC (“Statistical Process Control”) software for statistical quality control, Symmetry Business System and the Epicor-9 for a complete Enterprise Resource Planning (“ERP”) infrastructure.

These strategies will not only increase labor and machine efficiency and enhance productivity over the coming years, but will also render Symmetry Medical the best-in-class quality systems.

However, Symmetry Medical’s OEM Solutions business has been reporting double-digit losses for the last couple of quarters, mainly due to lower capital spending by customers. Orthopedic implant procedure volume growth remains sluggish. The company forecasts that its OEM business will stabilize during the latter part of 2012.

Although Symmetry’s significant international presence helps to widen its customer base among other positives, fluctuations in currency exchange rates can hurt the company’s international sales. The company expects an unfavourable currency exchange impact of roughly $3 million in 2012.

Symmetry Medical depends heavily on acquisitions, which may be difficult to fund during the current soft economic environment. The company’s high spending may continue to weigh on its bottom line. Furthermore, the company needs to obtain operational synergies from these acquisitions so that there is no wastage of resources. Symmetry currently retains a short-term Zacks #2 Rank (Buy).

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