Symmetry Remains “Neutral” – Analyst Blog

We reiterate our Neutral rating on Symmetry Medical (SMA) following our assessment of the company’s second-quarter fiscal 2010 results. Earnings for the quarter surpassed the Zacks Consensus Estimate, but profit plunged 50% year over year on account of a double-digit revenue decline.  

Weaknesses across the company’s core product lines such as surgical instruments and orthopedic implants led to a 12% year over year decline in revenues. Lower product launch activities by customers affected sales of these businesses in the quarter. Moreover, operating market contracted due to the hefty facility closure and employee severance costs.

Symmetry Medical is the largest OEM provider of orthopedic implants and instruments to orthopedic devices manufacturers. The company has diversified its offerings into areas outside orthopedics, like dental, osteobiologic and endoscopy.

Symmetry Medical has created a distinct competitive niche in the orthopedic devices market with its “Total Solutions Approach”. Under this strategy, customers are provided with a broad range of products relating to orthopedic implants as well as comprehensive services and production capabilities to bring these implant systems to the market in a timely and cost-efficient manner.

Moreover, Symmetry Medical has adopted a three-pronged strategy to tackle the economic downturn in the form of preserving cash, developing an extensive supply chain and focusing on bottom-line improvement.

However, Symmetry Medical has been badly affected by the downturn in the orthopedic industry, which continues to weigh on its top line. Decelerated growth across the hip and knee markets represents a major concern for the company.

Moreover, Symmetry Medical faces severe pricing pressure in the orthopedic market and the outlook for a depressed pricing in certain markets adds to the company’s woes. Moreover, Symmetry Medical depends heavily on acquisitions, which may be difficult to fund considering the soft economic backdrop.

Nevertheless, Symmetry Medical is poised for a rebound as its major customers such as Johnson & Johnson’s (JNJ) DePuy, Stryker (SYK) and Zimmer Holdings (ZMH) ramp up spending on orthopedic instruments and accelerates product launches. Factoring in this prospect, Symmetry Medical has increased its revenue forecast for fiscal 2010.