We reiterate our Neutral rating on Symmetry Medical (SMA) following the company’s mixed third-quarter fiscal 2010 results. Earnings for the quarter missed the Zacks Consensus Estimate while profits skid 33% year over year on account of higher costs, which more than offset revenue growth.
Revenues (up 5% year over year) beat the Zacks Consensus Estimate, supported by improved demand across the company’s orthopedic implants and medical devices businesses as reflected by higher customer orders. Decline in surgical equipment sales were offset by higher revenues from the orthopedic implants business.
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 of 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 products 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 faces price and procedure volume pressure in the orthopedic market and the outlook for a depressed pricing in certain markets adds to the company’s woes. Moreover, it depends heavily on acquisitions, which may be difficult to fund considering the soft economic backdrop. Also, the company is facing margin pressure on a sustained basis and higher expenses continue to weigh on its bottom line.
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 accelerate product launches. Factoring in this prospect, Symmetry Medical has increased its revenue forecast for fiscal 2010.
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