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Symmetry Beats on EPS, Tightens View

Zacks Equity Research

Symmetry Medical’s (SMA) third-quarter 2012 adjusted earnings of 16 cents a share beat the Zacks Consensus Estimate of 14 cents. Adjusted earnings exclude one-time items other than stock-based compensation.

In the quarter under review, the company reported profit of $3.7 million (or 10 cents a share), more than seven times higher than the year-ago quarter. The hike reflects improving trend in orthopedic procedure volume and healthy margin expansion.


Revenues jumped 20.1% year over year to $100.9 million in the third quarter, led by strong sales in the Original Equipment Manufacturer (“OEM”) Solutions and Symmetry Surgical businesses. However, reported revenues were lower than the Zacks Consensus Estimate of $105 million.

Revenues from the core OEM Solutions segment increased 4% to $76.1 million, on the back of higher Instrument sales. This was, however, partially dampened by soft sales of surgical cases and unfavorable currency fluctuations.

Among the sub-segments, Instruments sales climbed 19% year over year to $29.6 million due to new product launches. Symmetry witnessed yet another fall across its implants and surgical cases businesses in the reported quarter, which fell 4% and 11% to $25.6 million and $14.2 million, respectively.

Revenues from the smaller Symmetry Surgical unit increased more than twofold to $24.8 million in the quarter, buoyed by the Olsen Medical and Codman & Shurtleff, Inc. acquisition, which contributed roughly $13.7 million to the division’s sales.


Gross margin increased to 28% from 18.7% a year ago, led by higher margin in the Surgical business as well as margin improvement in the OEM Solutions franchise. Increased margin in the OEM Solutions business was driven by the company’s cost controlling measures with respect to labor, consumables and scrap.

Adjusted operating margin was 13.9% versus 5.1% a year ago, mainly due to acquisitions and higher gross margin in the OEM Solutions division. Selling, marketing, general and administrative charges, as a percentage of sales, were higher at 16.7% compared with 15.4% in the prior-year quarter due to acquisitions-related expenses.

Balance Sheet

Symmetry exited the third quarter of 2012 with cash and cash equivalents of roughly $12.4 million, down 39.8% year over year. Total long-term debt (including current portion) increased almost twofold year over year to $221.9 million.


Symmetry revised its guidance for 2012, taking into account its third quarter results along with the present market situation and currency fluctuations. The company is skeptical about uncertainty related to growth in orthopedic procedures in the fourth quarter as well as a tight capital spending environment by OEM clients. Symmetry is also wary of the lean inventory management strategies that OEM customers are expected to adopt toward year-end.

The company now expects sales in a band of $410 million and $415 million (earlier $410 - $425 million) for the full year.

The earnings per share (on a reported basis) target has been set in a range of 26 cents to 31 cents (earlier 30 cents to 40 cents) for 2012. Adjusted earnings per share are expected to be between 55 cents and 60 cents (earlier 55 cents and 65 cents). The forecast excludes one-time items such as facility closure/severance, acquisition, amortization and legal charges, which are expected to dilute 2012 earnings by roughly 29 cents a share.

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 DePuy, Stryker (SYK) and Zimmer Holdings (ZMH).

We are impressed by the successful integration of the recently acquired Codman surgical instruments business with Symmetry’s ERP infrastructure and Symmetry Surgical unit. The company continues to invest in revamping its management structure and enhancing customer collaboration, which should push growth moving forward.

However, Symmetry’s high spending may continue to weigh on its bottom line. Currently, we have a Neutral recommendation on the stock, which retains a short-term Zacks #4 Rank (Sell).

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