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Symmetry Provides Dismal 2013 View

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Orthopedic implants and instruments maker Symmetry Medical has revised its guidance for 2013 based on the company’s disappointing first-quarter results as well as a tempered forecast for the rest of the year.

Symmetry lowered its revenue guidance to the range of $400 million–$415 million from the earlier range of $420 million–$440 million. In 2012, the company generated revenues of $411 million on a reported basis, up 14% year over year. We note that the current Zacks Consensus Estimate of $426 million exceeds the revised projected range.

Revenues in the Original Equipment Manufacturer (OEM) Solutions segment is anticipated to grow 3% to 6% (on a reported basis) year over year to the range of $313 million–$323 million. On an adjusted basis, OEM Solutions revenues are expected to be up 2% to 5%. Volume pressure in product launches, slower realization of OEM supplier rationalization efforts along with persisting austerity measures in Europe is adversely affecting sales of the company’s instrument and case offerings. In 2012, this segment generated revenues of $303 million on a reported basis, down 5% year over year.

Revenues from the smaller Symmetry Surgical are expected to decline 14% to 19% on a reported basis and 7% to 12% on an adjusted basis to the band of $87 million and $92 million. This is in sharp contrast to the 171% growth achieved by the business in 2012 on the back of acquisitions. Now the segment is facing significant challenges regarding sales disruptions associated with the integration of Codman surgical instruments business into Symmetry Surgical.

The earnings per share (on a reported basis) target has been set in a range of 11 cents to 21 cents (earlier 35 cents to 47 cents) for 2013. Adjusted earnings are expected in the range of 40 cents to 50 cents (earlier 64 cents to 76 cents). This includes a negative impact of the Medical Devices excise tax of 2 cents (earlier 3 cents). The adjusted earnings forecast exclude one-time items such as severance costs, debt issuance costs, acquisition and amortization-related charges, which are expected to dilute 2013 earnings by roughly 29 cents a share. The Zacks Consensus Estimate for 2013 adjusted earnings remains at 63 cents, way above the guided range.

Symmetry also revealed its second-quarter 2013 guidance in the band of $98 million and $100 million. Adjusted earnings per share are anticipated between 6 cents and 8 cents. Both the Zacks Consensus Estimate for second-quarter revenues and adjusted earnings of $106 million and 15 cents, respectively, are above the revised projected range.

Our Take

We are disappointed with the unexpected drop in the outlook for 2013. Further, the sudden change of pace of the high-growth Symmetry Surgical business due to integration-related problems is a cause of concern. As a result, Symmetry currently carries a Zacks Rank #4 (Sell).

While we recommend avoiding Symmetry stocks until management is able to improve results, other medical stocks such as Haemonetics (HAE - Free Report) , AtriCure (ATRC - Free Report) and Baxano Surgical warrant a look. HAE carries a Zacks Rank #1 (Strong Buy), while the other two stocks carry Zacks Rank #2 (Buy).

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