BOTHELL — SonoSite Inc. planned to be profitable by now, capping five years in which the maker of hand-held ultrasound machines evolved from a spin-off venture into a fast-growing innovator in the medical industry.
While the company’s future still looks bright, investors will have to wait a little longer to see SonoSite running in the black.
One day after warning that third-quarter earnings will not meet expectations, SonoSite’s president and chief executive officer took the blame.
"We definitely had some bad luck in terms of expected orders projected to book and ship during the quarter. However, more importantly, we could have done a better job in executing in the quarter, particularly in the U.S," Kevin Goodwin said Tuesday.
Instead of showing a small profit, SonoSite is estimating it will report a third-quarter loss of up to $500,000, or 4 cents a share, when full results are released at the month’s end.
In response to the bad news, stockholders sent SonoSite shares predictably downward. The stock closed the day at $17.13 a share, down $2.60, or 13 percent.
Goodwin explained that several events combined to reduce the company’s sales. In addition to continued changes in the company’s sales force, the federal government delayed a large order, he said.
"We had significant business projected in the quarter coming from the U.S. government, which essentially froze spending as they neared their fiscal year end on Sept. 30. We estimate this caused approximately $1 million in business to be delayed," Goodwin said.
On top of that, a European order totaling about $1.5 million recently fell through.
The third quarter seems destined to be the second in a row for SonoSite that disappoints investors. When it failed to break even and instead posted a $1.3 million loss for the second quarter, the stock price plummeted more than 28 percent on Aug. 1.
Bob Toomey, an analyst with RBC Dain Rauscher in Seattle, said his optimistic view of SonoSite hasn’t changed with the recent events, however.
"I don’t think this is something to worry about long term. The bulk of the revenue miss is factors out of their control," Toomey said. "The timing’s just been unfortunate, to have things happen in two consecutive quarters."
Indeed, SonoSite’s third quarter results will look great compared to the third quarter of 2002, when it reported a net loss of $2.4 million, or 17 cents a share. Sales are up about 20 percent over last year in both the United States and Europe. And SonoSite’s latest product, the Titan system, now accounts for about 30 percent of revenues less than a year after its introduction.
Toomey still rates SonoSite’s stock as likely to outperform the stock markets. But at least one brokerage has downgraded the company’s stock: Delafield Hambrecht Inc., which had rated SonoSite as a "buy," now rates it as a "hold."
Goodwin and SonoSite’s chief financial officer, Michael Schuh, provided only broad comments on how they think the ongoing fourth quarter may finish. But revenues should be up about 30 percent from the third quarter, they said.
"This will be a better quarter, we think, for sure," Goodwin said.
Beyond that point, SonoSite’s goal for 2004 is to increase revenues by at least 25 percent, he added.
Reporter Eric Fetters: 425-339-3453 or fetters@heraldnet.com.
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