June 17, 2009 / 12:42 PM / 10 years ago

UPDATE 3-Somanetics cuts FY outlook, extends Covidien deal

* Q2 EPS $0.14 vs est $0.13

* Cuts FY09 pretax income, revenue views

* Says Q3, Q4 to be slightly better than Q2

* Extends distribution deal with Covidien by 3 yrs

* Shares recover from early falls, up 1 pct (Recasts, adds analyst’s comment, updates share movement)

By Shailesh Kuber

BANGALORE, June 17 (Reuters) - Medical device maker Somanetics Corp SMTS.O reported quarterly profit slightly above market view, but cut its fiscal 2009 outlook as it expects soft sales for its INVOS hardware in the United States for the rest of the year.

Shares of Somanetics pared early losses and were up 16 cents at $16.41 in afternoon trade on Nasdaq. They fell as much as 11 percent to $14.54 in morning trade.

Somanetics said it extended its distribution contract with Covidien Plc COV.N to market INVOS Cerebral/Somatic Oximeter products in Europe, the Middle East and Africa by three years.

The extended deal will start from Feb. 16, 2010, and the incremental revenue is expected to be $2.5 million to $3 million in the first year, the company said.

“The most important events of the quarter was the ability to put the Covidien renegotiation behind us, accelerating growth in the adult cardiac sensors, and the opportunity to continue to create clinical data in both the neonatal and cardiac markets that should accelerate future growth rates,” Barrington Research analyst Charley Jones told Reuters.

“It’s one of the more attractive long-term opportunities in healthcare,” Jones said.

Somanetics said for the year ending Nov. 30, it expects a pretax income of $11.2 million to $11.6 million, down from its earlier expectations of about $12 million.

It also lowered its revenue estimate for the year to between $50 million and $52 million. The company had earlier expected revenue of $54.6 million for the period. “We are assuming that we do a little better than the second quarter in each of the next two quarters, but we are not assuming that we do greatly better,” Chief Executive Bruce Barrett said on a conference call with analysts.

He said the company has a couple of large opportunities in the pipeline. “But fundamentally, we believe hospitals in the United States would have to start releasing capital dollars much more freely in the second half of the year for us to deliver our original plan.”

REVENUE DIPS

Somanetics said lower-than-expected hospital capital equipment spending on INVOS System hardware — a device that monitors blood oxygen levels — in the U.S. market impacted its second-quarter revenue.

Revenue fell 7 percent to $11.8 million for the quarter.

For the second quarter ended May 31, the company posted a profit of $1.8 million, or 14 cents a share, compared with $3.1 million, or 21 cents a share, in the year-ago quarter.

Analysts on average had expected a profit of 13 cents per share, excluding special items, according to Reuters Estimates.

“On the positive side, adult sensor demand was strong, largely off-setting the shortfall in pediatric and neonatal sensor volume,” CEO Barrett said in a statement. (Editing by Aradhana Aravindan and Gopakumar Warrier)

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