So-So Syneron

A year-over-year sales increase of just 5% normally isn't something to brag about, but when a company exists in a sagging sector such as medical lasers, as Syneron Medical (Nasdaq: ELOS) does, that tepid growth ends up looking pretty good.

With one notable exception, the rest of the industry has floundered as U.S. customers have cut back on discretionary spending. I'd say fixing blemishes and cellulite is discretionary for everyone except for the vainest of Americans.

Syneron is fortunate that it sells many of its devices outside the States. International sales jumped 14% and now account for almost half of Syneron's revenue. International sales through distributors result in lower gross margins, but they also come with lower selling and marketing expenses, which dropped from 44% of revenue a year ago to 41% this quarter.

More worrisome, though, is an increase in general and administrative expenses compared with a year ago. Partly as a result of that increase, operating income dropped 17% year over year. The other major contributor to the drop was a step up in research and development. However, the R&D boost can be considered an investment in future revenue growth, rather than an expense.

Syneron's management is still expecting revenue growth of 10% this year, a target that seems a tad ambitious at this point. However, management did point out that most of the growth is expected to come in the second half of the year, as the launch of its new $120,000 LipoLite fat-reduction device moves into full swing.

The company also plans on launching its Matrix RF skin-rejuvenation device in the second half of the year. Even better, next year, Syneron is hoping to introduce its home-based skin-rejuvenation device in conjunction with Procter & Gamble (NYSE: PG).

Tie all three initiatives into a U.S. economy that we can only hope will be recovering by then, and sales growth should be better than just 5%. Stay tuned.