When a company is faced with having missed analyst projections on revenues or earnings, it can be tempting to place the blame upon external events, particularly large, well-known catastrophes that seemingly everyone else is blaming for their shortcomings. There are a few such bugaboos that are getting lots of air time these days: rising steel prices, the high price of oil, and the series of devastating hurricanes that hit the Southeast this summer.
It is a measure of management integrity, I believe, when the company will not reach for the easy answer to explain away missed opportunities.
Candela (Nasdaq: CLZR ) , the leading manufacturer of cosmetic and aesthetic lasers, reported first-quarter results the other day and ended up just meeting earnings projections but missing revenue estimates by $3 million. As a result, the stock has taken a pounding, down 10% on the day of the release and off another 6% the day after.
During the conference call, CEO Gerald Puorro was given the opportunity to swing at the softball pitch of laying some of the blame on the hurricanes. Puorro declined to swing, saying that it would be easy to do so but that the storms really had little effect. As a shareholder of Candela, I'm disappointed with the company's results to date. We were given tantalizing imagery last year of "white-hot" sales of its newest laser, the GentleYAG, but they have not been enough to alone carry the company forward, and its Smoothbeam lasers have not been hitting their mark. Still, I remain encouraged that even faced with the prospect of a hanging curveball, management declined the offer and simply said that they, too, were disappointed that sales had not been more.
It's been a lumpy time for cosmetic laser manufacturers these days. Biolase Technology (Nasdaq: BLTI ) has reported a loss for the quarter of $0.05 a share, while Lumenis, which trades on the pink sheets, posted a $0.06 loss. Yet Palomar Medical Technologies (Nasdaq: PMTI ) and Laserscope (Nasdaq: LSCP ) both reported exceptionally strong sales and earnings growth.
Candela finds itself somewhere in between. Revenues grew to $22.4 million, an increase of 20% from last year, but they were under the expected increases in excess of 35%. It's nowhere near the danger zone I had outlined in an earlier article on fragrance distributor Inter Parfum's (Nasdaq: IPAR ) declining sales growth, but it does bear watching. As noted before, earnings were $0.12, a 50% increase from this time last year. When revenues fall, earnings usually follow. But with the first quarter historically being Candela's weakest, they still turned in very good numbers.
It seems the company, and the industry, is trying to find its footing. Cosmetic laser "surgery" to remove acne scars, varicose veins, tattoos, and the like is still in its infancy, and demand for treatment of skin irritations or age-related skin conditions continues to grow. Candela acknowledges it has more to do in getting medical practitioners to accept its technology.
After all the anticipation of white-hot sales, the denouement is something of a letdown. But I appreciate a management team that is willing to stand up and say it didn't do as good of a job as it had hoped for and planned rather than take the easy way out and blame external forces. To me, it's a sign of management integrity that will lead to future profits.
Fool contributor Rich Duprey is blaming external forces for causing him to miss submitting this article yesterday. He owns shares of Candela but does not own any other stocks mentioned here.
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