Cutera's Ugly Quarter

There was nothing cute about aesthetic laser maker Cutera's (Nasdaq: CUTR  ) performance this quarter, as the company realized the poor performance it had warned about last month.

Total revenues grew 12% in the quarter to $23.3 million, and that was only on the strength of a strong international showing where sales jumped 27% from the year before. Domestic sales were up only 6% as the laser maker faced high turnover in its sales department which left it with a relatively inexperienced sales force that couldn't hone in on its market. Additionally, a weak showing by its distributor PSS World Medical (Nasdaq: PSSI  ) had it gasping for sales in North America.

Profits also came in below expectations at $0.18 on a non-GAAP basis. Analysts had been expecting $0.19 per share. Gross margin fell to 67% in the quarter, primarily from having to pay Palomar Medical Technologies (Nasdaq: PMTI  ) some $944,000 in royalties. Since that will be an ongoing expense for Cutera from now on, the laser maker now cautions investors to expect gross margin of no more than 70% going forward. The patent infringement lawsuit settlement did allow the company to reduce its legal expenses, at least, which had been a drain on operations.

The one bright spot for Cutera was its healthy increase in international sales, which now account for one-third of its total revenues. Cutera hopes to achieve significant growth internationally, and it appears to be capitalizing on the burgeoning market potential in Europe and Asia. It just didn't count on the North American market being such a drag.

The stock melted down last month, dropping 30% to around $26 a share. It's since been clawing its way back up, and before the earnings release, it had closed at just less than $30 a share. However, yesterday's announcement and the significant reduction in Cutera's guidance has once again slashed the stock more than 20% in this morning's trading. Its newly reduced outlook may keep the stock hobbled for a while yet.

Investors seeking an entry into the aesthetic laser market may want to ignore companies like Cutera and Candela, as they struggle to achieve any real growth in an otherwise booming industry. Fools would do better to look at Palomar or Syneron (Nasdaq: ELOS  ) as potential investments here. Even Cynosure (Nasdaq: CYNO  ) is showing potential.

Syneron is a recommendation of Motley Fool Rule Breakers. Hone in on tomorrow's big companies today with a 30-day free trial subscription.

Fool contributor Rich Duprey owns shares of Candela, but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.