In the popular video game Ratchet & Clank, the game's hero must use a shrink ray to bypass obstacles and thwart enemies. Apparently, management at aesthetic laser maker Candela (NASDAQ:CLZR) got hold of Ratchet's ray gun -- and accidentally focused the beam on its revenues. For the second quarter in a row, sales have been doing an amazing shrinking act.
CEO Gerard Puorro says it's because the company was unable to achieve performance standards for its new GentleMax laser, and had to deal with a software glitch in another. Unfortunately, the problem's not as simple -- or funny -- as a shrink ray gone rogue. Candela has real performance issues that seriously undermine its future prospects. Puorro noted that even if Candela added its missed shipments back in, its effort still lagged its potential.
The problem apparently rests with further U.S. acceptance of its lasers; U.S. sales were off 10% sequentially and 25% year over year. Total revenue came in at $38.7 million, down from the $42.3 million it made last year, and well below analyst projections. Earnings came in at just $0.07 per share, one-third the $0.21 reported a year ago.
International sales have always comprised the bulk of Candela's revenues; this quarter, they were 60% of the total. If nothing else, the dwindling U.S. revenue had something to do with that.
Are Candela's results a symptom of a contraction within the industry? On Candela's conference call, Puorro dismissed the question. He noted that margins had improved in the quarter as a result of the 6% increase in international sales, and said he believed that results were company-specific.
Yet Cutera (NASDAQ:CUTR) also recently said it would miss first-quarter projections because of lower sales. Combined with Candela's own revenue meltdown, it certainly seems to portend problems in the laser business. Many times, when one company sniffles, the entire industry catches a cold. Fools, keep a close eye on Palomar Medical Technologies' (NASDAQ:PMTI) earnings report tomorrow, followed by Cynosure (NASDAQ:CYNO) and Syneron (NASDAQ:ELOS) the following week. We'll see whether Candela's sniffles are an isolated outbreak, or part of an epidemic.
Then again, maybe Candela's just loaning out Ratchet's shrink ray to competitors.
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Fool contributor Rich Duprey owns shares of Candela, but he does not own any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
