SonoSite sales hit slump overseas

This is supposed to be the year SonoSite turns its first annual profit, but the Bothell company might be cutting it close.

SonoSite, the maker of portable medical ultrasound machines, said yesterday that its quarterly sales fell short of expectations because of problems in Germany and Japan, and said it now believes the company will reach the low end of its annual sales forecast of $90 million to $110 million.

Some analysts had expected SonoSite to roughly break even in the second quarter and were surprised with a $1.3 million net loss and sales of $20 million. The 5-year-old company stuck to its pledge that it will turn its first annual profit in 2003 but said it will trim some expenses in the second half of the year to get there.

The company's stock closed yesterday at $21.99, but investors reacted to the earnings report — released after the markets closed — by knocking 20 percent off that price in after-hours trading.

SonoSite Chief Executive Kevin Goodwin told analysts in a conference call that most of the weakness was not in its top market — the U.S. — but in Germany, Japan, France and Spain.

As Goodwin explained it, in Germany, hospitals postponed or canceled buying its ultrasound machines as a new reimbursement system is put in place, which could take months.

In Japan, Goodwin said, sales slumped because its partner there has been distracted by problems in its main business and hasn't lived up to its commitments to SonoSite. In France and Spain, he said, some sales representatives didn't perform well.

To fix things, cost-cutting is on the way, Goodwin said.

"We don't have specific major layoffs in mind, but in terms of pruning things off, that will happen for sure," Goodwin said. "We will keep costs level or down in the second half."

Goodwin did, however, have some positive things to say. SonoSite's top-of-the-line Titan ultrasound, a $35,000 machine, was introduced in the quarter and quickly accounted for about one-fourth of sales. The second half of the year is also traditionally busier for medical devices because that's when hospitals do most of their capital spending.

However, SonoSite isn't clicking on its entire three-tier product lineup. SonoSite's iLook, a $15,000 mini palm-held ultrasound introduced last year, accounted for about 6 percent of sales, Goodwin said.

Luke Timmerman: 206-515-5644 or ltimmerman@seattletimes.com