Zimmer Holdings (ZMH) reported third-quarter fiscal 2010 adjusted EPS of 96 cents, beating the Zacks Consensus Estimate by a penny and 9% higher from the year-ago quarter’s 88 cents. The company reported net sales of $965 million, lower than the Zacks Consensus estimate of $995 million. In addition, revenues declined 1.1% from the year-ago quarter’s $975.6 million.
Zimmer reported net sales of $965 million, missing the Zacks Consensus estimate of $995 million, but declined 1.1% from the year-ago quarter’s $975.6 million.
Despite the decline in revenue, earnings increased due to improved margins, 7% decline in share count, partially offset by higher interest expenses (up 240%)
Zimmer’s Reconstructive Implant recorded a 2% decline in revenue to $724 million due to a 12% decline in sales from Europe. In addition, barring the Spine Products (9% decline to $56 million); growth was witnessed across all other business segments including Zimmer Surgical and Other products (9% annually to $78 million), Trauma (1% to $58 million) and Dental (2% to $49 million).
On a geographic basis, revenue in Americas remained flat year over year, while Asia-Pacific increased 12% to $166 million. However, Europe experienced a revenue decline of 11% to $216 million.
Gross profit increased 3% year over year to $745.8 million in the reported quarter with a 290 basis point expansion of gross margin to 77.3%. Operating expenses increased 0.8% to $469.2 million, due to a 10% rise in research and development expenses ($57.6 million) although selling, general and administrative expenses remained unchanged ($411.6 million). Operating margins increased 190 basis points to 28.7%.
Zimmer exited the third quarter of 2010 with cash and cash equivalents of $918.6 million, a 32.8% increase from $691.7 as of December 2009. Debt burden of the company remained unchanged at $1.13 billion compared to the end of 2009. The company enjoyed a $320.3 million cash flow from operations in the third quarter.
During the quarter, Zimmer repurchased 4.2 million shares amounting to $225.6 million and was left with $1.3 billion of authorization.
Outlook
Zimmer provided the fourth quarter guidance. The company expects revenue to grow by 0%–2% on a constant currency basis with adjusted EPS of $1.17–$1.22. The current Zacks Consensus Estimate for the fourth quarter is $1.20, reflecting a 6.7% annual growth.
Zimmer revised its sales and adjusted EPS guidance for fiscal 2010. Revenue is expected to grow 2% as compared with the previous expectation of 3%–5% on a constant currency basis. Adjusted EPS is expected in the range of $4.24–$4.29, within the prior guidance of$4.15 – $4.35. The current Zacks Consensus Estimate for 2010 is $4.26, reflecting an 8.1% year-over-year growth.
Zimmer Holdings offers a broad line of popular reconstructive implant and trauma products, as well as orthopedic surgical instruments and supplies. Presently, the company is highly exposed to pricing pressures, as well as the unpredictable movement of foreign exchange.
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