Zimmer Holdings, Inc. (ZMH) reported first quarter fiscal 2010 earnings per share of $1.02, beating the Zacks Consensus Estimate of $1.01 and the year-ago earnings of 95 cents.

Sales

Total revenues in the first quarter increased 7.1% year over year to $1,062.8 million. Excluding a favorable foreign currency translation (FX), net sales increased 3.4% year over year.

Excluding Spine, growth was witnessed across all business segments. Reconstructive revenues increased 7% year over year to $814.5 million. OSP and Trauma revenues increased 22% and 6% year over year to $76.2 million and $60.4 million, respectively.

Dental revenues increased 9% year over year to $51.7 million. Spine sales declined 7% year over year to $60.0 million.

On a geographic basis, the U.S. contributed 58% to total first quarter revenues and increased 4% year over year. International revenues increased 12% year over year.

Margins

Zimmer reported a contraction in margins in the first quarter. Gross margin declined 210 basis points (bps) year over year to 74.7%. Operating margin declined 50 bps year over year to 27.7%.

Balance Sheet & Cash Flow

Zimmer ended the first quarter with cash and cash equivalents of $821.2 million, an increase of roughly 19% in the first three months of the year. The company had an outstanding long-term debt of $1,127.0 million at the end of the first quarter. Zimmer generated cash from operations of $259.5 million, versus $184.6 million at the end of the year-ago quarter.

Outlook

Zimmer has retained its sales and adjusted earnings per share guidance for fiscal 2010. The company expects total revenue to grow between 3.5% and 5.5% year over year on a reported basis. Adjusted earnings per share should be in the range of $4.15 to $4.35.

Zimmer is a global leader in the design, development, manufacture and marketing of reconstructive implants, and trauma and related orthopedic surgical products. The company competes in the orthopedic market with players such as Stryker Corporation (SYK), Johnson & Johnson/DePuy (JNJ), Wright Medical (WMGI), Medtronic, Inc. (MDT), Smith & Nephew (SNN), etc.

Presently, we have a Neutral recommendation on Zimmer.
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