Zimmer (ZMH:NYSE) Beats the Street by $0.07 in EPS and $18 Million in Revenues; Stock Gains 11% on Tuesday.
BY JOHN CHOPACK, FEBRUARY 7, 2005
After Stryker and DePuy reported somewhat modest financial reports two weeks ago, it seemed like many industry analysts and experts were talking of a potential slowdown in orthopedic growth. Then Zimmer reported revenues of $800 million for the 4Q:04 which was a 14% increase over the 4Q:03 and $18 million, or 2% higher, than analysts were anticipating. More impressive was the fact that ZMH's diluted earnings per share totaled $0.81 which was a 39% increase over the 4Q:03 (excluding one-time costs associated with the Centerpulse and Implex acquisitions). This was also $0.07 higher than analysts were expecting which shares up 11% on Tuesday.
Ray Elliot, CEO of Zimmer pointed out that he and his team have delivered on expectations. In case you forgot, which to be honest we did, management indicated that it expected "to deliver a minimum of 10% growth on the top line for the first two full year's/2004 and 2005, and 20 percent or more growth in EPS for 2004". Zimmer's 2004 easily surpassed their expectations with 14% revenue growth and a 39% increase in EPS.
One of the most impressive financial aspects of Zimmer is the amount of free cash flow it generates. Free cash flow (which is operating cash flow less capital expenditures) totaled $622 million. Zimmer has used its strong cash flow to help reduce its total debt from $1 billion after 2003 to $652 million.
Pricing, Unit/Product Mix, Foreign Currency Translation
Worldwide pricing remained at 2%. However, Zimmer was quick to point out that Japan and German pricing declined by 4% and 6%, respectively. The weakness in Japan and Germany was offset by strong domestic price increase of 4.2% at Zimmer. Management was also willing to provide some specific price increases for each product line: hips increased by 1%, knees 3%, other joints 5%, trauma 3%, dental 4% and surgical products 2%.
Contribution to revenue growth from units and product mix increased from 8% in the 3Q:04 to 9% in the 4Q:04. Foreign currency contributed 3% of the 14% growth in the 4Q:04 which was in-line with the 3Q:04.
Table 1
Source: Company Reports.
Product & Revenue Highlights:
- Knees - 18% increase on constant currency basis - a 4% acceleration from the 3Q:04
- 18% constant currency growth was 8% higher than Stryker
- NexGen LPS-Flex increased 74% over the 4Q:03
- LPS-Flex is preferred knee of choice for MIS Mini & Quad-Sparing procedures
- LPS Prolong highly cross-linked polyethylene was launched in January
- Cruciate-retaining (CR) Prolong is trending toward a $25 million run rate
- Centerpulse Innex knees increased by 28% during the 4Q:04
- Trabecular metal tibial trays increased by 54% in the quarter
- Trabecular metal knees implants in total delivered a $44 million annual run rate
Source: Company Reports.- Hips - 7% increase on a constant currency basis
- Underlying patient demand did not decline
- Legacy Zimmer hips grew by 13%
- Zimmer fiber metal tapers along with the new ML taper are stems of choice for MIS hips
- Centerpulse's Alloclassic stem grew by 20% even without MIS instrumentation
- At its current rate of growth Zimmer's porous primary hips will annualize $330 million
- Trabecular metal cups exceeded $10 million in sales in the 4Q:04 - a 120% increase
- Spine - 1% increase on a constant currency basis
- Spine revenues totaled $35 million in the quarter
- Cage sales remained at $9 million and represent only 25% of ZMH's spine sales
- Trinica Select an anterior low-profile cervical plate increased 25%
- Dynesys dynamic stabilization system only increased by 15%
- Dynesys clinical program is coming to an end with a limited commercial release initiated on January 9/2005 - a fuller launch will be post AAOS
- Spine sales totaled $134 million during 2004 up 1% on a constant currency basis
- Management expects
- Guidance
- 1Q:05 - EPS to range between $0.66 and $0.67
- 2Q:05 - EPS to approximate $0.74
- 2005' Management reiterated its previous guidance of $3.325 billion to $3.345 billion and increased its EPS guidance by $0.06 to $2.89-$2.91
