) reported fourth quarter 2013 adjusted earnings per share of
$1.66, up 9.9% year over year and 5 cents higher than the Zacks
Consensus Estimate. After including one-time items, the company
reported earnings of $1.36 a share, up 54.4% year over year.
For the full year, adjusted EPS came in at $5.75, up 8.5% year
over year and ahead of the Zacks Consensus Estimate of $5.71.
In the fourth quarter, revenues stood at $1.24 billion, up
5.1% (up 6.6% at constant exchange rate or CER) year over year,
beating the Zacks Consensus Estimate of $1.22 billion. Full-year
revenues of $4.62 billion were up 3.4% (up 4.9% at CER) from the
prior year, exceeding the Zacks Consensus Estimate of $4.60
Revenues generated in the Americas were $692 million (up 8%
year over year at CER). The figure in Europe stood at $343
million (up 2% at CER) and in Asia-Pacific at $206 million (up
Zimmer's biggest segment, Reconstructive Implant, recorded
revenues of $928 million, up 7% year over year at CER. This was
due to an increase of 8% in the Americas combined with an 8%
increase in Asia Pacific and 4% sales growth in Europe.
Revenues derived from Knees (within Reconstructive) were up
10% year over year at CER to $523 million, while Hips recorded an
increase of 3% year over year to $353 million. Revenues from
Extremities increased 11% year over year to $52 million.
Among the other segments at Zimmer, spine recorded a decline
of 2% at CER to $53 million in the reported quarter.
Zimmer's gross margin contracted 215 basis points (bps) to
72.5% in the fourth quarter. Selling, general and administrative
expenses increased 3.6% to $477 million while research and
development expenses were down 16.1% to $46.4 million. Adjusted
operating margin contracted 64 bps to 30.3%.
Zimmer exited the fiscal with cash and cash equivalents and
short-term investments of $1,965.9 million compared with $884.3
million as of 2012. Long-term debt decreased marginally to $1.67
billion compared with $1.72 billion at the end of 2012.
Operating cash flow at the end of 2013 was $963.1 million
compared to $1.15 billion in the year-ago period. In the fourth
quarter, the company repurchased 2.7 million shares for $240.6
million. The company also declared cash dividends of $34.0
million during the quarter.
Zimmer initiated its full-year 2014 guidance. The company
expects adjusted earnings in the range of $6.10 to $6.30. The
current Zacks Consensus Estimate of $6.18 remains within the
Revenues for 2014 are expected to grow in the range of 3.0% to
5.0%. The currency movement is expected to lower revenues by
0.5%, which in turn would lead to 2.5% to 4.5% revenue growth on
a reported basis. The current Zacks Consensus Estimate for
revenues remains at $4.78 billion.
Zimmer provided a decent fourth quarter with both top-line and
bottom-line beats. Barring spine revenue, which continues to
remain as a key disappointment, we are encouraged with the
balanced segmental sales growth which acted as a major upside for
In order to streamline its business, Zimmer is continuing with
its global restructuring program. A number of new products are
slated for launch that will have a positive impact on the top
line. After several quarters of challenging market conditions in
the form of reduced procedure volume and pricing pressure, the
company is gradually witnessing stability in the global
musculoskeletal market with better-than-expected sales growth in
However, pricing continues to remain a major headwind for
Zimmer. Moreover, with continued weakening of yen, the company is
expected to face negative currency impact on its sales.
Currently, Zimmer carries a Zacks Rank #3 (Hold). Medical
products companies such as
Baxter International Inc.
), with a Zacks Rank #2 (Buy), are worth considering.
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