The announcement of
) fourth quarter and fiscal 2011 results as on January 26, 2012,
has led analysts to revise their estimates lower for the first
quarter of fiscal 2012. The scenario, however, improves for the
second half and onwards.
Previous Quarter Highlights
Zimmer reported an adjusted EPS of $1.36 during the fourth
quarter of fiscal 2011, up 7.1% year over year and a couple of
cents ahead of the Zacks Consensus Estimate. During the reported
quarter, the company recorded $108.0 million provision for claims
related to the Durom Acetabular component, which has been taken
into account in the adjusted figure. For the full year, the
adjusted EPS increased 10.9% to $4.80, surpassing the Zacks
Consensus Estimate of $4.78.
Revenues were $1.17 billion, up 2.9% on a reported basis and
2.4% at constant exchange rates ("CER"), in line with the Zacks
Consensus Estimate. For the fiscal year, revenues increased 2.6% at
CER to $4.45 million, at par with the Zacks Consensus Estimate.
While revenues generated in the Americas remained unchanged at $620
million, revenues from Europe and Asia-Pacific increased 6% (at
CER) to $338 million and 5% to $209 million, respectively.
Zimmer's biggest segment, Reconstructive Implant, recorded a 2%
increase in revenue (at CER) to $877 million driven by growth in
Asia Pacific (6% to $154 million), Europe (6% to $267 million),
partially offset by a 2% decline in the Americas to $456 million.
Revenues from Knees (within Reconstructive) remained unchanged at
$475 million while Hips and Extremities recorded a respective
growth of 4% (at CER) to $358 million and 9% to $44 million.
Among the other segments at Zimmer, barring Spine that declined
6% (at CER) to $56 million, growth was witnessed across the board
including Surgical and Other (5% annually to $93 million), Trauma
(11% to $77 million) and Dental (2% to $64 million).
Zimmer also unveiled its outlook for 2012, which was more or
less in line with the Zacks Consensus Estimate.
For a full coverage on the earnings, read:
Zimmer Beats Estimates
Agreement of Analysts
With several challenges currently at play in the orthopedic
devices market, many analysts have lowered their estimates for the
current quarter. Over the last 30 days, 9 of the 24 analysts
covering the stock have lowered their estimates for the first
quarter of fiscal 2012, with 3 revisions northward.
On the other hand, the optimism among some analysts emanate from
new product launches and resulting benefits from restructuring over
the long term. As a result, for fiscal 2012, 15 analysts have
increased their estimates over the last 30 days with 3 negative
Although Zimmer did not experience any further deterioration in
procedure rates, widespread economic uncertainty is resulting in
procedure deferrals. Besides, pricing pressure deteriorated in the
fourth quarter with a 1.6% decline compared with -0.9% witnessed in
the preceding two quarters. With respect to guidance for 2012, the
company expects the market condition to remain challenging but
relatively stable. Pricing is expected to decline by 2% in 2012,
worse than 2011. This guidance takes into account the impact of
bi-annual price cuts in Japan and the increase in pricing pressure
witnessed in the fourth quarter
However, as the situation gradually improves, Zimmer is well
poised to reap the benefits of a strong portfolio and a wide
geographical reach. Over the past few quarters, the company has
been investing in its product portfolio and several new products
are being launched that should support the top line going
Magnitude of Estimate Revisions
The magnitude of estimate revisions has been insignificant for
the first quarter, in the past 30 days. Overall, the consensus
estimate for the current quarter has gone down by a penny to $1.30
while the next quarter estimate remained static at $1.33. The
consensus estimate for fiscal 2012 increased by 4 cents to $5.26
over the last 30 days to reflect market optimism based on an
Neutral on Zimmer
Zimmer, one of the leading orthopedic medical devices companies
with prime focus in the area of hip and knee implants, is leaving
no stone unturned to perform in a challenging scenario. We believe
the company has, to a large extent, succeeded in that effort.
The company's Knee business, contributing 40% to the top line,
is witnessing traction from its Patient Specific Instruments (
), Mobile Bearing Knee System and Revision products. Besides,
several new products within the Knee franchise are slated for
launch in 2012. The company also expects to record higher sales
from the Hip business in the forthcoming period based on the launch
of the CLS Brevius Stem with Kinectiv Technology in the US market
in the fourth quarter of 2011. However, we expect lingering
pressure in the company's spine business.
Strong performance in international segments emphasizes the
positive impact of the company's investments in established markets
as well as its strengthening presence in emerging markets that
provide long-term opportunities for growth. The company's strategic
investments in these regions over the past several quarters to
improve operational and sales performance are yielding results.
Based on a strong cash balance, Zimmer intends to return 1/2 of
its net income to stock holders through share repurchase programs
and dividends and targets suitable acquisitions in the
musculoskeletal space. The recent acquisition of ExtraOrtho with
its external fixation line, XtraFix External Fixation System, is
expected to broaden Zimmer's existing portfolio of trauma-care
solutions and also bolster its position in the $820 million worth
external fixation market.
Moreover, Zimmer remains committed on delivering additional
returns to investors leveraging a solid balance sheet and healthy
free cash flows. The company also made several acquisitions in the
recent past to diversify its portfolio. Besides, the restructuring
initiatives to boost productivity should also benefit the company
in the long term. However, Zimmer faces tough competition from
players such as
Smith & Nephew
) among others.
We have a Neutral recommendation on Zimmer.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years
ago that earnings estimate revisions are the most powerful force
impacting stock prices. He turned this ground breaking discovery
into two of the most celebrating stock rating systems in use
today. The Zacks Rank for stock trading in a 1 to 3 month time
horizon and the Zacks Recommendation for long-term investing (6+
months). These "Earnings Estimate Scorecard" articles help
analyze the important aspects of estimate revisions for each
stock after their quarterly earnings announcements. Learn more
about earnings estimates and our proven stock ratings at
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