) reported net earnings of $152.8 million or 88 cents per share
in the fourth quarter of 2012 compared with $156.6 million or $87
cents in the year-ago quarter. After taking into account certain
one-time items, adjusted earnings came in at $1.51, surpassing
the Zacks Consensus Estimate of $1.49 and the previous year's
For the full year, adjusted earnings per share (EPS) were
$5.30, 2 cents ahead of the Zacks Consensus Estimate and 10.4%
higher than the prior year's $4.80.The adjusted EPS remained in
line with the upper limit of the company-provided guided range of
Revenues were $1.180 billion, up 1.1% on a reported basis and
up 2.1% at constant exchange rates ("CER"), which beat the Zacks
Consensus Estimate of $1.175 billion. Revenue generated in the
Americas was $644 million (up 4% at CER), in Europe was $326
million (down 1%) and in Asia-Pacific was $211 million (up 2%).
Fiscal 2013 revenues remained at $4.47 billion, up by a marginal
0.4% from 2011 and exceeded the Zacks Consensus Estimate of $4.46
billion. However, revenues remained below the company's guided
range of $4.75−$4.80.
Zimmer's biggest segment, Reconstructive Implant, recorded
revenues of $871.9 million, flat year over year at CER. This was
due to a 2% decline in Europe, fully offset by a 2% increase in
Asia-Pacific.Revenues from Knees (within Reconstructive)
increased 1% to $476 million, while Hips recorded a decline of 1%
(at CER) to $349 million. Revenues from Extremities increased 7%
year over year to $47 million.
Among the other segments at Zimmer, sales from Spine recorded
a decline of 5% (at CER) to $54 million and Dental revenues
declined 2% to $61 million. Growth was witnessed in the other two
segments - Surgical and Other (19% annually to $110 million) and
Trauma (10% to $84 million).
During the quarter, Zimmer's gross margin expanded 65 basis
points (bps) to 74.7%. Moreover, with selling, general and
administrative, and research and development expenses decreasing
by a respective, 0.3% to $460.5 million and 14.8% to $55.3
million, operating margin improved 210 bps to 30.9%.
We believe that better operating margin along with a 3.06%
year-over-year drop in outstanding share count owing to the
continuous share repurchase program led to an improvement in
Balance Sheet and Cash Flow
Zimmer exited fiscal 2012 with cash and cash equivalents of
$884.3 million compared with $768.3 million as of Dec 2011.
Long-term debt increased marginally to $1,720 million compared
with $1,576 million at the end of 2011.
Operating cash flow for the reported quarter was $368 million.
The company repurchased 2.1 million shares for $140 million
during the quarter, under the current program (of up to $1.5
billion of shares)that expires on Dec 31, 2014
The company also paid $94 million in dividends to
Zimmer provided its outlook for 2013. The company expects to
report revenue growth of 2.5%−4.5% at CER. Currency movement is
expected to lower revenues by 0.5%, which in turn would lead to
2%−4%revenue growth on a reported basis. The Zacks Consensus EPS
Estimate of $5.75 remains within the given range. The 2013
guidance for both adjusted EPS and on a reported basis were
$5.65−$5.85 and $5.05−$5.25, respectively (the Zacks Consensus
revenue Estimate for 2013 is $4.63 billion).
The company expects to continue with its global restructuring
and transformation initiatives in 2013, which is expected to
generate annualized pre-tax savings of more than $80 million,
including $30-$40 million to be realized in 2013.
Zimmer offers a broad line of reconstructive implant and
trauma products as well as orthopedic surgical instruments and
supplies. We believe that the company has embarked on its growth
trajectory with new product launches, employment of new
technologies and expansion into the emerging markets.
However, Zimmer continues to face pricing pressure and lower
procedure volumes resulting from economic uncertainty. Moreover,
the company faces tough competition from well-capitalized players
Smith & Nephew
) among others.
Zimmer holds a Zacks Rank #3 (Hold).While we prefer to remain
on the sidelines on Zimmer, other medical device stocks worth a
). Both the stocks carry a Zacks Rank #1 (Strong Buy).
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ZIMMER HOLDINGS (ZMH): Free Stock Analysis
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