) reported first-quarter 2014 adjusted earnings per share of
$1.50, up 6.4% year over year and 3 cents higher than the Zacks
Consensus Estimate. After including one-time items, the company
reported earnings of $1.29 a share, a marginal increase of 1%
year over year.
In the first quarter, revenues stood at $1.16 billion, up 2.0%
(up 3.2% at constant exchange rate or CER) year over year.
However, the top line missed the Zacks Consensus Estimate of
Revenues generated in the Americas were $638 million (up 1%
year over year at CER). The same in Europe grossed $327 million
(up 4% at CER) while in Asia-Pacific the figure was $196 million
Zimmer's biggest segment - Reconstructive Implant recorded
revenues of $872 million, up 4% year over year at CER. This was
due to an improvement of 2% 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 4%
year over year at CER to $487.9 million, while Hips recorded flat
sales of $331.7 million compared with the prior-year quarter.
Revenues from Extremities increased 9% year over year to $52.1
Among the other segments at Zimmer, spine recorded an increase
of 1% at CER to $48.3 million whereas trauma declined 3% to $79.7
million in the reported quarter.
Mega Acquisition Announcement
During the first quarter earnings call, this leading player in
musculoskeletal space also disclosed that it has entered into a
definitive agreement to acquire Biomet, Inc. - provider of
surgical and non-surgical products used primarily by orthopedic
surgeons and other musculoskeletal medical specialists, for a
transaction value of $13.35 billion.
According to Zimmer, the successful completion of this
acquisition, which is expectedin the first quarter of 2015, will
be beneficial for healthcare investors as the merged entity
willsuccessfully advance innovation and help create a more
diversified and predictable revenue mix consistent with the
The company believes this impending acquisition will be
perfectly in line with its strategic framework that focuses on
growth, operational excellence and prudent capital
Moreover, Zimmer expects enormous financial benefits out of
this takeover. According to the company, upon completion, the
transaction is expected to be accretive to Zimmer's adjusted
earnings per share in double digits in the first year. Moreover,
by the third year, the net annual synergies are expected to reach
approximately $270 million with roughly $135 million anticipated
in the first year itself.
The combined entity will also likely generate operating cash
flow of more than 1.5 times Zimmer's stand-alone estimates.
Accordingly, with strong cash flow, Zimmer is expected to
maintain a stable dividend of 15% to 20% of net income following
the closure of the transaction.
2014 Outlook Revised
Zimmer reiterated its full-year 2014 revenue guidance 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 $4.79 billion.
However, based on an increase in the anticipated number of
weighted average shares outstanding for 2014 due to the impending
acquisition of Biomet, the company updated its adjusted earnings
guidance. The company currently expects adjusted earnings in the
range of $4.90 to $5.10, a decline from $6.10 to $6.30 guided
earlier. The current Zacks Consensus Estimate of $6.21 remains
way above the guided range.
We believe, with the grand $13.35 billion acquisition of
Biomet, Zimmer will be able to create a market leader in the $45
billion musculoskeletal industry thereby improving the merged
entity's position in the competitive niche. We are impressed with
the company's strong strategic and financial goals which the
combined entity expects to reach after closing of the deal.
However, for the time-being, we remain on the sidelines and wait
for further details on the same.
Zimmer reported a mixed first quarter with bottom-line beat
and top-line miss. Barring trauma revenues, which continue to
remain as a key disappointment, we are encouraged by the balanced
segmental sales growth which acted as a major upside for the
Currently, Zimmer carries a Zacks Rank #3 (Hold). Medical
products companies such as
Perrigo Company Public Limited Company
St. Jude Medical Inc.
) are worth considering. While ENZY sports a Zacks Rank #1
(Strong Buy), PRGO and STJ both hold a Zacks Rank #2 (Buy).
ENZYMOTEC LTD (ENZY): Free Stock Analysis
PERRIGO CO PLC (PRGO): Free Stock Analysis
ST JUDE MEDICAL (STJ): Free Stock Analysis
ZIMMER HOLDINGS (ZMH): Free Stock Analysis
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