Zimmer Holdings ( ZMH ), a leading player in the musculoskeletal space, has decided to initiate a quarterly dividend from the first quarter of 2012. The first ever dividend will be 18 cents per share. The company also announced a new $1.5 billion share buyback program through December 2014. The company further ratified that no additional purchases will be made under the earlier program with expiry scheduled in December 2013.
Earlier, Zimmer had announced its intention of returning 1/2 of its net income to stock holders through annual share repurchase programs. It also targeted suitable acquisitions in the musculoskeletal space. In this regard, the company acquired Beijing Montagne Medical Device, Sodem Diffusion, and ExtraOrtho.
The company exited the most recent quarter with $553 million in cash and cash equivalents, down from $668.9 million at the end of December 2010 with long-term debt of $1.5 billion ($1.1 billion at the end of fiscal 2010). Operating cash flow increased 9.5% year over year to $350.6 million on the back of restructuring and transformation programs aimed at improving efficiency in inventory deployment. The company also repurchased 10.1 million shares for $549 million during the quarter. Share repurchases helped Zimmer to reduce its share count by 8.6% over the last 12 months, thereby supporting the bottom line.
Although the musculoskeletal market is witnessing several challenges in the form of reduced procedure volume and pricing pressure, Zimmer believes that clinically relevant and innovative products can still fetch premium pricing and reimbursement. Other players in this filed such as Smith & Nephew ( SNN ) and Stryker Corporation ( SYK ) are also witnessing the brunt of pricing pressure and lower procedural volume.
Zimmer's recent product launches are based on two principles - the development of customizable implant and instrumentation systems enabling surgeons to deliver personalized care to every patient that also includes options for lifestyle demands, and providing relevant products that deliver long-term value to patients, hospitals and healthcare systems. Along with the focus to drive Reconstructive and Emerging businesses, Zimmer is exploring opportunities to expand its reach into early intervention products.
We are currently Neutral on Zimmer, in line with the short-term Zacks #3 Rank (Hold).