Zimmer 2Q12: Slowing Sales, Growing Market

Weaker than anticipated reconstructive sales brought Zimmer Holdings Inc.’s reported sales down by 1.1% during the second quarter of 2012. Sales increased 1.8% on a constant currency (cc) basis.

Excluding the impact of currency, knees were up 1%, slightly below consensus and decelerated compared to the 2.4% growth in the first quarter. Hips were up 2%, also slightly lower than consensus, but in line with the first quarter. Extremities missed consensus, rising 6%, but accelerated over a first quarter growth rate of 4.8%. Trauma climbed 9% while spine dropped 4%, but both improved over first quarter growth rates. 

Sales
($ in millions)

% Change* 

Total Reported Sales

$1, 125

1.8%

     Reconstructive

$843

2.0%

          Knees

$461

1.0%

          Hips

$349

2.0%

     Trauma

$74

9.0%

     Spine

$52

down 4%

     Extremities

$42

6.0%

* In constant currency
Source: Zimmer Holdings, Inc.

New Knee to Drive Growth

David Dvorak, Zimmer president and CEO, told analysts on July 26: “Moving through 2012, we expect to accelerate revenue growth through ongoing new product introductions and to continue to drive improved leverage in operating margins.”

The new product launches include a new knee system expected to be fully launched in the fourth quarter and released on a limited basis during the second quarter. The company has not provided many details about the knee system, but the company has said that it is the largest development project it has ever undertaken and that the full launch will be the company’s largest ever.

Full 2012 Guidance

The company said full-year revenues are expected to increase between 2.5% and 3.5% on a constant currency basis from 2011. The company now estimates that foreign currency translation will decrease revenues between 2.0% and 2.5% for the full year 2012, resulting in reported revenue growth between 0% and 1.5%.  Previously, the company had estimated foreign currency translation would decrease revenues by approximately 1.5% to 2.0%.

Losing Market Share

Larry Biegelsen, Wells Fargo’s analyst, said after Zimmer’s report that the orthopedic market was improving, but that Zimmer likely lost market share in hips and knees during the quarter. With Zimmer’s report, roughly 80% of the orthopedic market has reported for the quarter. 

U.S. Ortho Market Strengthening

Biegelsen estimates that the global recon market grew approximately 2.5% on a constant currency basis in the second quarter, a slight improvement over the first quarter as strength in the U.S. recon market (around 3% cc growth) was somewhat offset by softer OUS (outside U.S.) markets. Globally, Biegelsen says hips and knees were both up around 2.5% cc during the quarter, but growth in hips improved approximately 70bps (basis points) sequentially while knee growth was unchanged. In the U.S., hips grew 4.5% while knees were up 2.8%.

“Recent commentary on the hip and knee markets has been relatively consistent, suggesting that the U.S. market is strengthening as procedure volume moves toward historic levels (+3-5%), while most international markets continue to be challenged, ” concluded Biegelsen.