Biomet 2Q Results “Incrementally Positive”

Biomet, Inc.’s second quarter results are an “incremental positive” for the orthopedic industry, wrote Wells Fargo analyst Larry Biegelsen on January 8.

Biomet reported a 9% increase in net sales to $790.1 million earlier on the same day. Excluding sales from the recently acquired DePuy, Inc. trauma business, net sales rose 2%. Currency added 2% to sales.

On a reported basis, knees and hips each rose 1%, spine increased by 4%, extremities gained 22% and trauma, excluding the acquisition, was flat.

Sales
($ in millions)

% Change

2%*

1%

1%

1%

15%*

down 1%

down 9%

6.0%

* excluding DePuy, Inc. trauma acquisition
Source: Biomet, Inc.

Market Correlation

Biomet’s knee results have traditionally correlated well with the overall market both globally and in the U.S., wrote Biegelsen, while hips have outperformed the market for the past several quarters. He believes Biomet’s results are a slight positive sign for the larger orthopedic companies such as Zimmer Holdings, Inc. and Stryker Corporation, as both worldwide and U.S. large joint growth accelerated for Biomet during the quarter.

“Biomet’s extremities growth clearly shows that Biomet has been taking share from companies such as extremities leaders Johnson and Johnson and Tornier, Inc.”

BMO Capital Market analyst Joanne Wuensch noted that Biomet is a relatively small spine market participant (3.2% spine market share), making it hard to read through to other companies.

Jeff Binder, Biomet’s president and CEO, said the company had a strong second quarter. “We reported top line growth of 9%, which translated to 11% growth on a constant currency basis, and we delivered strong bottom line growth. Adjusted EBITDA improved 8% over the prior year quarter to $288 million or 36.5% of net sales, despite the short-term costs incurred in connection with our trauma acquisition. In addition, we’ve substantially completed the integration of our trauma acquisition, and our Sports, Extremities and Trauma (S.E.T.) revenues are now approaching 20% of our net sales at an annualized run rate of $600 million.”

U.S. net sales increased 10% to $470.8 million during the second quarter, while Europe net sales decreased 1% (increased 5% constant currency) to $193.9 million and international (primarily Canada, South America, Mexico and the Pacific Rim) net sales increased 21% (22% constant currency) to $125.4 million.

Debt

The company’s net debt of $5.872 billion was up from $5.335 billion at May 31, 2012, reflecting the impact of the DePuy’s trauma acquisition, debt refinancing activities and foreign currency translation from the company’s Euro-denominated debt. The company is still paying off debt after being taken private by Wall Street investors.