Biomet Continues Ortho Surge

Biomet, Inc. just reported a great quarter and blew up Wall Street fears that orthopedic sales would begin to slow appreciably in the first quarter of 2014.

 Total reported quarter revenue of $822.5 million was up 6.6% over the previous year. On a constant currency basis, revenue climbed 7.5%.

Losses Diminish

Even better news for the company, which just announced plans for an initial public offering, reported net loss in the quarter was only $65.9 million, compared to a net loss of $304.5 million a year ago. Operating income was also up slightly. The company still carries about $5.6 billion in buyout debt added when Wall Street banks acquired the company in 2007.

Praise the Knee

But the real story was all about knee sales of $254.2 million, which climbed 8.4% on a reported basis. Spine came in 16.4% higher than the previous year’s quarter, with the addition of sales from the Lanx, Inc. acquisition. Lanx sales added approximately 1.2% in sales to total company revenue.

The company’s President and CEO Jeff Binder said, “Once again [we] delivered balanced constant currency sales growth across our major geographies and our major product categories.”

Better Than Expected

Mike Matson, analyst at Needham & Company, LLC, noted that due to an extra selling day, the organic revenue growth on a constant currency basis slowed to 4.7% from 5.8% in the last quarter of 2013. He said that Biomet’s results indicate that orthopedic market growth may have been better than expected in the first quarter despite fears of seasonality and a weather related slowdown. “Since Biomet’s recon growth has been relatively well correlated to recon market growth in recent quarters, we believe that [first quarter] recon market growth may exceed our forecast and we see potential for upside to estimates at Biomet’s competitors, ” added Matson.

Share Gainer

RBC Capital Markets, LLC’s analyst Glenn Novarro noted that Biomet gained approximately 10 basis points of worldwide recon market share in 2013, and he expects that Biomet is likely to be a share gainer again this quarter. With that Biomet gain, he estimates that the worldwide recon market would be up approximately 6% year-over-year on a constant currency basis, above his previous 5% estimate.

Novarro added, “We believe underlying hip/knee demand remains strong and see better than expected Obamacare enrollment numbers as a medium-term positive for the hip/knee space.”

Once again, Biomet plays the canary in the coal mine role by being the first large orthopedic company to report quarterly revenue. The canary is alive and well.