Analysts Read Tea Leaves of Biomet’s 6% Quarter

Biomet, Inc.’s most recently completed quarterly sales rose 6% over the same quarter last year.

Wall Street analysts pore over Biomet’s results like gypsies reading tea leaves at the bottom of the tea cup to divine where orthopedic sales for the entire industry are heading. The leaf reading will come to an end soon as Biomet is betrothed to Zimmer Holdings, Inc., which usually reports later in the season.

This quarterly result released October 9, 2014, can be “tricky” according to BMO Capital Markets analyst, Joanne Wuensch. She said the quarter included summer months, “which are usually seasonally soft, but last year we saw an increase in ortho sales in the [quarter] heading strong into the end of the year, creating tough year-over-year comps for the industry.”

Biomet’s total sales for the quarter were $774.8 million. U.S. sales rose 5.4% to $495.1 million, while European sales increased by 6.5% (3.2% constant currency). International sales climbed 8.3% (10% constant currency).

Sales Rising, Slowing

Knee sales rose 4.3%, hips were up 3.8% and sports, extremities and trauma (S.E.T.) sales increased 3.4%.

Reported net income for the quarter dropped from $31.1 million the previous year to $7.3 million. Cash flow fell to $2.4 billion compared to $50.4 million the previous year.

Wuensch noted that knee sales slowed from the previous quarter due to difficult comps. Management attributed the rise in sales to its Oxford Partial Knee system, citing more than 300 professionals trained during the quarter, and expectations for up to 400 in the next quarter, as well as its Vanguard XP Bicruciate Knee (which was introduced at AAOS in the spring). European knee sales increased between 6-10% over the last several quarters.

Hip sales also slowed from the previous quarter. Sales in the quarter were driven by the Taperloc Hip System, G7 Acetabular System, and Arcos Modular Femoral Revision System.

The 20.9% increase in spine sales was primarily due to the November 2013 acquisition of Lanx, which the company said added 200-250 basis points to net sales in the quarter. The company said integration is moving forward according to plan, providing for cross synergies in the segment.

S.E.T. also slowed from the previous quarter. Sports medicine saw increased demand for the company’s JuggerKnot brand. Extremities sales were up double digits, leading to 27 consecutive quarters of double-digit growth, primarily powered by the Comprehensive Reverse Shoulder System. Management also pointed to its Comprehensive Convertible Glenoid system, its Signature Patient –Specific glenoid instruments launched a couple of quarter ago, and highlighted that it is enrolling patients into its U.S. IDE for a comprehensive anatomical stemless shoulder system. The company also launched a new cannulated screw system for lower-extremities during the quarter.

Second Half Market Recovery?

Glenn Novarro at RBC Capital Markets said he would characterize Biomet’s U.S. results as better than the previous quarter and sees it as a potential sign that the U.S. market may be recovering after a slow first half of the year.

He believes the U.S. recon market has to come in slightly better than expected. He models approximately 3% constant currency growth for the worldwide recon market in the quarter and believes the underlying health of the worldwide recon market will improve sequentially. His tea leaves say Biomet is getting the reporting season off to a good start for orthopedics.