Zimmer Keeps Market Share Ahead of Biomet Merger

Zimmer Holdings, Inc. “held reconstructive share in the fourth quarter of 2014 with a slight share gain in knees offsetting a slight share loss in hips, ” according to Needham & Co. analyst, Mike Matson. Joanne Wuensch of BMO Capital Markets called it a “solid quarter” as Zimmer prepares for Biomet, Inc.

That’s how the two analysts described Zimmer’s $1.22 billion fourth quarter sales results. With disruptions anticipated from the proposed merger with Biomet, Inc., that’s a pretty good quarter for Zimmer CEO Dave Dvorak and company.

On a reported basis, those sales decreased 1.6% from last year’s red hot fourth quarter. On a constant currency basis, sales rose 2.4%.

Dvorak expects sales in the first quarter of 2015 to increase 1.5% and 2.5% on a billing day and constant currency basis. The strong U.S. dollar is expected to cause sales to decrease by approximately 6% in that first quarter. Then they expect the merger with Biomet to be approved.

Matson noted that, on a constant currency basis, Zimmer’s fourth quarter recon growth slowed to 2% from 5% in third quarter. Knee growth slowed to 2% vs. 6% and hip growth slowed to 1% vs. 3%, from the third quarter. In particular, added Matson, U.S. recon growth slowed to -1% from 3% in [the third quarter] as Zimmer lapped an 8% comparison from the fourth quarter of 2013. Spine, which had been a problem child for Zimmer for some time, pulled up sales by climbing 6% on a reported basis.

Global Recon Growth

Based on results from Biomet, DePuy Synthes, Stryker Corporation, and Zimmer and estimates for the others, Matson believes that on a constant currency basis, global recon growth was 2% in fourth quarter vs. 4% in the third quarter. “We estimate that global knee growth was 1% and that global hip growth was 2%.”

RBC Capital Markets analyst Glenn Novarro says given recent commentary from orthopedic management teams as well as overall healthcare utilization trends, he believes that the U.S. recon market is stable. “We expect these trends to continue into 2015 as the U.S. jobs outlook and overall economy continues to slowly improve.”

Healthcare Reform Upside

Novarro makes an indirect comment about claims that the medical device tax was hurting the device industry. He says he believes the Street has little (if any) volume benefit from healthcare reform in its models in 2015. “Accordingly, any pickup would represent upside to current 2015 Street estimates for Zimmer. We believe that a ~1% volume benefit for the hips/knee market could add ~$25 – $30 million in revenues for Zimmer” before factoring in the Biomet acquisition.

After surviving the “Tyranny of the Comps” and sidestepping potential merger sales disruptions, as we saw when Synthes merged with DePuy, Dvorak appears to be steering his ship to calm and steady waters. The lights of the end of the first quarter, when he’s promised to consummate the Biomet deal, are closing in.