Zimmer’s Second-Quarter Net Income Jumps 16 Percent

Zimmer Holdings Inc. reported a 16 percent increase in second-quarter net income, but the surgical product maker lowered the top end of its 2014 earnings forecast.

The Warsaw, Ind.-based company said its profit increased to $176.5 million, or $1.03 per share, from $152.1 million, or 89 cents per share, in the same quarter a year ago. Earnings, adjusted for one-time gains and costs, came to $1.49 per share. That topped the average analyst forecast by a penny, according to Zacks Investment Research.

The company also said revenue rose 1 percent, to $1.18 billion from $1.17 billion, in the same quarter a year ago. That missed the average Wall Street forecast of $1.2 billion, according to Zacks.

Revenues generated in the Americas were $640 million (down 3 percent year over year at constant exchange rates). The same in Europe grossed $335 million (up 5 percent at constant exchange rates, or CER) while in Asia-Pacific the figure was $208 million (up 7 percent).

Zimmer’s biggest segment – Reconstructive — recorded revenues of $890 million, up 2 percent year over year at CER. This was due to a 7 percent increase in Asia Pacific and 5 percent sales growth in Europe. Revenues in Americas remain at $473 million, unchanged year over year.

Revenues derived from knee implants (within Reconstructive) were up 3 percent year over year at CER to $498 million, while hip implants recorded flat sales of $341 million compared with the prior-year quarter. Revenues from Extremities increased 5 percent year over year to $51 million.

Among the other segments at Zimmer, spine recorded a decline of 4 percent at CER to $52 million whereas trauma increased 6 percent to $79 million in the reported quarter. Dental and Surgical and other group, both disappointed with decline of 1 percent and 10 percent to $61 million and $101 million respectively.

Zimmer’s gross margin contracted 50 basis points (bps) to 71.8 percent in the second quarter. Selling, general and administrative expenses edged down 0.4 percent to $455.8 million while research and development expenses were down 12.4 percent to $48.1 million. As a result, adjusted operating margin expanded 76 bps to 29.2 percent.

Zimmer exited the quarter with cash and cash equivalents and short-term investments of $1.69 billion compared with $1.80 billion as of 2013. Long-term debt increased marginally to $1.69 billion compared with $1.67 billion at the end of 2013.

Year-to-date operating cash flow was $442.9 million compared to $370.2 million in the year-ago period. The company also paid $36.9 million dividend and declared dividends of $22.0 per share during the quarter, an increase of 10 percent year over year.

Zimmer now expects adjusted earnings per share for the year to range between $6 and $6.10. That compares to a previous forecast for $6 to $6.20 per share. It also lowered its forecast for revenue growth to between 2 percent and 3 percent from a previous range of 3 percent to 5 percent.