Zimmer Holdings (ZMH) reported fourth-quarter 2014 adjusted earnings per share (EPS) of $1.71, up 3% year over year and a penny ahead of the Zacks Consensus Estimate. However, on a reported basis, the company’s earnings came in at 91 cents a share, down 33.1% year over year.
For full year 2014, adjusted EPS came in at $6.06, up 5.4% year over year and ahead of the Zacks Consensus Estimate of $6.05.
Revenue Details
In the fourth quarter, revenues stood at $1.22 billion, down 1.61% (up 2.4% at constant exchange rate or CER) year over year. The top line also missed the Zacks Consensus Estimate of $1.24 billion. Full-year revenues of $4.67 billion were up 1.1% (up 2.4% at CER) from the prior year, but fell short of the Zacks Consensus Estimate of $4.69 billion.
Revenues generated in the Americas during the quarter reached $678 million (down 2% year over year at CER). On the other hand, the same in Europe grossed $337 million (up 7% at CER) while in Asia-Pacific, the figure was $208 million (up 8%).
Segments
Zimmer’s biggest segment – Reconstructive Implant – recorded revenues of $911 million, up 2% year over year at CER. This was due to a 7% increase in Asia Pacific and 5% sales growth in Europe, partially offset by a 1% decline in Americas.
Revenues derived from Knees (within Reconstructive) were up 2% year over year at CER to $519 million, while Hips recorded sales of $338 million, up 1% compared with the prior-year quarter. Revenues from Extremities increased 6% year over year to $54 million.
Among the other segments at Zimmer, spine recorded increase of 9% at CER to $56 million while Trauma was up 4% to $80 million in the reported quarter. Dental increased 9% to $67 million while Surgical and Other declined 2% to $109 million.
Margins
Zimmer’s gross margin expanded 188 basis points (bps) to 74.4% in the fourth quarter. Selling, general and administrative expenses edged down 3.8% to $458.9 million while research and development expenses remained almost unchanged at $46.6 million. Adjusted operating margin expanded 273 bps to 33.1%.
Cash Position
Zimmer exited the fiscal with cash and cash equivalents and short-term investments of $1,695.8 million compared with $1,807.6 million as of 2013. Long-term debt dropped marginally to $1.43 billion compared with $1.67 billion at the end of 2013.
For the full year, operating cash flow was $1.05 billion compared to $963.1 million in the year-ago period. The company also paid $37.2 million in dividends and declared a dividend of 22 cents per share during the quarter, an increase of 10% year over year.
Q1 2015 Outlook
During the earnings release, Zimmer provided its guidance for the first quarter of 2015. Guidance for full year 2015 will be provided after completion of the Biomet transaction, which is expected by the end of the first quarter.
For the first quarter, Zimmer envisages sales growth (at CER) in the range of 1.5% to 2.5% on a billing day. According to the company, foreign currency translation will have 6% adverse impact on the quarter’s revenues. The current Zacks Consensus Estimate for revenues is pegged at $4.77 billion. Adjusted EPS for the quarter is expected to remain in the range of $1.58 to $1.60. The current Zacks Consensus Estimate for first quarter EPS remains at $1.52, far below the guided range.
Our Take
Zimmer reported an unimpressive fourth quarter with a bottom-line beat and a top-line miss. Although, we are encouraged by the sales growth in Asia Pacific and Europe, Middle East and Africa sales regions, the soft performance in the Americas adds to our worries.
The intense competition in the orthopedic market and pricing pressure remain key areas of concern. Also, macroeconomic uncertainties, pricing pressure and unfavorable currency adversely impacted sales during the reported quarter.
However, with the grand $13.35 billion acquisition of Biomet, Zimmer will be able to create a market leader in the $45 billion musculoskeletal industry, thereby improving the merged entity's position in the competitive niche. We are encouraged by the company’s strong strategic and financial goals which the combined entity expects to reach after closure of the deal.
According to Zimmer, the successful completion of this acquisition, which is expected in the first quarter of 2015, will be beneficial for healthcare investors as the merged entity will successfully advance innovation and help create a more diversified and predictable revenue mix consistent with the comprehensive portfolio.
Currently, Zimmer carries a Zacks Rank #3 (Hold). Better-ranked stocks in the medical products industry include Cardiovascular Systems Inc. (CSII), MacroGenics, Inc. (MGNX) and OraSure Technologies, Inc. (OSUR). All of them sport a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment