Zimmer Holdings (ZMH) reported adjusted earnings at $1.41, up 8.5% year over year, as well as a penny ahead of the Zacks Consensus Estimate. However, after including one-time items, the company reported net earnings of $218.6 million or $1.28 a share, up 4.3% or 9.4% year over year, respectively.
Revenue Details
In 1Q13, revenues were $1,139 million, down 0.2% (up 1.0% at constant exchange rates or CER) year over year, missing the Zacks Consensus Estimate of $1,143 million. Revenue generated in the Americas was $635 million (flat at CER), in Europe was $307 million (up 2% at CER) and in Asia-Pacific was $197 million (up 3%).
Segments
Zimmer’s biggest segment, reconstructive implant, recorded revenues of $850 million, down 1% year over year at CER. This was due to a 1% decline in Americas, offset by a 1% increase in Europe. Sales in Asia Pacific remained flat on a year-over-year basis.
Revenues derived from Knees (within Reconstructive) remained flat year over year to $471 million, while Hips recorded a decline of 2% (at CER) year over year to $331 million. Revenues from Extremities increased 7% year over year to $48 million.
Among the other segments at Zimmer, sales from Spine recorded a decline of 10% (at CER) to $47 million and Dental revenues declined 1% to $60 million. Growth was witnessed in the other two segments – Surgical and Other (17% annually to $100 million) and Trauma (11% to $82 million).
Margins
During the quarter, Zimmer’s gross margin contracted 40 basis points (bps) to 74.3%. Moreover, with selling, general and administrative, and research and development expenses decreasing by a respective, 0.5% to $460.8 million and 10.2% to $53.5 million, operating margin improved 30 bps to 26.2%.
Cash Position
Zimmer exited first-quarter 2013 with cash and cash equivalents and short-term investments of $1,201.2 million compared with $1,555.9 million as of 2012. Long-term debt decreased marginally to $1,702.8 million compared with $1,720.8 million at the end of 2012.
Operating cash flow for the reported quarter was $180.5million in comparison with $207.4 million in first-quarter 2012. The company repurchased 5.36 million shares for $392 million during the quarter and is currently left with $622.7 million of share repurchase authorization, under the current program (of up to $1.5 billion of shares) that expires on Dec 31, 2014.
Outlook
Zimmer reiterated adjusted EPS outlook of $5.65−$5.85 and also reaffirmed its revenue outlook of 2.5% and 4.5% at CER. The Zacks Consensus EPS Estimate of $5.75 remains within the given range. The Zacks Consensus revenue Estimate for 2013 is $4.6 billion.