Zimmer Reports First Quarter 2006 Financial Results
Quarter Highlights
- Net Sales of $860 million represent an increase of 4% reported (7% constant currency)
- Americas Reconstructive sales increased 9% reported (8% constant currency)
- Global and Americas price remains positive at 1% and 2%, respectively
- Zimmer Dental sales increased 21% reported (23% constant currency)
- Continued margin strength—78% gross, 34% operating and 24% net reported and adjusted
- Record operating profit margins for Americas, Europe and Asia-Pacific geographic segments of 53%, 44% and 48%, respectively
- Diluted EPS were $0.82 reported and adjusted, and $0.87 excluding the effect of share-based payment, an increase of 16%
- Operating cash flow of $203 million, a 33% increase over prior year
(WARSAW, IN) April 26, 2006 -- Zimmer Holdings, Inc. (NYSE and SWX: ZMH) today reported financial results for the quarter ended March 31, 2006. For the quarter, the Company announced net sales of $860 million, an increase of 4% reported and 7% constant currency. Diluted earnings per share for the quarter were $0.82 reported and $0.82 adjusted, exceeding First Call earnings estimates of $0.81 adjusted.
Reported and adjusted earnings per share for the first quarter of 2006 include a $0.05 per diluted share impact related to SFAS 123(R), Share-Based Payment. Effective January 1, 2006, the Company adopted this new accounting standard using the modified-prospective method. In accordance with this adoption method, the Company is not adjusting its historical financial statements to reflect the impact of share-based payment. Excluding the impact of SFAS 123(R), adjusted earnings per share for the first quarter were $0.87, representing a 16% increase over adjusted earnings per share for the first quarter of 2005.
“Constant currency sales were a little light at 7% growth versus our expectation of 8%—however, the interest shown by surgeons at the AAOS meeting and our progress towards launching an unprecedented number of major new products throughout the second half of this year confirms our optimism,” said Ray Elliott, Zimmer Chairman, President and CEO. “We believe we have the right strategy for innovation, and our position as the low cost orthopaedic manufacturer and distributor should enable us to continue generating unmatched operating leverage and operating cash flow.”
At the 2006 AAOS meeting, Zimmer announced the launch of a number of new products the Company believes will accelerate sales growth. Included in the products which have been or are expected to be launched over the next two quarters are: Trabecular Metal™ Primary Hip Prosthesis; Trabecular Metal Acetabular Revision System; Durom® Acetabular Cup with Metasul® LDH™ Large Diameter Heads; Epoch® II Composite Hip Stem; Trilogy AB® Ceramic-on-Ceramic Acetabular System*; Zimmer® Reverse and Inverse Anatomical ™ Shoulder Systems; Zimmer® Minimally Invasive Solutions™ Femoral Nailing Solutions; Zimmer NCB® Plating System; Trabecular Metal Thoracolumbar Components; and CopiOs™ Bone Void Filler Sponge.
As a result of five years of intensive research based on an analysis of 800 female femurs (thigh bones) and patellae (knee caps), the Company previously announced the planned release of the Gender Solutions™ Knee Femoral Implant*, which it believes is the first knee implant system designed specifically to address the unique anatomical needs of women. A woman’s knee anatomy is quite distinguishable from a man’s, including a difference in the ratio between the 3 width and height of the distal (bottom of the) femur as compared to men, Q-angle (the V-shaped angle created by two lines intersecting at the patella, one through the quadriceps and the other to an outer point of the pelvis) differences due to a wider pelvis, less pronounced bony anatomy on the anterior (front) surface of their distal femur and greater ligament laxity. These differences in shape, not just size, have been incorporated into the design of Zimmer Gender Solutions implants and the development of the surgical technique.
“We believe women are a significant key to the future of orthopaedics because they represent the majority of the implant patients and because they are also typically the primary healthcare decision makers in their households,” said Elliott. “We have filed for regulatory approval of the Gender Solutions implant to address women’s specific needs and we hope to offer these products by the second half of this year. Today’s knee implants are very successful when failure is defined by a revision—but our Gender Solutions offering is designed to reduce the industry’s real instances of pain and post-surgical dissatisfaction among women.”
With the progress made in integrating Centerpulse AG and Implex Corp., the Company believes it is well-positioned to pursue additional acquisitions in the areas of biologics, dental, spine and hospital productivity consulting. The Company expects funding of acquisitions will continue to be its primary use of free cash flow.
