Zimmer Reports Third Quarter 2006 Financial Results
Quarter Highlights
- Net Sales of $820 million represent an increase of 8% reported (7% constant currency)
- Americas Reconstructive sales increased 8% reported (7% constant currency)
- Dental sales increased 20% reported (19% constant currency)
- Worldwide and Americas recorded positive price increases of 0.3% and 1.8%, respectively
- Continued margin strength—78% gross, 31% operating and 22% net reported; 78% gross, 32% operating and 23% net adjusted; and 78% gross, 34% operating and 24% net adjusted excluding the effect of share-based payment
- Diluted EPS were $0.76 reported, $0.77 adjusted, and $0.82 adjusted excluding the effect of share-based payment, an increase of 17%
- Operating cash flow of $286 million, a 23% increase over prior year
- Repurchased 4.8 million common shares
(WARSAW, IN) October 25, 2006 -- Zimmer Holdings, Inc. (NYSE and SWX: ZMH) today reported financial results for the quarter ended September 30, 2006. For the quarter, the Company announced net sales of $820 million, an increase of 8% reported and 7% constant currency over the prior year period. Diluted earnings per share for the quarter were $0.76 reported and $0.77 adjusted, exceeding First Call earnings estimates of $0.75 adjusted.
Reported and adjusted diluted earnings per share for the third 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 diluted earnings per share for the third quarter were $0.82, representing a 17% increase over adjusted diluted earnings per share for the third quarter of 2005. Excluding the impact of SFAS 123(R), adjusted diluted earnings per share for the first nine months of 2006 were $2.58, representing a 15% increase over adjusted diluted earnings per share for the first nine months of 2005.
“We were pleased to exceed our earnings guidance even though sales were not as strong as previously forecasted,” said Ray Elliott, Zimmer Chairman, President and CEO. “We have been about a quarter behind all year relative to anticipated sales growth rates, however, the third quarter was stronger than the second and we expect the fourth to be stronger than the third. The trends continue to be positive—during the month of September, on a day-rate basis, the combined Americas hip and knee growth was more than 12 percent, and during the third quarter, our entire Asia Pacific business grew double digit constant currency.”
The Company said the Zimmer® Gender Solutions™ Knee is being very well received by surgeons and patients. The Company introduced its Gender Solutions knee implant in May as part of an overall strategy to address gender-specific orthopaedic issues. Initial implant and provisional sets were provided only to surgeon developers. Product availability continues to expand and the Company expects to have over 1,200 sets deployed to the market by year-end 2006. Women currently account for more than 60 percent of all knee replacements yet, until the release of the Gender Solutions knee, no product has ever specifically addressed all of the clinically relevant anatomical differences between men and women. Zimmer launched its first-ever major direct-to-patient marketing program earlier this month featuring “The Blue Ladies” by artist R. O. Blechman (of The New Yorker magazine fame). Targeted television and print advertising has been added to a public relations program that had already generated more than 100 million media impressions since June.
During the quarter, the Company also expanded the release of two important hip products in the alternate bearing category: the Durom® Acetabular Cup with Metasul® LDH™ Large Diameter Heads; and the Trilogy AB® Ceramic-on-Ceramic Acetabular System. “With our array of new products, which also includes the exclusive Trabecular Metal™ Primary Hip Prosthesis and the EPOCH® II Composite Hip Stem, we are well positioned for 2007 to address a wide spectrum of surgeon preferences and patient requirements,” said Elliott.
The Company says it has substantially completed the integration of Centerpulse AG, which it acquired on October 3, 2003, completing over 3,000 milestones, with only a few manufacturing, distribution and information technology projects to be carried into 2007. The Company said it has already realized annual synergies of more than $100 million, exceeding the originally projected $70 to $90 million, and additional synergies should be realized in 2007. “We are pleased with the spirit and dedication shown by all of our employees during this process and we are now moving ahead as one fully integrated global company,” said Elliott.
In the third quarter, Zimmer purchased 4.8 million common shares for a total of $314 million as part of its $1 billion repurchase program announced in 2006. There is $365 million still available through the end of 2007.
