Zimmer Holdings, Inc.’s first quarter revenue was slightly below Wall Street expectations with hip sales dragging down good knee, extremity and spine sales. Revenue during the quarter of $1.13 billion was up 2% on a constant currency basis and adjusting for extra selling days (adjusted).
Revenue Results
Adjusted reconstructive revenue was up 5% to $852 million. Knees were up 4%, while hips were down 1% with the adjustments. Adjusted spine sales were up 5%. Company officials told analysts on April 30, 2015 that the global musculoskeletal markets continue to demonstrate stability consistent with trends in the previous two years.
Company CEO Dave Dvorak said the quarter was marked by “steady gains” for the Persona knee system and the patient-specific instruments that come with the system. “We’ll continue to broaden and differentiate our knee portfolio including our growing line of early intervention solutions along with a continuum of care such as our Gel-One cross link Hyaluronate treatment and our expanded Zimmer knee creation Subchondroplasty offering.”
He said spine delivered solid 5.4% (adjusted) growth over the prior year due to commercialization of a dozen new solutions including the Virage OCT Spinal Fixation System, Optio-C Anterior Cervical System and the expanded line of Puros Demineralized Bone Matrix grafting solutions. “These innovative new offerings are driving growth and enhancing the diversification and competitiveness of our signed portfolio as we execute on our broadened portfolio we will continue to advance proven strategies and sustain our focus on promising market adjacencies such as minimally invasive surgeries.”
Ortho Market
Company officials view the global knee and hip markets growing in low single digits for the full year. Market growth drivers include “the ageing of the global population, positive outcomes associated with joint replacements and other musculoskeletal procedures, and increasing utilization in emerging markets resulting in consistent trends in procedure demand.” Officials also continue to forecast a relatively stable global pricing environment with expectations of price for Zimmer to be down between 2% and 3% as compared to the prior year.
Needham analyst Mike Matson believes that Zimmer held reconstructive share in the quarter with a slight share gain in knees offset by a slight share loss in hips.
On a constant currency basis, Matson estimates that the recon market grew by 2% in the first quarter of 2015 vs. 2% in the fourth quarter of 2014. He also estimates that global knee and hip growth were 3% and 1%, respectively.
Biomet Outlook
But analysts weren’t that interested in the pedestrian financial results, they wanted to know about Biomet, synergies and sales rep defections.
Pressed over and over again about a closing date for the merger and what assurances he can give about such a date, Dvorak finally just seemed to say, “Trust us. We know what we’re doing.”
Management raised its Zimmer/Biomet expense synergy estimate to $350 million by year three from the previous $270 million estimate.
Sales Force Stability
Asked what the company is doing with the sales organization to “maybe tie up some of the better reps and distributors post-close, ” company CEO Jim Crines said, “We have very well-developed plans, but wouldn’t want to start articulating anything specific in advance of the closing and the execution of those plans. I think in that area though, it’s probably worth noting that our stability within the sales force is quite good on a global basis. We’re not seeing accelerated attrition rates and I think we are going to enter the period to execute this plan in a very good position.”
