Zimmer Shows Flexibility

Zimmer (ZMH Quote), one of the nation's largest makers of joint implants, is showing off its speed.

The company grew both first-quarter sales and profits even faster than Wall Street had expected. Sales jumped 14% to $829 million, topping the consensus estimate by $17 million. Meanwhile, operating profits rocketed 34% to 75 cents a share. Analysts, on average, had been expecting a full 8 cents less.

Due to strength in its core orthopedic implant business -- and surprising growth in its smaller spine division -- the company raised its profit forecast for the full year. The company's guidance is now 8 cents ahead of the consensus estimate at $3 a share.

Zimmer was quick to celebrate its rapid growth in the quarter and its opportunities for the future.

"Zimmer is off to a good start in 2005, powered by the strength of our knee-replacement product sales, particularly in the Americas where we experienced a 22% increase, double-digit growth from our spine business for the first time since acquiring Centerpulse and record margins," said CEO Ray Elliott. "Education and innovation remain the keys to our success."

Zimmer's stock, already up 2.7% to $81 Tuesday on anticipation of good news, added 1% in after-hours trading.

Upside Surprise

Merrill Lynch analyst Katherine Martinelli had already predicted that Zimmer's booming orthopedics business would push the company's results beyond Wall Street expectations. But even she failed to predict such a large upside surprise.

Specifically, Martinelli figured that first-quarter revenue would jump 10% to $815 million, $3 million above the consensus estimate, despite two fewer billing days than a year ago. She also estimated that first-quarter profits would rocket by 21% to 68 cents a share and beat the average forecast by a penny.

Ultimately, Martinelli predicted that Zimmer's two orthopedic businesses -- which account for 90% of sales -- would fuel all of the company's revenue growth. She looked for double-digit sales growth from the company's implants, with knees selling even better than hips, and nearly 10% sales growth in orthopedic surgical products as well. The company exceeded her target in the first area but did fall short in the second.

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