Price Pinch Zaps Zimmer

Some experts actually had been bracing for as much.

"We would characterize ZMH's 3Q results and 2006 guidance as no worse than what were already low expectations," wrote Lehman Brothers analyst Bob Hopkins, who has an equal-weight rating on the stock. "The issue, however, is not the current quarter or even the next quarter, but rather where pricing will end up in 2006, 2007 and beyond, and what impact that will have on the top and bottom [line] growth outlook for all the ortho companies."

By now, of course, the orthopedic stocks have taken a hit in anticipation of a slowdown. Even so, bearish investors still foresee additional pain ahead.

The Good Old Days

Granted, some experts disagree. Take SIG Susquehanna analyst Mark Landy, for example. Landy believes that Zimmer actually offered up a "worst-case scenario" with plenty of room for positive surprises.

Still, others aren't so sure. For example, one analyst noted during Thursday's call that Zimmer's lowered fourth-quarter expectations imply revenue growth of just 6% -- and questioned how the company expected to achieve higher growth in 2006, given the headwinds coming its way.

Elliott, at least, sounded confident. He pointed to a combination of factors, especially the rollout of new products, as positive forces.

"I'm not concerned about the directional guidance at all," he concluded. "I think it's solid."

But Elliott has wound up wrong before. After all, Hopkins pointed out during Thursday's call, Elliott was still forecasting 2006 profit growth of 25% just one quarter ago.

What, Hopkins wondered, had caused such a dramatic change?

To explain, Elliott described implant pricing back in "the older times -- a few months ago." Then, he said, Zimmer was still anticipating price increases of between 1% and 3% in the U.S. Now, he said, the company expects price cuts of 1% in the U.S. and must also grapple with unexpectedly harsh price cuts of up to 8% in the big Japanese market as well.