( BMET) is looking rather nimble.
The orthopedics device maker fell shy of first-quarter profit expectations but managed to keep guidance intact. The Warsaw, Ind., company met sales projections for its important reconstructive joint division, though less growth came from high-margin knees than some experts had anticipated.
All told, Biomet increased first-quarter revenue by 11% to meet the consensus estimate of $485 million. The company also grew net income by a whopping 66% to $100 million with help from recent acquisitions. But earnings per share of 40 cents still missed Wall Street expectations by a penny. In addition, the company's gross margin -- while clearly strong at 72.3% -- failed to expand as some people had expected.
Still, Biomet felt confident enough to reiterate its guidance for the second quarter at least. The company expects to deliver second-quarter earnings of between 42 cents and 44 cents a share. Analysts have already predicted that profits will fall in the middle of that range.
For now, Biomet has said nothing about cutting its full-year outlook, as competitor
Smith & Nephew
did earlier this month. The market -- fearing price cuts on orthopedic implants -- has grown increasingly skittish about the entire group, pushing industry leader
down 17% in a matter of just two weeks. Thus, some experts had expected Biomet to cut its 2005 outlook when releasing quarterly results and, like Smith & Nephew, lay at least part of the blame on Hurricane Katrina.
Wachovia analyst Theodore Huber, who expected Biomet to hit Wall Street expectations, was among that group.
"We remain cautious on Street targets for the balance of FY2006 but note that Katrina offers BMET management an opportunity to lower estimates at little or no cost," Huber wrote on Friday. "The hurricane may provide a 'get-out-of-jail-free' card to BMET."
If so, Biomet passed over that chance. As a result, some investors -- noting the silence on full-year guidance -- fear the company could face bigger challenges ahead.
In the meantime, Biomet's stock inched up 11 cents to $35.61 ahead of a Wednesday morning conference call that was expected to be dominated by talk of orthopedic pricing trends.
By the Numbers
Biomet itself saw plenty to celebrate when reporting "record" quarterly results.
For starters, the company pointed to its crucial reconstructive implant division as a key to its recent success. Overall, the division delivered the 15% sales growth many had expected. Notably, it saw hip sales jump by 12% instead of the 9% or 10% some people had anticipated. It also saw knee sales -- which tend to bring in higher margins -- rocket by 17%, although some investors had still expected more.
For one thing, Smith & Nephew blamed its looming shortfall not only on Katrina but also on knee competition from Biomet and
Johnson & Johnson's
Outside its core orthopedics implant division, Biomet posted mixed growth rates. Sales surged by 15% in the dental implant unit and by an even stronger 16% in the bone cement division. However, sales rose just 5% in the troubled spine division and 2% in the fixation unit.
Investors are hoping to see improvement in some of Biomet's slower-growing divisions going forward. However, they remain primarily focused on the orthopedic implant unit that has fueled the company's outstanding performance in the past.
Given that focus -- in light of the current pricing environment -- UBS analyst Patrick Pace sees possible disappointments ahead.
"We believe that Biomet, like other orthopedic device makers, faces the beginning of an era of pressure on U.S. hip and knee implant pricing," Pace wrote on Thursday. "We argue that declining hospital profitability with respect to hip and knee replacements and increasing surgeon gain-sharing will lead to a gradual change in the otherwise favorable reimbursement environment for the hip and knee implant makers ... (and) that pricing in U.S. hips and knees could be under pressure for the next few years."
Pace officially declared that "the party's over" for orthopedic device makers when initiating coverage of the group with a neutral rating just over one week ago.