Zimmer Holdings (ZMH)

Q4 2011 Earnings Call

January 26, 2012 8:00 am ET


James T. Crines - Chief Financial Officer, Executive Vice President of Finance and Vice President

David Dvorak - Chief Executive Officer, President and Director

Robert Marshall -


Nikhil Hanmantgad - Goldman Sachs Group Inc., Research Division

Adam T. Feinstein - Barclays Capital, Research Division

Matthew S. Miksic - Piper Jaffray Companies, Research Division

Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division

William Carlile - Morgan Stanley, Research Division

Charles Chon - Stifel, Nicolaus & Co., Inc., Research Division

Robert A. Hopkins - BofA Merrill Lynch, Research Division

William J. Plovanic - Canaccord Genuity, Research Division

Joanne K. Wuensch - BMO Capital Markets U.S.

Kimberly Weeks Gailun - JP Morgan Chase & Co, Research Division



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Good morning. I would like to turn the call over to Bob Marshall, Vice President, Investor Relations and Treasurer. Mr. Marshall, you may begin your call.

Robert Marshall

Good morning, and welcome to Zimmer's Fourth Quarter 2011 Earnings Conference Call. I'm here with our CEO, David Dvorak; and our CFO, Jim Crines.

Before we start, I'd like to remind you that our discussions during this call will include forward-looking statements. Actual results may differ materially from those indicated by forward-looking statements due to a variety of risks and uncertainties. Please refer to our SEC filings for a detailed discussion of these risks and uncertainties.

Also, the discussions during this call will include certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP financial measures are included within the earnings release which is available on our website at investor.zimmer.com.

With that, I'll now turn the call over to David Dvorak. David?

David Dvorak

Thank you, Bob. Good morning, everyone. We're glad you've joined us on the call today. This morning, I'll review our fourth quarter and full year financial results providing commentary on Zimmer's performance in 2011 and highlights from the quarter and the year. Jim will then provide additional financial details, as well as our 2012 guidance. I'll state all sales in constant currency terms, and I'll discuss all earnings results on an adjusted basis.

Zimmer achieved a solid finish to 2011, driven by above-market performance in our Europe, Middle East and Africa and Asia-Pacific businesses, as well as in certain product categories. Once again, new product introductions contributed substantial growth in the quarter, reinforcing our confidence that the market will continue to reward clinically relevant innovation. Consolidated net sales for the quarter were $1.17 billion, an increase of 2.4%. Our earnings per share were $1.36, an increase of 7.1% over the prior year period. Full year 2011 sales were $4.45 billion, increase of 2.6%. Our full year 2011 earnings per share were $4.80, increase of 10.9% over the prior year.

In line with our third quarter performance, we believe we continued to gain share in a number of established markets in our Europe, Middle East and Africa and Asia-Pacific segments through the end of 2011. Our Americas business performed in line with the overall Americas market with the decline of 0.4% in the fourth quarter. Europe, Middle East and Africa delivered sales growth of 6.1%, and Asia-Pacific grew at 5.5%. New product introductions and targeted investments in these regions are contributing to strong performance. In addition, the core component of our strategic agenda is expanding Zimmer's global footprint with a focus on fast, growing emerging markets. In the fourth quarter, these markets continue to generate impressive growth.

Turning now to the results of our product categories. Knee sales for the fourth quarter increased year-over-year 0.2%, reflecting positive volume and mix of 2.2% and negative price of 2.0%. In the quarter, our Americas segment reported a decrease of 3.8%, while our international operating segments delivered growth of 6.3% in Europe, Middle East and Africa and 5.6% in the Asia-Pacific region compared with the prior year. Sales of our Patient Specific Instruments continued to increase globally while our Mobile Bearing Knee System and our Revision products, including Trabecular Metal Revision shapes and augments generated strong sales in the quarter. A key focus of our innovation strategy for the Knee business and across the company is to provide differentiated technologies that enable clinicians to deliver more personalized therapies to their patients, while also improving clinical outcomes. We believe Zimmer's pipeline positions the company as the leading innovator in personalized solutions and intelligent instruments.

The company recently introduced Patient Specific Instruments for partial knee replacement procedures and received 510K clearance in the United States. This system represents the first of a number of exciting technologies to be introduced in 2012 and beyond to deliver on the promise of personalization. We introduced another addition to this differentiated portfolio by way of a strategic transaction announced several weeks ago, the acquisition of Synvasive Technology. Synvasive is the leading developer of surgical cutting technologies, as well as advanced instrumentation systems. Synvasive's eLIBRA Dynamic Knee Balancing System is the industry's premier offering for flexion gap and soft tissue balancing. This acquisition further strengthens Zimmer's position as the leading provider of intelligent instrumentation systems.

Net sales in the fourth quarter increased 3.6%, reflecting positive volume and mix of 5.8%, a negative price of 2.2%. These results included at or above market performances in all global segments with the Americas generating 0.2% growth, Europe Middle East and Africa recording 5.9% growth, and Asia-Pacific delivering 7.3% growth compared with the prior year. Performance of the hip business continues to reflect the positive impact of our customizable product lines, including the Continuum and Trilogy IT Acetabular Systems and the M/L Taper with Kinectiv Technology, as well as the Maxera Cup, Zimmer's first to market large head ceramic-on-ceramic option for younger and more active patients, which is currently available on European markets.

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