Zimmer ( ZMH) is limping again. The orthopedic device maker on Wednesday reported that sales grew by just 4% to $882 million in the second quarter -- missing the consensus estimate -- but topped profit forecasts nonetheless. The company posted net income of $201 million, up 5.3% from a year ago, with adjusted earnings per share of 83 cents coming in a penny ahead of expectations. At the same time, however, Zimmer lowered its earnings guidance by a penny for each of the next two quarters. It blamed legal fees, rather than any slowdown in business, for the shortfall. Zimmer also offered the most detailed explanation yet of a criminal probe of the orthopedics industry. Zimmer suggested the possibility of a limited probe, sparked by a single hospital, and insisted that the company itself had done nothing wrong. More specifically, Zimmer said that it had learned that the hospital had solicited bids from Zimmer and similar companies for orthopedic devices. In response, Zimmer said, a competing distributor had recommended that all of the companies adopt a "uniform pricing strategy" that could violate antitrust laws. However, the company said that it did nothing of the sort. "When Zimmer learned of the competitor's proposal, the company advised its local independent distributor to reject it on behalf of both the distributor and Zimmer, which the distributor did," the company announced. "The written rejection stated emphatically that neither Zimmer nor its distributors will participate in pricing discussions with competitors, and that Zimmer's policies insist on full compliance with the antitrust laws." For its part, Zimmer says that it continues to cooperate fully with federal authorities. But the company's stock, after rising 5% in regular action Wednesday, dropped 3% in postclose action.
On a bright note, Zimmer said that prices for its orthopedic implants actually rose by 1.3% in the tough U.S. market last quarter. But orthopedic sales nevertheless looked weak. Knee sales climbed 4%, and hip sales grew at just half that clip.