OKLAHOMA CITY -- Zimmer ( ZMH) is flexing its muscles while it still can.

The giant orthopedic device maker on Tuesday blew past fourth-quarter estimates with its strongest results of the entire year. Revenue jumped 15% to $1.07 billion, beating analysts' projection of $1.03 billion, amid rising worldwide demand for the company's medical devices.

Net income rose 8% to $264 million, with adjusted earnings per share -- boosted by stock repurchases -- growing twice as fast. That number, $1.18, topped analysts' mean estimate by a full 14 cents.

Zimmer's stock soared 11% to $75.27 on the news.

Still, Zimmer sees a slowdown ahead. The company expects full-year profits to grow just 4% to 5%, as it invests heavily in upgrades to its infrastructure and sales force in an effort to bolster its future performance. The company's 2008 guidance of $4.20 to $4.25 a share, while in line with the $4.21 Wall Street estimate, leaves little room for upside and even opens the door for a possible shortfall.

To be fair, Zimmer still expects sales -- perhaps the most closely watched metric in the industry -- to post double-digit gains this year. The company is counting on some breakthrough devices, including a new mobile-bearing knee, to help out. However, experts fear that mounting regulatory scrutiny could hamper the company's efforts down the road.

Later today, in fact, the Government Accountability Office is expected to call for even tougher industry oversight by the U.S. Food and Drug Administration. Notably, The Wall Street Journal reports, the GAO has found that FDA officials conduct far too few safety inspections of factories that make medical devices. The FDA has been especially lax outside the U.S., the Journal reports, where more than a quarter of a century can pass between inspections.

The GAO report comes just a week after Stryker ( SYK), a key Zimmer competitor, voluntarily withdrew some popular hip implants manufactured at its Ireland facility. Stryker pulled the devices off of the market only after an FDA warning letter, noting safety concerns at a major Stryker plant here at home, became publicly available on the agency's Web site.

For its part, Stryker says that it has since validated its manufacturing processes in Ireland and stepped up production at both of its major factories. Meanwhile, the company insists that its implants never presented any major safety problems at all.

In its harsh six-page letter to the company, however, the FDA suggests otherwise. Specifically, the FDA says that Stryker has fielded "continual complaints" -- and even reports of some revision surgeries -- that have, so far, failed to trigger necessary improvements. The FDA has demanded "prompt action" from the company if it hopes to avoid regulatory backlash.

Wall Street experts have grown increasingly nervous in the meantime.

"We note that the warning letter disclosed last week is the second in under a year," Morgan Stanley analyst Matt Miksic stressed earlier this month. "And there is still a risk of this snowballing into a corporate-wide warning letter, which would be significantly more difficult and time-consuming to resolve."

Zimmer faces regulatory scrutiny as well. Last year, Zimmer paid a huge fine -- more than the penalties levied against all of its major competitors combined -- to settle its portion of an industry-wide probe focused on marketing abuses. Zimmer emerged as the most aggressive of the lot, experts have observed, offering generous rewards to those who used its medical devices.

"At Zimmer, more than 100 institutions or surgeons were paid in excess of $100,000 over the last 10 months," JPMorgan analyst Michael Weinstein noted last year. "Moreover, 21 received in excess of $1 million.

"These figures are fairly remarkable," Weinstein added. "And in the coming year -- with the new level of disclosure and oversight -- it will be interesting to see the degree to which these payments change and what impact it has" on physician relationships and the company's market share.

Clearly, Zimmer has suffered no fallout so far. During the latest quarter, Zimmer posted double-digit sales growth across virtually all of its business lines.

Sales of Zimmer knees should pick up even more going forward, due to the recent rollout of the company's new mobile-bearing joint. Besides Johnson & Johnson ( JNJ) -- which has monopolized the mobile-bearing knee market for years -- Zimmer stands out as the only company to offer such a product in the U.S.

Meanwhile, Zimmer enjoyed even bigger gains outside its core reconstructive division. Fourth-quarter sales of the company's extremities and dental implants grew by 30% and 34%, respectively. Even the company's hip division managed to generate a rare double-digit gain.

"We are pleased with our overall results for the fourth quarter, especially the strength of our sales across our geographic segments," CEO David Dvorak said on Tuesday. "Our business units around the world responded to strong underlying growth in procedures during the quarter."

Looking ahead, Dvorak added, "we believe that investing today in the infrastructure needed to serve the health care market of the future will generate attractive returns in the years to come."

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