Zimmer Holdings, Inc. (ZMH)

Q1 2010 Earnings Call Transcript

April 22, 2010 8:00 AM ET

Executives

Paul Blair – VP, IR

David Dvorak – President and CEO

James Crines – EVP, Finance and

Analysts

Raj Denhoy – Jefferies

David Roman – Goldman Sachs

Mike Duncan – UBS

Bob Hopkins – Bank of America

Mike Weinstein – JP Morgan

Adam Feinstein – Barclays Capital

Rich Mynahan – Leerink Swann

Bill Carlo (ph) – Morgan Stanley

Katherine (ph) - Credit Suisse

Joanne Wuensch – BMO Capital Markets

Derrick Sung – Sanford Bernstein

Matt Miksic – Piper Jaffray

Jimmy (ph) – Citi Bank

Operator

And sir, you may begin.

Paul Blair

Good morning. I am Paul Blair, Vice President of Investor Relations for Zimmer. I would like to welcome you to the Zimmer First Quarter 2010 Earnings Conference call. Joining me today to host this call are David Dvorak, President and Chief Executive Officer and Jim Crines, Executive Vice President, Finance and Chief Financial Officer.

This morning we will review our performance for the first quarter, provide you with an update on certain key matters, present an update on our outlook for 2010 and conclude our discussion with the question-and-answer session.

We understand that this is a very busy reporting day and we’ll do our best to keep today’s call close to an hour in length. Therefore, we ask that participants pose one question, with one follow up to allow as many callers as possible the opportunity to take part in today’s call.

Before we get started I would like to point out that this presentation contains forward-looking statements within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 based on current expectations, estimates, forecasts and projections about the orthopedics industry, management’s beliefs and assumptions made by management.

These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that could cause actual outcomes and results to differ materially from those in the forward-looking statements.

For a list and description of the risks and uncertainties see the disclosure materials filed by Zimmer with the Securities and Exchange Commission. Zimmer disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

This presentation also contains certain non-GAAP financial measures. A reconciliation of such information to the most directly comparable GAAP financial measures along with other financial and statistical information for the periods to be presented on this conference call was included in the press release announcing our earnings, which may be accessed from the Zimmer website at www.zimmer.com under the section titled Investor Relations.

In addition we routinely post important information for investors on our website in the Investor Relations section. We intent to use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly investors should monitor the Investor Relations section of our website in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts.

A rebroadcast of this call will be available from approximately two hours following the conclusion of today’s call through the end of the day on May 6, 2010 and can also be accessed from the Investor Relations section of the Zimmer website.

At this time I would like to introduce David Dvorak, President and Chief Executive Officer of Zimmer.

David Dvorak

Thank you, Paul and good morning everyone. We’re glad you’ve joined us on the call today. This morning, I’ll review our first quarter 2010 results and provide comments on highlights from the quarter. Jim will then provide additional financial details. Net sales for the quarter were $1.1 billion, an increase of 3.4% on a constant currency basis and our earnings per share were $1.02 on an adjusted basis.

Our sales performance reflects incremental constant currency growth over the fourth quarter of 2009 of 90 basis points. Sales results improved when compared with the fourth quarter in the Americas and Asia Pacific but remained under pressure in Europe, Middle East and Africa segment and large part due to the challenging economic environment in that region. For the quarter, we once again recorded year-over-year sales growth in all three of our geographic reporting segments. Americas showed 2.8% constant currency growth while Europe, Middle East and Africa grew slower as we anticipate at 1.1%.

Asia Pacific again let our geographic segments with a solid 10.8% constant currency growth. Knee sales for the quarter improved year-over-year 7.4% on a reported basis and 3.8% constant currency reflecting positive volume and mix of 5% less negative price of 1.2%. Sales of partial knee devices including the Zimmer Uni Knee and the Gender Solutions Patellofemoral Joint contributed to knee growth for the quarter. Also showing growth for the quarter were later stage devices like the NexGen Legacy Constrained Condylar Knee and Rotating Hinge Knee.

We’re confident that initiatives already underway will accelerate the growth of our primary knee systems and drive further improvement in performance of our knee franchise this year. At AAOS we debuted an expansion of our patient specific instrument portfolio by adding our natural knee brand to the recently cleared NexGen brand. Our patient specific instruments are proprietary toolset customized to the individual patient’s anatomy and our design is streamlined total knee replacement procedures by ensuring the successful implementation of the surgeons preoperative plan.

We’re pleased with the yearly clinical feedback on these instruments and expect to further leverage our industry leading knee systems with the continued rollout of patient specific instruments as well as other innovative instruments that we expect to launch midyear. Hip sales for the quarter improved year-over-year 5.4% on a reported basis and 1% constant currency reflecting positive volume and mix of 2.1% less negative price of 1.1%.

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