Zimmer Holdings (ZMH)

Q2 2010 Earnings Call

July 22, 2010 8:00 am ET

Executives

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

Paul Blair - Vice President of Investor Relations

David Dvorak - Chief Executive Officer, President and Director

Analysts

Matthew Miksic - Piper Jaffray Companies

Richard Newitter

Steve Beuchaw - Wachovia

Robert Hopkins

Michael Weinstein - JP Morgan Chase & Co

David Roman - Goldman Sachs Group Inc.

Raj Denhoy - Jefferies & Company, Inc.

Derrick Sung - Bernstein Research

Doug Schenkel - Cowen and Company, LLC

Adam Feinstein - Barclays Capital

Bruce Nudell - UBS Investment Bank

Joanne Wuensch - BMO Capital Markets U.S.

Presentation

Operator

Mr. Blair, you may begin your conference.

Paul Blair

Thank you. Good morning. I am Paul Blair, Vice President of Investor Relations for Zimmer. I would like to welcome you to the Zimmer Second 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 second quarter, provide you with an update on certain key matters, present an update on our outlook for 2010 and conclude our discussion with a 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 to 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, further 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 entitled Investor Relations.

In addition, we routinely post important information for investors on our website in the Investor Relations section. We intend 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 August 5, 2010, and can also be accessed from the Investor Relations section of the Zimmer website.

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

David Dvorak

Thank you, Paul, and good morning, everyone, and welcome. We're glad you could join us for today's call. This morning, I will review our second quarter and first half 2010 results. Jim will then provide additional financial details.

Throughout the first six months of 2010, we've continued to perform in line with our expectations entering the year, demonstrating year-over-year constant-currency sales growth across all geographic segments. We've made progress with new product introductions, particularly in our Hip business, and we expect these additions, along with our new instrument offerings in Knees will increasingly contribute to revenues in the second half of the year.

Net sales for the quarter were $1.06 billion, an increase of 3.3% on a constant-currency basis, and our earnings per share were $1.09 on an adjusted basis. For the quarter, the Americas region grew sales 2.8% constant currency compared to the prior year. The Asia-Pacific segment grew 6.5%. And despite a continued challenging market, our Europe, Middle East and Africa region improved its sales performance with 2.8% growth. Knee sales for the quarter improved year-over-year, 3% on a constant-currency basis, reflecting positive volume and mix of 4.5%, less negative price of 1.5%.

To accelerate our growth in the Knee franchise, we've launched several strategic initiatives to reinforce the strength and performance of our Knee systems, which we believe will also help to gain new customers. We continue to see growth in our patient-specific instruments as more physicians seek opportunities to optimize the accuracy of their surgical cases, as well as enhance their operative inefficiency with these MRI-based surgical guides. Along with patient-specific instruments, we plan to deploy our posterior referencing instruments in the second half of this year, following the developer release that took place this past quarter.

Posterior referencing instruments offer physicians, who subscribe to the surgical philosophy, access to our clinically proven NexGen implant. Early trial results have been encouraging as these instruments have been favorably received by posterior referencing positions.

Hip sales for the second quarter improved year-over-year 2.6% on a constant-currency basis, reflecting positive volume and mix of 4.2% less negative price of 1.6%. Adoption of our newly launched Continuum System Acetabular products continues to progress, and we anticipate sales of these products will positively impact our performance in the second half of the year. The Continuum System, combined the best of Zimmer's proven Hip technologies and further reinforces our commitment to providing an integrated line of polyethylene, ceramic and metal bearing options that more closely match the unique needs and lifestyles of patients.

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