Back to top

Analyst Blog

Zimmer Holdings (ZMH - Analyst Report) reported fourth quarter 2013 adjusted earnings per share of $1.66, up 9.9% year over year and 5 cents higher than the Zacks Consensus Estimate. After including one-time items, the company reported earnings of $1.36 a share, up 54.4% year over year.

For the full year, adjusted EPS came in at $5.75, up 8.5% year over year and ahead of the Zacks Consensus Estimate of $5.71.

Revenue Details

In the fourth quarter, revenues stood at $1.24 billion, up 5.1% (up 6.6% at constant exchange rate or CER) year over year, beating the Zacks Consensus Estimate of $1.22 billion. Full-year revenues of $4.62 billion were up 3.4% (up 4.9% at CER) from the prior year, exceeding the Zacks Consensus Estimate of $4.60 billion.

Revenues generated in the Americas were $692 million (up 8% year over year at CER). The figure in Europe stood at $343 million (up 2% at CER) and in Asia-Pacific at $206 million (up 10%).


Zimmer’s biggest segment, Reconstructive Implant, recorded revenues of $928 million, up 7% year over year at CER. This was due to an increase of 8% in the Americas combined with an 8% increase in Asia Pacific and 4% sales growth in Europe.

Revenues derived from Knees (within Reconstructive) were up 10% year over year at CER to $523 million, while Hips recorded an increase of 3% year over year to $353 million. Revenues from Extremities increased 11% year over year to $52 million.

Among the other segments at Zimmer, spine recorded a decline of 2% at CER to $53 million in the reported quarter.


Zimmer’s gross margin contracted 215 basis points (bps) to 72.5% in the fourth quarter. Selling, general and administrative expenses increased 3.6% to $477 million while research and development expenses were down 16.1% to $46.4 million. Adjusted operating margin contracted 64 bps to 30.3%.

Cash Position

Zimmer exited the fiscal with cash and cash equivalents and short-term investments of $1,965.9 million compared with $884.3 million as of 2012. Long-term debt decreased marginally to $1.67 billion compared with $1.72 billion at the end of 2012.

Operating cash flow at the end of 2013 was $963.1 million compared to $1.15 billion in the year-ago period. In the fourth quarter, the company repurchased 2.7 million shares for $240.6 million. The company also declared cash dividends of $34.0 million during the quarter.

2014 Outlook

Zimmer initiated its full-year 2014 guidance. The company expects adjusted earnings in the range of $6.10 to $6.30. The current Zacks Consensus Estimate of $6.18 remains within the guided range.

Revenues for 2014 are expected to grow in the range of 3.0% to 5.0%. The currency movement is expected to lower revenues by 0.5%, which in turn would lead to 2.5% to 4.5% revenue growth on a reported basis. The current Zacks Consensus Estimate for revenues remains at $4.78 billion.

Our Take

Zimmer provided a decent fourth quarter with both top-line and bottom-line beats. Barring spine revenue, which continues to remain as a key disappointment, we are encouraged with the balanced segmental sales growth which acted as a major upside for the company.

In order to streamline its business, Zimmer is continuing with its global restructuring program. A number of new products are slated for launch that will have a positive impact on the top line. After several quarters of challenging market conditions in the form of reduced procedure volume and pricing pressure, the company is gradually witnessing stability in the global musculoskeletal market with better-than-expected sales growth in certain geographies.

However, pricing continues to remain a major headwind for Zimmer. Moreover, with continued weakening of yen, the company is expected to face negative currency impact on its sales.

Currently, Zimmer carries a Zacks Rank #3 (Hold). Medical products companies such as Baxter International Inc. (BAX - Analyst Report), Covidien plc (COV - Analyst Report) and Stryker Corp. (SYK - Analyst Report), with a Zacks Rank #2 (Buy), are worth considering.

Please login to or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research


Are you a new Zacks Member or a visitor to

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
ERBA DIAGNO… ERB 3.80 +7.04%
BANCO DO BR… BDORY 14.74 +5.66%
AIR INDUSTR… AIRI 9.99 +4.15%
EQT MIDSTRE… EQM 98.14 +3.38%
WEATHERFORD… WFT 23.64 +3.10%