Shares of Zimmer (NYSE:ZMH) slipped about 1% today after the medical device company revealed a 7% slide last year for its spine unit and said it expects the spine slump to continue in 2013.
The stock decline came despite results that exceeded Wall Street’s forecast for both the 4th quarter and 2012.
The Warsaw, Ind.-based orthopedics giant posted 4th-quarter profits of $152.8 million, or $1.51 per share, on sales of $1.18 billion for the 3 months ended Dec. 31, 2012. That represents a 2.4% dip in profits on a 1.1% sales increase.
For the full year, Zimmer reported profits of $755.0 million, or $4.29 per share, on sales of $4.47 billion, for a profit decline of 0.8% on a 0.4% sales increase.
Analysts on The Street predicted adjusted earnings per share of $1.49 for Q4 and $5.28 for 2012, both of which Zimmer beat by 2¢. Still, investors sent ZMH shares down 1.4% to $73.37 apiece as of about 11 a.m. today.
"Throughout 2012, Zimmer successfully executed our value creation agenda, including innovation and growth initiatives, global transformation programs and capital allocation strategies," president & CEO David Dvorak said in prepared remarks. "For the 4th quarter and full year, Zimmer delivered on our financial commitments, generating double-digit growth in adjusted earnings per share and significant operating margin improvements. We also achieved key regulatory and commercialization milestones for a number of innovative products and technologies, both in our core franchises and in new, adjacent musculoskeletal markets. These clinically-differentiated offerings will drive accelerated top-line growth in 2013 and beyond."
Zimmer’s spine unit logged sales of $54 million during the 4th quarter, down 5%, and $209 million for the full year, down 7%.
"The company recorded a non-cash charge for goodwill impairment of $96 million net of tax ,or $0.55 per diluted share, related to the company’s U.S. spine reporting unit during the fourth quarter," according to a press release. "A number of factors have resulted in a change in the outlook for the spine market in the U.S., including pressure from payers on utilization of certain types of procedures and on reimbursement rates and prices generally. The change in outlook for the market, together with ongoing company-specific challenges related to the U.S. spine reporting unit, contributed to the decrease in the implied fair value of the unit compared with prior year."
Zimmer said it expects 2013 sales to rise 2%-4%, with EPS ranging between $5.05 and $5.25. Adjusted EPS are predicted to be $5.65-$5.85; analysts are looking for adjusted EPS of $5.73 this year.
This year Zimmer is planning to restructure its business, aiming for $30 million to $40 million in savings in 2013 and $80 million a year after that, according to the release.
"Savings from these initiatives will enable the company to absorb the medical device excise tax, continue to support investments in innovation and commercialization of new products and technologies, expand global sales channels and drive sustained growth in earnings and cash flow," according to the release.