Zimmer Holdings net sales increase 4.8% to $1.07 billion in Q3 2013

Zimmer Holdings, Inc. (NYSE and SIX: ZMH) today reported financial results for the quarter ended September 30, 2013. The Company reported third quarter net sales of $1.07 billion, an increase of 4.8% reported and 6.7% constant currency over the third quarter of 2012. Diluted earnings per share for the quarter were $0.90 reported and $1.25 adjusted, an increase of 8.7% adjusted over the prior year period.

"Zimmer achieved accelerated top-line growth in the third quarter, fueled by our innovative new product offerings and the focused execution of our global sales teams," said David Dvorak, Zimmer President and CEO. "For the balance of 2013, we expect to continue building stockholder value through the ongoing execution of our growth, operational excellence and capital deployment strategies."

Net earnings for the third quarter were $154.4 million on a reported basis and $215.6 million on an adjusted basis, an increase of 6.7% adjusted over the prior year period. Operating cash flow for the third quarter was $292.7 million.  

In the quarter, the Company recorded pre-tax charges of $46.4 million in special items and $43.8 million in cost of products sold pertaining to global restructuring, quality and operational excellence initiatives, certain litigation and recent acquisitions. Adjusted 2013 figures in this release exclude the impact of these charges, which include $39.1 million associated with a broad based product rationalization program; $33.0 million related to quality and operational excellence initiatives in manufacturing, logistics and sales; $12.0 million connected with certain outstanding litigation matters; and $6.1 million in integration and other costs.

The Company recently announced the receipt of 510(k) clearance from the U.S. Food and Drug Administration (FDA) to market the Zimmer® Patient Specific Instruments (PSI) Shoulder system to complement its Trabecular Metal™ Reverse Shoulder system for reverse shoulder arthroplasty procedures. Additionally in the quarter, Zimmer Spine announced its entry into an exclusive global distribution agreement to market the Lateral Locking Cage (LLC), a first of its kind, minimally invasive lateral interbody cage for the treatment of degenerative disc disease and instability. Implanted through a unique minimally invasive approach, the LLC represents Zimmer Spine's entry into lateral access lumbar surgeries, a fast growing segment of the global spine market.

During the quarter, the Company utilized $17.5 million of cash to acquire 0.2 million shares. At the end of the third quarter, $536.4 million remained authorized under the current share repurchase program, which expires on December 31, 2014. Additionally, 1.6 million stock options were exercised in the quarter, resulting in $108.7 million of cash proceeds. Through the end of the third quarter, 5.0 million stock options had been exercised in 2013, resulting in $325.4 million of cash proceeds. As a result, the Company now estimates diluted weighted average common shares outstanding for the full year to be approximately 171.5 million shares. The Company also declared cash dividends of $33.9 million on its outstanding shares in the third quarter.

Guidance
The Company reaffirmed its full-year 2013 constant currency revenue guidance and updated its reported revenue and earnings guidance for 2013. Full-year revenues for 2013 are expected to increase approximately 4.5% on a constant currency basis from 2012. The Company now estimates that foreign currency translation will decrease revenues between 1.5% and 2.0% for the year, resulting in reported revenue growth between 2.5% and 3.0%. Previously, the Company had estimated foreign currency translation would decrease revenues by approximately 2.0%.

The Company now projects full-year 2013 diluted earnings per share to be approximately $4.40 on a reported basis and approximately $5.70 on an adjusted basis. Prior guidance for full-year 2013 reported and adjusted diluted earnings per share was $4.70 to $4.80 and $5.70 to $5.80, respectively. This updated guidance includes estimated charges for inventory step-up and other inventory and manufacturing related charges, certain claims and special items of $335 million on a pre-tax basis, or approximately $1.30 per diluted share, on an after-tax basis. Prior guidance reflected an estimate of $250 million, on a pre-tax basis, for these items.