Zimmer Holdings Inc.'s (ZMH) fourth-quarter profit slid 78% on a goodwill impairment charge tied to its spine products business, though results topped the company's guidance.
"In the quarter, Zimmer's performance was characterized by sequential top-line growth in all geographic segments, successful product introductions and operational discipline, resulting in improved operating margins and strong cash flow," Chief Executive David Dvorak said.
Zimmer said a change in outlook for the spine products market for the U.S., along with lower projected revenue from certain businesses and other factors led to the decrease in the implied fair value of its spine unit.
The orthopedics market has shown some economic vulnerability. Replacement hips and knees address painful, arthritic problems with original parts, but the procedures can be deferred by patients worried about out-of-pocket costs or long stretches off work for recovery. Smaller rival Biomet Inc. reported sluggish sales earlier this month, while Stryker Corp. (SYK) on Wednesday indicated the industry could remain under similar pressure this year, even as it posted modest sales growth.
One key concern in the market, and for medical-device companies in general, is that product prices are under pressure due to tight competition and as hospitals try to better control costs.
Zimmer posted a profit of $34.9 million, or 18 cents a share, compared with $155.2 million, or 74 cents a share, a year earlier. Excluding the goodwill charges for spine business and other items, earnings were $1.27 a share.
Net sales rose 2.5% to $1.13 billion, or 3% in constant-currency.
The company in October projected earnings of $1.17 to $1.22 a share with revenue flat to up 2% on a constant-currency basis.
Gross margin edged up to 75.8% from 75.2%.
For the new year, the company predicted earnings of $4.60 to $4.80 and revenue growth of 3% to 5%. Analysts polled by Thomson Reuters were looking for $4.66 and 4% growth to $4.38 billion, respectively.
Shares were inactive in premarket trading and closed Wednesday at $55.28. The stock is up 6.5% in the past three months.
Copyright © 2011 Dow Jones Newswires