Zimmer lowers outlook as profits slide despite ortho growth

Indiana device giant Zimmer ($ZMH) bucked industry trends with its third-quarter orthopedics revenue growth, but a spike in costs negated strong sales, dragging down profits by about 13% and leading the company to inch its full-year estimates downward.

On the whole, Zimmer banked $1.1 billion in revenue, 4.7% growth fueled by a 4% jump in its reconstructive implants business, which includes hip and knee replacement devices. That growth demanded a scale-up in manufacturing, Zimmer said, and the company ran up a $43.8 million tab as a result, pulling net income down to $154.4 million.

Zimmer still expects between 2.5% and 3% revenue growth on the year, good for up to $4.6 billion, but the company has dialed back the high end of its earnings-per-share guidance by 10 cents, now projecting up to $5.70 to account for more inventory and manufacturing charges.

Despite its costs, the third quarter held some promising signs for Zimmer. Knee sales jumped 6% to $435 million, paced by a 9% increase in the Americas. Zimmer's small but growing extremities business soared 45%, helping to compensate for flat sales in hip implants. Surgical devices, Zimmer's second-largest division, grew 21% to $104 million on the quarter.

So far, the company hasn't been shy about spending money to expand its offerings this year, buying German bone reconstruction outfit Normed Medizin-Technik, snagging Pennsylvania startup Knee Creations and signing a deal with Frontier Medical Devices that gives it exclusive rights to a novel spinal disc cage.

- read Zimmer's results