UPDATE: Biomet Eases Concerns About Orthopedics Sector's 4Q
13 Gennaio 2009 - 8:33PM
Dow Jones News
Biomet Inc. (BMET) Tuesday became the second orthopedics company
to indicate that the market for replacement joints held up well in
recent months despite ongoing fears that the recession will cause
sales growth to slow.
The privately held company, which is closely watched because it
reports before bigger public orthopedics companies such as Zimmer
Holdings Inc. (ZMH) and Stryker Corp. (SYK), said sales for
reconstructive products rose 10% in the fiscal quarter ended Nov.
30, excluding the negative impact of currency rates.
Biomet's report follows a pre-announcement from Stryker last
week in which the company reported 8.9% sales growth for orthopedic
implants in the fourth quarter, excluding currency fluctuations.
Growth in the quarter was slightly ahead of the 2008 growth rate
for these Stryker products.
These results don't say anything about what the future may hold
for the more than $11 billion replacement hip and knee market, and
concerns remain that a lingering recession and rising unemployment
could still spell trouble. While replacement-joint surgery fixes
sometimes debilitating arthritic problems, it can carry hefty
out-of-pocket charges and can also be deferred.
Biomet's smaller size, unusual fiscal calendar and lack of
product-specific problems also make it hard to directly extrapolate
its results to larger rivals. But the Biomet and Stryker reports do
indicate some recent resilience in the orthopedics market.
"Following Stryker's firm headline results last Friday, these
numbers give us confidence that the industry's fourth quarter
results will not show the feared slowdown in volume growth," Nomura
Code analyst Charles Weston said in a note regarding U.K.
orthopedics company Smith & Nephew PLC (SNN).
He suggested the results could drive a small rally in Smith
& Nephew shares in the next month, although they recently
traded down 0.8% to $34.82 on Tuesday.
Beaten-up shares of Stryker and Zimmer, however, moved higher,
with Stryker recently up 1% to $40.39, and Zimmer up 0.3% to
$41.19. Shares of Johnson & Johnson (JNJ), which owns the other
major orthopedics company - DePuy - were recently 0.9% higher at
$58.86.
Meantime, shares of Symmetry Medical Inc. (SMA), which is a
major supplier of parts for the orthopedic-device sector, rose
18.2% to $7.41. Wachovia upgraded the stock to market perform from
underperform, saying it had fallen enough - 66% between the end of
September and Monday - to show the market was discounting risks to
Symmetry's 2009 estimates.
A key risk is the expected slowdown in elective surgery for
joint replacement. Speaking during a J.P. Morgan health-care
conference Tuesday, James T. Crines, Zimmer's chief financial
officer, said a "disruption" in growth rates is likely due to
rising unemployment, although the company doesn't expect a change
in long-term industry growth dynamics.
Likewise, Credit Suisse analyst Kristen Stewart, who noted the
Biomet caveats in a note to investors, also cited challenges ahead.
"We continue to believe that the hip and knee markets could see
some deceleration in unit demand due to the broader macro issues,"
she said in an investor note.
At Biomet, overall reconstructive orthopedic sales were watered
down by a sluggish market for dental devices, where the recession
has applied some pressure. The key market for replacement hips saw
14% sales growth excluding currency, however, while the knee market
saw 10% growth excluding currency.
Stewart said Biomet's above-market growth rates in hips and
knees - although sales growth has decelerated in the latter
category - indicate the company is taking share from competitors in
both markets.
When the effects of currency rates are factored in, Biomet's
sales gains were lower. Overall, the company reported 6% sales
growth - or 9% excluding currency - in its fiscal second
quarter.
It also reported a net loss of $39.7 million, narrowing from a
net loss of $302 million for the year-earlier period. It noted that
it reported $131.4 million of special items, pretax, in the recent
quarter. Those items include purchase accounting charges of $94.3
million.
-By Jon Kamp, Dow Jones Newswires; 617-654-6728;
jon.kamp@dowjones.com
(Ingrid Pedrick Lehrfeld contributed to this report.)
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