Zimmer Holdings Earnings Call Insights: Target EPS Growth and the Surgical Portfolio
Target EPS Growth
Derrick Sung – Sanford Bernstein: I just wanted to start with guidance here, you talked about previously, EPS growth in the 8% to 12% range is kind of something sustainable, sustainable target for you. Your guidance for next year I think gets us to kind of 6.5% to 10% range. Can you just talk about sort of where the difference between so that aspirational goal and what you are setting for next year and how you see that sort of increasing to your goal?
James T. Crines – EVP, Finance and CFO: We have also said Derrick all along that, 2013 did not provide the same kind of opportunity for operating leverage as other years since as you very well know, we are now in a position in 2013 to have to absorb the medical device exercise tax. We’ve done that and I would reflect – I would focus on the fact that midpoint of that range is certainly well within the aspirational targets that we discussed and I’d also reflect on the fact that, when you look at our guidance particularly when you look at the detailed guidance that provided on the various operating expense line in terms of what’s implied in operating profit growth. We are still driving leverage in 2013. As a result of the progress that we are making on the transformational agenda and behind the anticipated growth, we look to achieve with launch of all these new products that David mentioned.
Derrick Sung – Sanford Bernstein: On coming to the hip and knee markets, it looks like you did a bit of an acceleration in your Americas knee sales consistent with that we’ve seen from some of the other companies that have reported in the US or in Americas your Hip sales kind of stayed flat or I think we saw a bit of an acceleration than the other larger competitors, so I was wondering if you could comment, first kind of broadly on how you’re seeing the market dynamics in Hips and Knees in full this quarter, in particular, there has been some questions around, are we seeing bit of a pull forward in procedures in Q4, as a result of some of the concerns around fiscal cliff et cetera by patient? Then in particular, then, could you comment on your own performance relative to your competitor and maybe the lack of acceleration that you are seeing in Hips and maybe talk about what’s driving that improvement in your Knee sales?
David C. Dvorak – President and CEO: Sure. I think that when it comes to the overall market, did see a bit of a pickup sequentially from Q3 to Q4, but the pick up more in the United States and offset by some OUS markets that actually steeped down notably some of the European market. So I would deem it, there to be a stable market for large joints. If you look across the quarter of 2012, we have a range of, maybe 150 basis points from the highest growth rate quarter to the slowest growth rate quarter and the average for the year looks to me to be (dead on) with what we saw in Q4, that is around 2% growth. I think our own performance, we’ve talked about the improvement that we want to drive within the U.S. market, we’re seeing improvement, I think that we had a nice pickup sequentially from Q3 to Q4, but more work to do in that regard and I think that the programs that we’re executing along with these new product launches are going to put us in a really nice place as 2013 progresses.
Derrick Sung – Sanford Bernstein: Are you seeing any evidence of pull forward in procedures, at least in the U.S. in Q4 kind of based on increased seasonality at all?
David C. Dvorak – President and CEO: I don’t think that there is anything that is noticeable in that regard or noteworthy in that regard. I think that we always see seasonality. You’re going to have some puts and takes across the globe and for us, we look at that and again, in United States saw a bit of a pick-up and European markets saw a bit of a slowdown as we got to the back half of the year, certainly into the fourth quarter within the European markets. So I think it washes and end up with the market that is stable.
The Surgical Portfolio
Robert Hopkins – Banc of America Merrill Lynch: So I’m sure there will be a lot of questions about hips and knees, but I want to focus on the surgical and other line, because obviously this quarter, you saw a pickup in your growth rate of roughly 2 times, which you’ve been growing in the last couple of quarters and I wanted to make sure for my first question that I had a good understanding of what drove that acceleration in that line item this quarter. Was that truly the first signs of positive feedback on your (power tool) launch or were there other more one-time items in there?
David C. Dvorak – President and CEO: Well, there was a bit of a benefit from the acquisition of Dornoch’s transposal weight fluid management system. But the growth is much, much broader than that. So, you know, we did a nice job on the legacy products, Bob, within the surgical portfolio and just are beginning to see some of the benefits of power tools in the new product categories and it’s a good area for us to focus on, because we’ve been talking a lot about the new products both through internal and external developments and the surgical line is an area where we short up our legacy products with internal innovation efforts, but we’ve also added through external development and that allows us to now penetrate markets that we didn’t previously participate in. So I think that’s going to be a big theme for us in 2013 as we add products into categories and markets in which and these are adjacencies. So these are out of our core real house here, these are within the markets that we serve and the relationships that we possessed, as we add those new product categories. So it’s going to be top line growth accelerators and that’s exactly what you saw in Q4 within our surgical line.
Robert Hopkins – Banc of America Merrill Lynch: So then just a follow-up on that as it relates to that line item for 2013, some of these new products have been on the market for six months now or so, and you’re saying we probably won’t see much of a pickup in Q1. I guess I’m wondering why we wouldn’t start to see that. Then implicit in your guidance for revenues, what sort of contribution are you assuming from say hyaluronic acid and power tools? I think you’d probably be a safe assumption from my perspective that you could grab at least 5% of those markets in 2013? I was wondering if you is that what you’re assuming, or just any further color on that would be helpful?
David C. Dvorak – President and CEO: Well, those are – it is the case that we’re moving in forward release of many of these products, Bob, they’re going to comment different paces right, there are going to be instances like Gel-One where I have absolute confidence that in a reasonable time period we’re going to pick-up nice market share with that product, all the initial feedback has been very, very positive and we have to get all the distribution channel element setup. So that includes the specialty pharma wholesale side, we’ve got the buy and bill side and we are pushing hard on that, but it is going to be a ramp up because it is a new product category. When it comes to the implant systems, as you know, you are deploying instrument sets that takes times, the surgeon training and education takes time. So it will ramp up sequentially and I think that the biggest thing that you have to recognize in Q1 is two less billing days in our largest market. That’s several hundred basis points. So we are going to make progress in executing these launches. I think that you will start to see them progress much more in Q2 and thereafter in 2013.
Robert Hopkins – Banc of America Merrill Lynch: Do you assume that line item grows 15% to 20% this year?
David C. Dvorak – President and CEO: Within surgical?
Robert Hopkins – Banc of America Merrill Lynch: Within the surgical and other, yeah.
David C. Dvorak – President and CEO: Surgical and other, we expect to see double-digit growth within that line.
A Closer Look: Zimmer Holdings Earnings Cheat Sheet>>