Investors shouldn't expect a quick recovery for orthopedic device specialists Stryker (NYSE:SYK) and Zimmer Holdings (NYSE:ZMH).
Although both just produced second-quarter earnings that beat Wall Street estimates, quarterly profits and revenue fell below the year-ago period. The rest of 2009 will remain difficult due to trends in hospitals' capital spending, patients deferring some procedures, and the impact of a strong U.S. dollar.
The "considerable challenges" in 2009 "turned out to be far greater than our expectations coming into the year," Stryker's CEO Stephan MacMillan said in the earnings conference call Tuesday evening.
Zimmer CEO David Dvorak said in Thursday's earnings release, "We are successfully stabilizing our business and making progress toward restoring positive momentum."
Those are hardly ringing endorsements for companies whose shares have been basically joined at the hip for the past 12 months. Both have fallen farther than the S&P 500 index. Since March, both have rebounded more modestly than the broad market index.
An inhospitable environment
Stryker's second-quarter net earnings fell to $291 million from the year-ago quarter's $306 million, while revenue dropped 4.6% to $1.63 billion. Diluted earnings per share of $0.73 matched the year-ago quarter, while squeezing past the Wall Street consensus forecast by a penny. Without the foreign exchange impact, revenue would have been flat.
Stryker continues to be hurt by restrained or reduced capital spending by hospitals, which cuts into its medical-surgical devices business. Stryker says the situation appears to have hit bottom and stabilized.
Hitting the bottom contributed to an 11% drop in sales for medical/surgical equipment and supplies -- a 7.7% decrease with constant currency -- to $620 million, while orthopedic implant sales remain essentially flat at just over $1 billion.
Second verse, same as the first
Zimmer's second quarter looked like a carbon copy of Stryker's. Adjusted earnings per share of $1.00, excluding special items, beat the Wall Street consensus by $0.04.
However, sales of $1.02 billion fell 5.5% below the year-ago period, with foreign exchange being the primary villain. Adjusted net earnings, excluding special items, dropped 9% to $215.5 million.
Peering into the future
Investors shouldn't have been surprised by the Stryker and Zimmer results. Earlier this month, Johnson & Johnson (NYSE:JNJ) said that foreign exchange turned a 2.9% constant-currency sales gain for its medical devices and diagnostic products segments into a 3.1% decline for the second quarter. That showing was just part of a painful quarter for J&J.
Second-quarter results from companies like Zimmer, Stryker, and even giants like J&J, Pfizer (NYSE:PFE), and Merck (NYSE:MRK), portend uncertainty for investors. But if you think that's worrisome, try figuring out your next move while not knowing what Congress will do -- or not do -- to change the U.S. health-care system.
More "Stryking" Foolishness:
- No more double-digit revenue growth for you.
- It's going to be a rough 2009.
- It's tough, but it's not the end of the world.
