It's easy to make a lot of money when times are good and everybody is raking in cash. (Remember the tech bubble?) But it's much more impressive to make money and keep growing when times get a little tougher. While the orthopedic sector hasn't yet gotten quite as bad as some feared it might, Zimmer (NYSE:ZMH) has nevertheless continued to grow through tougher times.
Sales were up 6% for the quarter. (Hey, I said they grew; I didn't say they grew a lot.) Sales were driven by the reconstructive business, where sales grew 6%, while the other businesses were a hodgepodge of good growth (spine), low growth (trauma), and no growth (surgical products). Margins continued to improve, though, and good expense control let the company convert 6% sales growth into more than 16% operating income growth.
In the reconstructive business (which makes up more than 80% of sales here), knee sales were a bit weak at 7%, and hip sales grew at 3%. I'd say that places Zimmer in the lower half of the sector -- it was well behind Stryker (NYSE:SYK) and Biomet (NASDAQ:BMET) in knee-replacement growth, and below both Biomet and Johnson & Johnson's (NYSE:JNJ) DePuy in hips.
Still, Zimmer may be worth a good, long look from Fools who want exposure to medical devices but are worried about valuation in cases like St. Jude (NYSE:STJ) or Medtronic (NYSE:MDT), concerned about sustainable growth for companies like J&J or Abbott (NYSE:ABT), and uncomfortable with some of the smaller, riskier ideas in the industry.
While I like Stryker and Biomet more than Zimmer as companies, I can't overlook Zimmer's apparent status as the best bargain of the group. My inclination is usually to wait to snag better companies at attractive prices, but Zimmer remains a very good company in its own right. So long as the pressures in the orthopedic sector prove less than originally feared, Fools could still make money here.
For more Foolish thoughts on the orthopedic space:
Fool contributor Stephen Simpson owns shares of Johnson & Johnson but has no financial interest in any other stocks mentioned (that means he's neither long nor short the shares). The Motley Fool has a disclosure policy.
