2nd UPDATE: Biomet Shows Orthopedics Still Under Pressure

Biomet Inc.'s report Tuesday of sluggish sales in its most recent fiscal quarter indicated that the $12 billion market for replacement hips and knees remains under pressure from a struggling global economy.

The privately held company is first to report among big replacement joint-makers and is, therefore, watched closely for signs about market health that could presage results for bigger competitors such as Zimmer Holdings Inc. (ZMH) and Stryker Corp. (SYK). Biomet's most recent quarter ended Aug. 31.

The 3% sales growth in the period, excluding the impact of foreign currency rates, "was lower than our expectations" and "related to a deceleration of procedural growth in the market," said Jeffrey Binder, Biomet's president and chief executive, in a release.

He said Biomet remains "very optimistic about the long-term growth potential" of markets where it competes, but the company's report showed a well-worn problem for the orthopedics sector has not abated. Replacement hips and knees address painful, arthritic problems with original parts, but the procedures can be deferred by patients worried about out-of-pocket costs or long stretches off work for recovery.

Binder added on a conference call that patients who put off surgery will eventually need it, suggesting that business has been deferred but not lost. He also expressed surprise at the market slowdown and said "I don't have a very good sense of when the market will accelerate again."

While the tenor of Biomet's report wasn't surprising, results were at the low end of expectations, Piper Jaffray analyst Matt Miksic said. "We expect the ortho group to come under renewed pressure on the back of these results," he said in a note to investors.

Zimmer shares declined 1.2% to close at $50.98 and slipped further to $50.70 after hours, while Stryker traded down 1.5% to $49.05 before climbing to $49.29 after hours. U.K.-based Smith & Nephew PLC (SNN) traded down 1.4% to close at $44.80. Miksic said he expects Stryker's broader portfolio of reconstructive orthopedic products, plus medical and hospital supplies, to enable that company to meet or beat estimates.

World-wide sales growth for Biomet's replacement hips and knees was slower in the recent quarter, excluding currency rates, than in the prior quarter ended May 31. The company's spinal sales were flat, continuing a slowdown seen over several quarters.

Biomet's loss in the recent period narrowed to $17.8 million from $22.8 million. Excluding items such as merger-related amortization and depreciation expenses, earnings rose to $50.8 million from $49.2 million. Sales were $640.7 million.

-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com

(Matt Jarzemsky and Nathan Becker contributed to this article.)

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