UPDATE 4-Zimmer quarterly net rises, but shares stumble

(Recasts, adds conference call, analyst comments, byline)

By Debra Sherman

CHICAGO, April 24 (Reuters) - Zimmer Holdings Inc (ZMH.N: Quote, Profile, Research) reported a modest rise in first-quarter net earnings on Thursday, helped by an 11 percent increase in sales, but disappointed investors sent shares of the orthopedic device maker down as much as 8 percent.

Despite Zimmer meeting its earnings forecast for the quarter and reaffirming its 2008 outlook, analysts said there had been expectations for even better results.

"We believe that most investors were expecting a beat, followed by an increase in management's '08 guidance, which did not occur, owing to the (product) recalls," Michael Weinstein, an analyst with JP Morgan, wrote in a research note.

In the latest quarter, net profit rose to $239.3 million, or $1.02 per share, in line with analysts' estimates, from $233.4 million, or 98 cents per share, a year earlier.

Warsaw, Indiana-based Zimmer stuck to its outlook for the full year. It called for earnings of $4.20 to $4.25 per share, with sales growing 10 percent to 11 percent over 2007.

The company said expenses relating to its recall of some orthopedic surgical products will drain 18 to 20 cents -- including 7 cents in one-time items like inventory charges and plant costs -- from 2008 earnings per share. But those items will be absorbed by reductions in operating expenses, share repurchases and other actions.

Chief Financial Officer James Crines told a conference call there could also be sales of non-strategic assets. He declined to elaborate, but added, "There's a high probability of those transactions occurring between now and the end of the year."