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Can S.E.T. Aid Zimmer (ZBH) Q1 Earnings Despite Supply Woes?

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Zimmer Biomet Holdings, Inc. ZBH is set to report first-quarter 2018 results on Apr 26, before the markets open.

Last quarter, the company posted earnings in line with the Zacks Consensus Estimate. However, Zimmer Biomet missed the consensus mark in two of the preceding four quarters, the average being 0.29%. .

Let’s take a look at how things are shaping up prior to this announcement.

Key Catalysts

The company is expected to report strong topline numbers within its S.E.T. (Surgical, Sports Medicine, Foot and Ankle, Extremities and Trauma) arm in the to-be-reported period. Last quarter, revenues at S.E.T. were driven by solid quarterly sales of the company’s surgical portfolio. Also, within upper extremities business, the company saw solid demand for a comprehensive shoulder line.

In this regard, we note that since last November, the company has received several FDA clearances within S.E.T. and is particularly, excited about the approval of the Sidus Stem-Free Shoulder system. We expect all these developments to significantly contribute to the company’s top line in the first quarter itself.

Zimmer Biomet Holdings, Inc. Price and EPS Surprise

Zimmer Biomet Holdings, Inc. Price and EPS Surprise | Zimmer Biomet Holdings, Inc. Quote

 

On the flip side, the company’s business within S.E.T has been in the recent past, massively ailed by supply issues and a continued pricing pressure.

The Zacks Consensus Estimate of $435 million for S.E.T. revenues reflects a decline of 4.2% from the last quarter.

We are also upbeat about the Spine, Craniomaxillofacial and Thoracic (Spine & CMF) segment, which is expected to deliver another quarter of promising performance. Under the spine category, Zimmer Biomet should continue to gain from a strong uptake of Mobi-C Cervical Disc. Also, we are looking forward to top-line contributions from the company’s recent launch of products like the Avenue T TLIF Cage and Vitality + and Vital Spinal Fixation Systems in the United States.

However, we are apprehensive about the ongoing revenue dissynergies related to the company’s U.S. spine sales force integration. Although Zimmer Biomet is working to resolve the impact of these dissynergies, chances of any near-term resolution are bleak.

The Zacks Consensus Estimate of $186 million for Spine revenues indicates a 4.1% decrease from the year-ago quarter.

Overall, first-quarter revenues are projected at $2.03 billion, up 0.9% sequentially.

Other factors likely to influence Zimmer Biomet’s first-quarter results are:

Looking at the focused execution of Zimmer Biomet’s sales teams, we expect the global adoption rate of the flagship personalized knee system — Persona — to be impressive. We are also enthusiastic about the launch of the Persona Partial Knee System last September. The knee system marked the latest addition to the company’s portfolio of personalized and anatomically designed knee implant systems.

The Zacks Consensus Estimate of $700 million for Knee revenues registers a 4.2% reduction from the last quarter.

Within Hip business, we expect the company to once again demonstrate a sturdy performance in the Asia Pacific region. Notably, in the previous quarter, the company registered double digit sales growth within Hip in the aforementioned geography. The company is anticipated to produce improved quarterly sales from Taperloc G7 and Arcos systems. However, like all other segments, supply constraints should continue to limit Zimmer Biomet’s ability to meet demand of these high-growth brands.

The Zacks Consensus Estimate of $478 million for Knee revenues represents a 4.2% dip from the last quarter.

Emerging markets have always been a significant revenue generating source for Zimmer Biomet. Despite the recent economic downturn in Latin America, the company managed to drive growth through its operations in the other emerging markets, especially the Asia Pacific and EMEA (Europe, the Middle East and Africa) zones. The Zacks Consensus Estimate for first-quarter revenues from EMEA of $477 million denotes an improvement of 0.8% from the last quarter.

However, the Zacks Consensus Estimate for revenues of $300 million from APAC in the quarter to be reported translates into a 6.5% fall from the last quarter. We believe, macroeconomic uncertainties and unfavorable currency fluctuations have been denting the company’s sales for over the past few quarters. The company has also been burdened with pricing woes.

As a result, Zimmer Biomet struggled with a negative pricing pressure of approximately 2.5% in 2017. In absence of any favorable changes on these lines, these headwinds might be mirrored in the company’s first-quarter results.

Here’s what our quantitative model predicts:

Per the proven Zacks model, a company with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has good chances of beating estimates if it also has a positive Earnings ESP.

Zimmer Biomet has a Zacks Rank #4, which lowers the predictive power of ESP and an Earnings ESP of +0.57%. We caution against the Sell-rated stocks (4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions. Therefore, the combination does not suggest that the company is likely to beat on earnings this quarter.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are a few medical stocks worth considering with the right combination of elements to beat estimates this time around.

Myriad Genetics, Inc. MYGN has an Earnings ESP of +0.61% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Henry Schein, Inc. HSIC has an Earnings ESP of +3.34% and a Zacks Rank #3.

Quest Diagnostics Incorporated DGX has an Earnings ESP of +3.19% and is a Zacks #3 Ranked player.

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Zimmer Biomet Holdings, Inc. (ZBH) : Free Stock Analysis Report
 
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