Why Is Zimmer (ZBH) Up 10.8% Since Last Earnings Report?
A month has gone by since the last earnings report for Zimmer Biomet (ZBH). Shares have added about 10.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Zimmer due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Zimmer Biomet Q3 Earnings Beat Estimates, Margins Down
Zimmer Biometposted third-quarter 2023 adjusted earnings per share of $1.65, exceeding the Zacks Consensus Estimate by 3.8%. The adjusted figure improved 4.4% year over year.
The quarter’s adjustments included certain amortization, restructuring and European Union Medical Device Regulation-related charges, among others.
On a reported basis, the company registered earnings of 77 cents per share, which reflected a 16.3% improvement from the year-ago earnings.
Revenue Details
Third-quarter net sales of $1.75 billion increased 5% (up 4.7% at constant exchange rate or CER) year over year. The figure beat the Zacks Consensus Estimate by 0.7%.
Geographic Details
During the third quarter, sales generated in the United States totaled $1.03 billion (up 6% year over year), while the same in International grossed $722.2 million (up 2.9% year over year at CER).
Our model projected 2% revenue growth for the United States and 6% growth at CER for the International arm for the third quarter.
Segments
In terms of product categories, post the dental and spine arm sell-off, the company reports through the remaining four product categories, which are Knees, Hips, S.E.T. (Sports Medicine, Extremities, Trauma, Craniomaxillofacial and Thoracic) and Other.
Sales in the Knees unit improved 7.3% year over year at CER to $706.3 million. Our model estimate was pegged at $703.2 million.
Hips recorded a 6% decline in the third quarter at CER to $465.3 million. Our model estimate was $477.7 million for the same.
Revenues in the S.E.T. unit were up 2.8% year over year at CER to $423.2 million. Our model estimate was $403.7 million.
Other revenues increased 16.4% to $158.8 million at CER in the third quarter. Our model estimate was $153.8 million.
Margins
Adjusted gross margin, after excluding the impact of intangible asset amortization, was 70.4%, reflecting a contraction of 34 basis points (bps) in the third quarter. Selling, general and administrative expenses were up 3.1% to $674.9 million. Research and development expenses rose 14.9% to $116.9 million. Adjusted operating margin contracted 18 bps to 25.3% in the quarter.
Cash Position
Zimmer Biomet exited the third quarter of 2023 with cash and cash equivalents of $292.1 million compared with $319.8 million at the end of the second quarter.
Cumulative net cash provided by operating activities at the end of the third quarter was $993.2 million compared with $1.11 billion in the year-ago period.
2023 Guidance
Zimmer Biomet updated its financial guidance for 2023.
Reported revenue growth is expected to be in the band of 6%-6.5% compared with 2022 (earlier guidance was 6.5-7%). However, the company currently expects foreign exchange to have an adverse impact of 1% on revenues now (earlier expectation was an adverse impact of 0.5% on revenues).
Adjusted earnings per share for the full year is expected in the range of $7.47-$7.57 (unchanged).
The Zacks Consensus Estimate for 2023 adjusted earnings is pegged at $7.51 on revenues of $7.41 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
At this time, Zimmer has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Zimmer has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Zimmer is part of the Zacks Medical - Products industry. Over the past month, Bio-Rad Laboratories (BIO), a stock from the same industry, has gained 1.8%. The company reported its results for the quarter ended September 2023 more than a month ago.
Bio-Rad reported revenues of $632.12 million in the last reported quarter, representing a year-over-year change of -7.2%. EPS of $2.33 for the same period compares with $2.60 a year ago.
Bio-Rad is expected to post earnings of $2.93 per share for the current quarter, representing a year-over-year change of -11.5%. Over the last 30 days, the Zacks Consensus Estimate has changed -11.6%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #5 (Strong Sell) for Bio-Rad. Also, the stock has a VGM Score of F.
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Zimmer Biomet Holdings, Inc. (ZBH) : Free Stock Analysis Report
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