It has been about a month since the last earnings report for Zimmer Biomet Holdings, Inc. ZBH. Shares have lost about 2.9% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is ZBH due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Zimmer Biomet reported first-quarter 2018 adjusted earnings per share of $1.91, down 10.3% year over year and ahead of the Zacks Consensus Estimate of $1.87.
Reportedly, net earnings came in at 85 cents per share compared with the year-ago quarter’s $1.47.
First-quarter net sales came in at $2.02 billion, marking a 2.3% increase (down 1.5% at constant exchange rate or CER) year over year. Net sales also surpassed the Zacks Consensus Estimate of $1.98 billion.
During the quarter under review, sales generated in the Americas totaled $1.21 billion (down 2% year over year at CER), while the same in EMEA (Europe, the Middle East and Africa) grossed $496.5 million (down 3%). Asia-Pacific, however, registered 2.6% growth at CER to $313 million.
Sales at Knees were down 2.1% year over year at CER to $713.3 million. Hips recorded a drop of 0.9% at CER from the prior-year quarter to $492 million. Revenues from S.E.T. (Surgical, Sports Medicine, Foot and Ankle, Extremities and Trauma) were up 1.1% year over year to $442.3 million.
Among the other segments, Spine & CMF were down 3.8% at CER to $183.1 million, while Dental declined 4.8% to $107.6 million. Other revenues fell 4% to $79.3 million.
Gross margin came in at 71.5%, reflecting a contraction of 250 bps in the first quarter. Selling, general and administrative expenses were up 3.5% to $785.1 million. Further, research and development expenses rose 5% to $95.7 million. Adjusted operating margin declined 300 bps to 27.9% during the quarter.
Zimmer Biomet exited the first quarter with cash and cash equivalents of $1.77 billion, compared with $524.4 million as of 2017-end. Total long-term debt was $9.49 billion compared with $8.92 billion at the end of 2017.
First-quarter operating cash flow was $490.5 million compared with $275.4 million in the year-ago quarter. The company also paid $48.6 million in dividends during the quarter.
The company has issued full-year 2018 guidance. Sales are projected to grow in the range of 1.5-3.5%. Per management, projected sales growth figures include 200 to 300 basis points of impact from a favorable currency movement. The Zacks Consensus Estimate for revenues is pegged at $7.96 billion for the current year.
Adjusted EPS for 2018 is expected to be in the band of $7.60 to $7.80. The Zacks Consensus Estimate of $7.80 coincides with the high end of the guided range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to nine lower.
Zimmer Biomet Holdings, Inc. Price and Consensus
Zimmer Biomet Holdings, Inc. Price and Consensus | Zimmer Biomet Holdings, Inc. Quote
At this time, ZBH has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for value investors than those looking for growth and momentum.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Interestingly, ZBH has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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