Zimmer (ZBH) Down 8% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Zimmer Biomet (ZBH). Shares have lost about 8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Zimmer due for a breakout? 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 Q2 Earnings Beat Estimates, View Up
Zimmer Biomet posted second-quarter 2022 adjusted earnings per share of $1.82, beating the Zacks Consensus Estimate by 11.7%. The adjusted figure also rose a significant 20.5% year over year.
The quarter’s adjustments included certain amortization, restructuring and quality remediation-related charges, among others.
On a reported basis, the company registered earnings of 73 cents per share, a 7.4% rise from earnings a year ago.
Revenue Details
Second-quarter net sales of $1.78 billion increased 1% (up 6% at constant exchange rate or CER) year over year. The figure beat the Zacks Consensus Estimate by 3.5%.
Geographic Details
Zimmer Biomet updated its geographic sales reporting with two segments: United States and International.
During the second quarter, sales generated in the United States totaled $1.02 billion (up 1.3% year over year at CER) while the same in International grossed $764 million (up 12.2% year over year at CER).
Segments
In terms of product categories, post the dental and spine arm sell-off, the company continues to report through the remaining four product categories.
Sales in the Knees unit improved 11.2% year over year at CER to $704.9 million. Hips recorded an 8.6% rise at CER to $487.2 million. Revenues in the S.E.T. (Sports Medicine, Extremities, Trauma, Craniomaxillofacial and Thoracic) unit increased 0.1% year over year to $446.4 million.
Other revenues fell 6.1% to $143.3 million.
Earlier the company noted that its CMFT (Craniomaxillofacial and Thoracic) products, previously reported in the Dental, Spine & CMFT category, are now included in the S.E.T. category.
Margins
Gross margin, after excluding intangible asset amortization, was 71.3%, reflecting a contraction of 54 basis points (bps) in the second quarter. Selling, general and administrative expenses were down 0.2% to $695.2 million. Research and development expenses rose 39.8% to $99.4 million. Adjusted operating margin expanded 374 bps to 26.7% in the quarter.
Cash Position
Zimmer Biomet exited the second quarter of 2022 with cash and cash equivalents of $386.4 million compared with $435.8 million at the end of the first quarter of 2022.
Cumulative net cash provided by operating activities at the end of the second quarter was $661.2 million compared with $642.5 million in the year-ago period.
2022 Guidance
Zimmer Biomet updated its financial guidance for 2022.
Revenues are expected to be down 1% to up 1% (an improvement from the earlier band of down 1.5% to up 0.5%) compared with 2021.
Adjusted earnings per share for the full year is expected in the range of $6.70-$6.90 (a rise from the projection of $6.65-$6.85 earlier).
The Zacks Consensus Estimate for 2022 adjusted earnings is pegged at $6.80 on revenues of $6.69 billion.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
Currently, Zimmer has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. 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.
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