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Zimmer Biomet's Preliminary Q2 Numbers Solid, CEO Steps Down

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Indiana-based Zimmer Biomet Holdings, Inc. (ZBH - Free Report) , a leading player in the global musculoskeletal space, recently announced second-quarter 2017 preliminary results. The company is slated to report its consolidated quarterly results on Jul 27, before the market opens.

Zimmer expects second-quarter net revenues at around $1.95 billion, up 1.1% over the prior-year quarter and 2.1% on a constant exchange rate (CER) basis. The assessed revenues for the quarter, however, were in line with the Zacks Consensus Estimate.  Moreover, the figure falls within the company’s second-quarter revenue guidance of $1.94–$1.96 billion, reflecting a rise of 2.4–3.4% at CER. Per management, favorable foreign currency exchange rates have driven the numbers.

Without considering the 240-basis point contribution from the LDR Holding Corporation acquisition, adjusted expected revenues will decline by 0.3% at CER. This remains below the company’s earlier-projected guidance growth of 0.0–1.0% on CER basis. 

The company also expects adjusted earnings for second-quarter 2017 within or around the bottom end of its projected guidance range of $2.08–$2.13. The company’s expectations are almost in line with the Zacks Consensus Estimate of $2.10.

Per management, the company is still grappling with headwinds such as the shortage in supply of some products which have led to the inability to recapture lost customers in the U.S. and gain new ones. On a positive note, the production levels at the Warsaw facility witnessed considerable improvement.

In this regard we note that, over the recent past, the company has been working toward enhancing its performance and boosting market share. Thus, the company launched its CE marked X-ray-based Patient Specific Instrument – X-PSI Knee System – in Jun 2017. This latest development was part of the lucrative knee business. Notably, the knee segment contributed 35.51% to total revenues in the reported first quarter of fiscal 2017.

Considering Zimmer’s net EBIT synergies, the company is steadily moving toward its goal to achieve a cumulative target of $350 million by mid-2018, with roughly $310 million of cumulative net benefit derived by year-end 2017. This demonstrates $85 million of incremental synergies in fiscal 2017.

The preliminary numbers and promising prospects have however failed to boost market sentiments. Moreover, the market seems to be apprehensive about the departure of Zimmer’s decade old CEO David C. Dvorak. However, Mr. Dvorak will continue to serve in an advisory role along with the interim CEO Daniel P. Florin, currently the Senior Vice President and Chief Financial Officer, till the company selects a suitable person for this position. Thus, Zimmer’s shares were down 0.71% to $126.49 on the day of announcement of both the news.

Zimmer has been lagging the broader Medical Instruments market, gaining 5.7% as compared to the industry’s 10.0% over the last three months. However, the company has outperformed the 4.4% gain of the S&P 500 market over the same time frame. The latest positive news is expected to provide some impetus to the company in the niche market.

 

Zacks Rank & Key Picks

Zimmer currently has a Zacks Rank #3 (Hold). A few other better-ranked medical stocks are ABIOMED, Inc. , Edwards Lifesciences Corporation (EW - Free Report) and Align Technology, Inc. (ALGN - Free Report) . Notably, ABIOMED and Edwards Lifesciences sport a Zacks Rank #1 (Strong Buy), while Align Technology carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ABIOMED has a long-term expected earnings growth rate of 32.5%. The stock has gained around 15.6% over the last three months.

Edwards Lifesciences has a long-term expected earnings growth rate of 25.6%. The stock has gained around 24.7% over the last three months.

Align Technology has an expected long-term adjusted earnings growth of almost 24.1%. The stock has added roughly 34.1% over the last three months.

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