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Zimmer Biomet's (ZBH) Procedure Volume Grows, Costs Rise

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Zimmer Biomet's (ZBH - Free Report) strategic acquisitions, focus on high-growth emerging markets, strong balance sheet position and stabilizing market trend bolster our confidence in this stock. Yet, factors like macroeconomic uncertainties, pricing pressure and unfavorable currency fluctuations adversely impacted Zimmer Biomet's sales during the reported quarter.

Zimmer Biomet currently carries a Zacks Rank #3 (Hold).

Zimmer Biomet, in spite of a difficult macroeconomic scenario in the first quarter, posted better-than-expected earnings and revenues. Each of the company’s geographic segments and product divisions recorded year-over-year sales growth at CER. Net sales in the first quarter were up 6.8% on a constant currency basis. Selling days contributed about 130 basis points of tailwind in the quarter. Revenues were driven by stronger and faster-than-expected COVID recovery across most of the markets, with the largest improvement in the United States.

After significant pressure in January, recovery ramped up through the quarter with improvement in February and a strong rebound in March. On a consolidated basis, March grew versus the pre-pandemic levels and that recovery continued into April. U.S. sales grew 5.8%, driven by strong recovery as COVID cases subsided and elective procedures returned. By the end of the quarter, U.S. cancellation rates returned to pre-pandemic levels and procedure volumes were above 2019.

A raised 2022 guidance is indicative of this improving trend to continue for the rest of the year.


Moreover, Zimmer Biomet’s recently-completed spin-off of the non-core dental and spine business is expected to prove strategic.

On the flip side, according to Zimmer Biomet, China volume-based procurement (VBP) is expected to be about neutral to overall revenue growth for the full year 2022. And so far, the 2022 impact is broadly in line with the company’s original expectations. However, in the first quarter, the company registered about a 200 to 300 basis points of VBP-led adverse impact across its global Knee, Hip and S.E.T. segments businesses.

Further, in terms of Q1 bottom-line performance, Zimmer Biomet’s adjusted gross margin was 70.6% lower than the prior-year period due to VBP and higher input and manufacturing costs, partially offset by higher volumes and better mix. Selling, general and administrative expenses were up 4.2%. Research and development expenses rose 19.6%. Adjusted operating margin contracted 359 bps to 64.1% in the quarter.

GAAP earnings per share of 35 cents reported a massive plunge from the year-ago figure of 92 cents per share. This decrease was primarily the result of an unrealized investment loss due to a decline in the value of the company’s investment in ZimVie, and higher litigation-related and restructuring charges.

In the past year, Zimmer Biomet has underperformed its industry. The stock has lost 23.1% compared with the 27.6% fall of the industry.

Key Picks

Some better-ranked stocks in the broader medical space that have announced quarterly results are Molina Healthcare, Inc. (MOH - Free Report) , Medpace Holdings, Inc. (MEDP - Free Report) and Alkermes plc (ALKS - Free Report) .

Molina Healthcare, having a Zacks Rank #2 (Buy), reported first-quarter 2022 adjusted EPS of $4.90, which beat the Zacks Consensus Estimate by 3.4%. Revenues of $7.8 billion outpaced the consensus mark by 3.1%. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Molina Healthcare has an estimated long-term growth rate of 16.4%. MOH’s earnings surpassed estimates in the trailing three quarters and missed in one, the average surprise being 1.5%.

Medpace reported first-quarter 2022 adjusted EPS of $1.69, which surpassed the Zacks Consensus Estimate by 34.1%. Revenues of $330.9 million outpaced the Zacks Consensus Estimate by 1.1%. It currently has a Zacks Rank #2.

Medpace has a historical growth rate of 27.3%. MEDP’s earnings surpassed estimates in the trailing four quarters, the average surprise being 17.1%.

Alkermes reported first-quarter 2022 adjusted EPS of 12 cents, which surpassed the Zacks Consensus Estimate of a penny. Revenues of $278.6 million outpaced the Zacks Consensus Estimate by 6.2%. It currently carries a Zacks Rank #2.

Alkermes has an estimated long-term growth rate of 25.1%. ALKS’ earnings surpassed estimates in the trailing four quarters, the average surprise being 350.5%.

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