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Zimmer Biomet Holdings, Inc. (ZBH - Free Report) reported third-quarter 2016 adjusted earnings per share (EPS) of $1.79, up 9.1% year over year. Adjusted earnings were in line with the Zacks Consensus Estimate. On a reported basis, net earnings came in at 78 cents per share, marking a significant improvement from the year-ago number of 11 cents.
Revenue Details
In the third quarter of 2016, net revenues reached $1.83 billion, marking a 4% rise (up 3.5% at an adjusted proforma, constant currency basis) year over year. The recently included LDR Holding contributed 190 basis points (bps) to the top line. Revenues, however, missed the Zacks Consensus Estimate of $1.84 billion.
Revenues generated in the Americas during the quarter touched $1.18 billion (up 3.7% year over year at an adjusted; constant exchange rate or CER). On the other hand, the same in EMEA grossed $369 million (up 0.9%) while in the Asia-Pacific, the figure was $288 million (up 6.4%).
Revenues derived from Knees were down 0.1% year over year at adjusted; CER at $631 million, while Hips recorded sales of $441 million, up 0.6% compared with the prior-year quarter figure. Revenues from S.E.T. (Surgical, Sports Medicine, Foot and Ankle, Extremities and Trauma) went up 7.8% year over year to $402 million.
Among the other segments at Zimmer, Spine & CMF recorded an improvement of 23.9% to $184 million while Dental was down 7.6% at $96 million in the quarter. Other revenues improved 5.2% to $79 million.
Margins
With more than 13% reduction in cost of products sold to $479.2 million, Zimmer Biomet’s gross margin expanded 518 bps to 73.8% in the third quarter. Selling, general and administrative expenses were up 5.1% at $727.7 million, while research and development expenses increased a significant 14.8% to $95.6 million. However, adjusted operating margin expanded 427 bps to 28.9%.
Cash Position
Zimmer Biomet exited the third quarter with cash and cash equivalents and short-term investments of $488.7 million, lower than $976.3 million as of second-quarter end. Long-term debt was $11 billion, compared with $10.53 billion at the end of the second quarter.
Year-to-date operating cash flow was $1 billion compared with $387.3 million in the year-ago period. The company also paid $47.9 million in dividends during the quarter.
2016 Outlook
Based on a disappointing third quarter, Zimmer Biomet lowered its guidance for full-year 2016. The company currently envisages sales in the band of $7.630−$7.650 billion representing annualized growth (at CER) in the range of 2.4%−2.7% (earlier expectation was $7.680 to $7.715; growth of 3% to 3.5%) on an adjusted proforma basis. According to the company, foreign currency translation will have a 0.3% adverse impact (earlier 0.5%) on the year’s revenues, resulting in organic revenue growth (excluding the contribution from LDR Holding Corporation, on a constant currency adjusted pro forma basis) between 1.65% and 1.9% (2.5% to 3%). The current Zacks Consensus Estimate for revenues is pegged at $7.70 billion, above the guided range.
The upper end of the adjusted EPS expectation range has been reduced to a new range of $7.90−$7.95 for the year ($7.90 to $8.00). The current Zacks Consensus Estimate for 2016 EPS remains at $7.97, above the guided range.
Our Take
Zimmer Biomet posted a disappointing third quarter, with adjusted earnings in line with the Zacks Consensus Estimate while revenues lagged the same. Sluggish top-line show outside the U.S. significantly hampered the company’s overall performance. Poor sales in Knee also concern us. With the company lowering its full-year 2016 guidance, we are all the more apprehensive about any near-term improvement.
We still look forward to the expected synergy from the recently completed LDR Holding acquisition, which should broaden and complement the company's musculoskeletal offering. We are also encouraged by the strong strategic and financial goals which the combined entity expects to reach now that the deal has been closed.
Zacks Rank & Key Picks
Zimmer Biomet currently carries a Zacks Rank #4 (Sell). Better-ranked stocks in the broader medical sector are GW Pharmaceuticals plc , Baxter International Inc. (BAX - Free Report) and Boston Scientific Corporation (BSX - Free Report) . GW Pharmaceuticals and Baxter international sport a Zacks Rank #1 (Strong Buy), while Boston Scientific carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
GW Pharmaceuticals surged 68.3% year to date compared to the S&P 500’s 4% over the same period. The company’s four-quarter average earnings surprise is 41.6%.
Baxter international rallied 26.2% in the past one year, above the S&P 500’s 2.3%. It has a trailing four-quarter average positive earnings surprise of 27%.
Boston Scientific recorded a 21% gain in the past one year, higher than the S&P 500’s 2.3%. The company has a trailing four-quarter average earnings surprise of 6.3%.
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Zimmer Biomet (ZBH) Posts In-Line Q3 Earnings, Guides Low
Zimmer Biomet Holdings, Inc. (ZBH - Free Report) reported third-quarter 2016 adjusted earnings per share (EPS) of $1.79, up 9.1% year over year. Adjusted earnings were in line with the Zacks Consensus Estimate. On a reported basis, net earnings came in at 78 cents per share, marking a significant improvement from the year-ago number of 11 cents.
Revenue Details
In the third quarter of 2016, net revenues reached $1.83 billion, marking a 4% rise (up 3.5% at an adjusted proforma, constant currency basis) year over year. The recently included LDR Holding contributed 190 basis points (bps) to the top line. Revenues, however, missed the Zacks Consensus Estimate of $1.84 billion.
Revenues generated in the Americas during the quarter touched $1.18 billion (up 3.7% year over year at an adjusted; constant exchange rate or CER). On the other hand, the same in EMEA grossed $369 million (up 0.9%) while in the Asia-Pacific, the figure was $288 million (up 6.4%).
ZIMMER BIOMET Price, Consensus and EPS Surprise
ZIMMER BIOMET Price, Consensus and EPS Surprise | ZIMMER BIOMET Quote
Segments
Revenues derived from Knees were down 0.1% year over year at adjusted; CER at $631 million, while Hips recorded sales of $441 million, up 0.6% compared with the prior-year quarter figure. Revenues from S.E.T. (Surgical, Sports Medicine, Foot and Ankle, Extremities and Trauma) went up 7.8% year over year to $402 million.
Among the other segments at Zimmer, Spine & CMF recorded an improvement of 23.9% to $184 million while Dental was down 7.6% at $96 million in the quarter. Other revenues improved 5.2% to $79 million.
Margins
With more than 13% reduction in cost of products sold to $479.2 million, Zimmer Biomet’s gross margin expanded 518 bps to 73.8% in the third quarter. Selling, general and administrative expenses were up 5.1% at $727.7 million, while research and development expenses increased a significant 14.8% to $95.6 million. However, adjusted operating margin expanded 427 bps to 28.9%.
Cash Position
Zimmer Biomet exited the third quarter with cash and cash equivalents and short-term investments of $488.7 million, lower than $976.3 million as of second-quarter end. Long-term debt was $11 billion, compared with $10.53 billion at the end of the second quarter.
Year-to-date operating cash flow was $1 billion compared with $387.3 million in the year-ago period. The company also paid $47.9 million in dividends during the quarter.
2016 Outlook
Based on a disappointing third quarter, Zimmer Biomet lowered its guidance for full-year 2016. The company currently envisages sales in the band of $7.630−$7.650 billion representing annualized growth (at CER) in the range of 2.4%−2.7% (earlier expectation was $7.680 to $7.715; growth of 3% to 3.5%) on an adjusted proforma basis. According to the company, foreign currency translation will have a 0.3% adverse impact (earlier 0.5%) on the year’s revenues, resulting in organic revenue growth (excluding the contribution from LDR Holding Corporation, on a constant currency adjusted pro forma basis) between 1.65% and 1.9% (2.5% to 3%). The current Zacks Consensus Estimate for revenues is pegged at $7.70 billion, above the guided range.
The upper end of the adjusted EPS expectation range has been reduced to a new range of $7.90−$7.95 for the year ($7.90 to $8.00). The current Zacks Consensus Estimate for 2016 EPS remains at $7.97, above the guided range.
Our Take
Zimmer Biomet posted a disappointing third quarter, with adjusted earnings in line with the Zacks Consensus Estimate while revenues lagged the same. Sluggish top-line show outside the U.S. significantly hampered the company’s overall performance. Poor sales in Knee also concern us. With the company lowering its full-year 2016 guidance, we are all the more apprehensive about any near-term improvement.
We still look forward to the expected synergy from the recently completed LDR Holding acquisition, which should broaden and complement the company's musculoskeletal offering. We are also encouraged by the strong strategic and financial goals which the combined entity expects to reach now that the deal has been closed.
Zacks Rank & Key Picks
Zimmer Biomet currently carries a Zacks Rank #4 (Sell). Better-ranked stocks in the broader medical sector are GW Pharmaceuticals plc , Baxter International Inc. (BAX - Free Report) and Boston Scientific Corporation (BSX - Free Report) . GW Pharmaceuticals and Baxter international sport a Zacks Rank #1 (Strong Buy), while Boston Scientific carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
GW Pharmaceuticals surged 68.3% year to date compared to the S&P 500’s 4% over the same period. The company’s four-quarter average earnings surprise is 41.6%.
Baxter international rallied 26.2% in the past one year, above the S&P 500’s 2.3%. It has a trailing four-quarter average positive earnings surprise of 27%.
Boston Scientific recorded a 21% gain in the past one year, higher than the S&P 500’s 2.3%. The company has a trailing four-quarter average earnings surprise of 6.3%.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>