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Zimmer Biomet (ZBH) Q1 Earnings Top Estimates, Margins Drop

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Zimmer Biomet Holdings, Inc. (ZBH - Free Report) 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.

Revenue Details

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.

Segments

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.

Zimmer Biomet Holdings, Inc. Price, Consensus and EPS Surprise

 

Margins

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.

Cash Position

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.

2018 Outlook

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.

Our Take

Zimmer Biomet ended the quarter on a positive note. We are also encouraged by the company’s consistent efforts in product and renovation through research and development. We are optimistic about synergies from the LDR Holding acquisition, which should broaden and complement the company’s musculoskeletal range. We are also impressed by the strong strategic and financial goals which the combined entity expects to reach.

However, the company’s declining sales at its Knees, Hips and other segments at CER disappoint. Moreover, supply headwinds related with the major brands within the company’s Knee, Hip and S.E.T. segments affected the first-quarter performance to some extent.

Zacks Rank & Key Picks

Zimmer Biomet has a Zacks Rank #4 (Sell). 

A few better-ranked stocks in the broader medical space, which reported solid earnings this season, are Laboratory Corporation of America Holdings (LH - Free Report) , Chemed Corporation (CHE - Free Report) and Intuitive Surgical, Inc. (ISRG - Free Report) . While Intuitive Surgical sports a Zacks Rank #1 (Strong Buy), LabCorp and Chemed carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical reported first-quarter 2018 adjusted earnings of $2.44 per share, which beat the Zacks Consensus Estimate by 22.6%. Revenues totaled $848 million, also surpassing the Zacks Consensus Estimate by 10.6%.

LabCorp reported first-quarter 2018 adjusted earnings per share of $2.78, beating the Zacks Consensus Estimate by 5.3%. Revenues came in at $2.85 billion, exceeding the consensus estimate of $2.78 billion.

Chemed posted first-quarter 2018 adjusted earnings per share of $2.72, beating the Zacks Consensus Estimate of $2.37. Revenues came in at $439.2 million, steering past the Zacks Consensus Estimate of $420 million.

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