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Zimmer Biomet (ZBH) Q2 Earnings Top Estimates, Margins Drop

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Zimmer Biomet Holdings, Inc. (ZBH - Free Report) reported second-quarter 2018 adjusted earnings per share of $1.92, down 7.7% year over year and ahead of the Zacks Consensus Estimate of $1.88.

Reportedly, net earnings came in at 90 cents per share, in line with the year-ago quarter’s figure.

Revenue Details

Second-quarter net sales came in at $2.01 billion, marking a 3% increase (up 1% at constant exchange rate or CER) year over year. Net sales also surpassed the Zacks Consensus Estimate of $1.99 billion.

During the quarter under review, sales generated in the Americas totaled $1.22 billion (up 0.9% year over year at CER), while the same in EMEA (Europe, the Middle East and Africa) grossed $458 million (down 1.8%). Asia-Pacific, however, registered 5.4% growth at CER to $334 million.

Segments

Sales at Knees were up 1.4% year over year at CER to $703 million. Hips recorded a 1.5% increase at CER from the prior-year quarter to $487 million. Revenues from S.E.T. (Surgical, Sports Medicine, Foot and Ankle, Extremities and Trauma) were up 1.2% year over year to $434 million.

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

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

Among the other segments, Spine & CMF were up 1.3% at CER to $198 million, while Dental declined 5.5% to $107 million. Other revenues were up 1.2% to $79 million.

Margins

Gross margin came in at 70.9%, reflecting a contraction of 201 bps in the second quarter. Selling, general and administrative expenses were up 5.2% to $791.3 million. Further, research and development expenses rose 7% to $99.1 million. Adjusted operating margin declined 302 bps to 26.6% during the quarter.

Cash Position

Zimmer Biomet exited the second quarter with cash and cash equivalents of $481.2 million, compared with $1.77 billion at the end of the first quarter. Total long-term debt was $9.51 billion compared with $9.49 billion as of preceding quarter-end.

Year-to-date operating cash flow was $883.8 million compared with $715.9 million in the year-ago period. The company also paid $48.8 million in dividends during the quarter.

2018 Outlook

The company has lowered its full-year 2018 revenue guidance. Sales are now projected to grow in the range of 1-2.5%, a decline from the earlier-predicted range of 1.5-3.5%. Per management, projected sales growth figures now include 100 to 150 basis points of impact from a favorable currency movement (earlier range was 200 to 300 basis points of positive impact). The Zacks Consensus Estimate for revenues is pegged at $7.99 billion for the current year.

Adjusted EPS for 2018 is still expected to be in the band of $7.60 to $7.80. The Zacks Consensus Estimate of $7.66 falls within but near to the low 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. The improvement within the company’s global Knee and Hip sales performance and ongoing growth within the Asia Pacific region are encouraging. 

Banking on its firm focus on priority areas like quality remediation, supply recovery efforts and product launches, Zimmer Biomet once again reported strong topline numbers within its S.E.T. We are also impressed by the strong strategic and financial goals which the combined entity expects to reach. However, the company’s declining dental sales at CER disappoint.

Zacks Rank & Key Picks

Zimmer Biomet has a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader medical space are Insulet Corp. (PODD - Free Report) , Amedisys, Inc. (AMED - Free Report) and Integer Holdings Corp. (ITGR - Free Report) .

Insulet is expected to release second-quarter fiscal 2018 results on Aug 2. The Zacks Consensus Estimate for the quarterly loss per share is pegged at 13 cents and for revenues at $132.9 million. The stock sports a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here.

Amedisys is expected to release second-quarter 2018 results on Jul 31. The Zacks Consensus Estimate for adjusted EPS is pegged at 78 cents and for the top line at $403.6 million. The stock carries a Zacks Rank of 1.

Integer Holdings is slated to release second-quarter 2018 results on Aug 2. The consensus estimate for the bottom line per share stands at 90 cents and for revenues at $381.8 million. The company is a Zacks #1 Ranked player.

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