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Why Is Zimmer (ZBH) Down 8.2% Since Last Earnings Report?

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A month has gone by since the last earnings report for Zimmer Biomet (ZBH - Free Report) . Shares have lost about 8.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Zimmer due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Zimmer Biomet Gains From Strength in Spine & CMF Arm in Q4

Zimmer Biomet posted first-quarter 2019 adjusted earnings per share (EPS) of $1.87, ahead of the Zacks Consensus Estimate by a penny. However, the figure dipped 2.1% year over year.

On a reported basis, EPS came in at $1.20, a 41.2% improvement from the year-ago period.

Revenue Details

First-quarter net sales came in at $1.98 billion, a 2.1% decline (a 0.7% rise at constant exchange rate or CER) year over year. The figure beat the Zacks Consensus Estimate of $1.97 billion by a close margin.

During the quarter under review, sales generated in the Americas totaled $1.19 billion (down 0.9% year over year at CER), while the same in EMEA (Europe, the Middle East and Africa) grossed $464 million (up 1.5% year over year at CER). Asia-Pacific registered 5.6% growth at CER to $318 million.

Segments

Sales in the Knees unit inched up 0.5% year over year at CER to $694 million. Hips recorded a 1.7% increase at CER from the prior-year quarter’s tally to $484 million. Revenues in the S.E.T. (Surgical, Sports Medicine, Foot and Ankle, Extremities and Trauma) unit rose 1.7% year over year to $440 million.

Among the other segments, Spine & CMF were up 1.7% at CER to $183 million, while Dental declined 0.2% to $105 million. Other revenues were down 9.4% to $70 million.

Margins

Gross margin after excluding intangible asset amortization came in at 71.9%, reflecting an expansion of 53 bps in the first quarter. Selling, general and administrative expenses were 0.7% down to $796.4 million. Research and development expenses rose 6.3% to $101.7 million. Adjusted operating margin contracted 46 bps to 26.5% during the quarter.

Cash Position

Zimmer Biomet exited first quarter 2019 with cash and cash equivalents of $586.8 million compared with $542.8 million in 2018. Long-term debt at the end of the first quarter totaled $8.81 billion compared with $8.94 billion at the end of 2018.

At the end of the first quarter, net cash provided by operating activities was $283.6 million compared with $490.5 million a year ago.

2019 Guidance

The company stated that, it has reaffirmed its 2019 revenues and adjusted EPS guidance which is as follows:

Sales in 2019 are projected to be down 0.5% to up 0.5% compared with the previous year. Per management, projected sales growth figures include 100-150 basis points of impact from an adverse currency movement. Adjusted EPS for 2019 is expected in the range of $7.70-$7.90.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Zimmer has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Zimmer has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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