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Zimmer Biomet (ZBH) Beats on Q2 Earnings, Narrows '19 View

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Zimmer Biomet Holdings, Inc. (ZBH - Free Report) posted second-quarter 2019 adjusted earnings per share (EPS) of $1.93, a penny ahead of the Zacks Consensus Estimate. The figure edged up 0.5% year over year.

On a reported basis, EPS came in at 65, a 28% plunge from the year-ago period.

Revenue Details

Second-quarter net sales came in at $1.99 billion, a 0.9% decline (a 1.2% rise at constant exchange rate or CER) year over year. The figure however, beat the Zacks Consensus Estimate of $1.98 billion by a close margin.

During the quarter under review, sales generated in the Americas totaled $1.22 billion (up 0.1% year over year at CER), while the same in EMEA (Europe, the Middle East and Africa) grossed $438 million (up 1.9% year over year at CER). Asia-Pacific registered 4.7% growth at CER to $336 million.

Segments

Sales in the Knees unit improved 2.5% year over year at CER to $704 million. Hips recorded a 0.9% increase at CER from the prior-year quarter’s tally to $479 million. Revenues in the S.E.T. (Surgical, Sports Medicine, Foot and Ankle, Extremities and Trauma) unit rose 4.3% year over year to $444 million.

Among the other segments, Spine & CMF declined 4.9% at CER to $186 million, while Dental improved 1.7% to $107 million. Other revenues were down 10.9% to $69 million.

Margins

Gross margin after excluding intangible asset amortization came in at 70.8%, reflecting a contraction of 16 bps in the second quarter. Selling, general and administrative expenses were 6.2% up to $840.3 million. Research and development expenses rose 13.1% to $112.1 million. Adjusted operating margin contracted 370 bps to 22.9% during the quarter.

Cash Position

Zimmer Biomet exited second quarter 2019 with cash and cash equivalents of $403.1 million compared with $586.8 million in the first quarter. Long-term debt at the end of the second quarter totaled $6.72 billion, a reduction from $8.81 billion in the first quarter.

Year-to-date, net cash provided by operating activities was $584.6 million compared with $883.8 million a year ago.

2019 Guidance

The company tapered its 2019 revenues and adjusted EPS guidance which is as follows:

Sales in 2019 are projected to be flat to up 0.5% (earlier guidance was down 0.5% to up 0.5%) compared with the previous year. Per management, projected sales growth figures include 125-175 basis points of impact from an adverse currency movement. Adjusted EPS for 2019 is expected in the range of $7.75-$7.90 (earlier prediction was $7.70-$7.90).

Our Take

Zimmer Biomet ended the quarter on a strong note with better-than-expected results. However, the year-over-year performance remained sluggish.

While sales in Americas remained sluggish, the company witnessed strength in the Asia Pacific and EMEA regions as well as in the S.E.T. business. However, the company’s declining Spine & CMF sales at CER disappoint. We believe that escalating costs and expenses are putting pressure on the adjusted operating margin.

Zacks Rank & Key Picks

Zimmer Biomet has a Zacks Rank #2 (Buy).

A few other top-ranked stocks in the broader medical space are Hologic Inc. (HOLX - Free Report) , DENTSPLY SIRONA Inc. (XRAY - Free Report) and Teleflex Inc. (TFX - Free Report) .

Hologic is scheduled to release second-quarter 2019 results on Jul 31. The Zacks Consensus Estimate for the quarter’s adjusted EPS is pegged at 61 cents and for revenues, stands at $834.6 million. The stock carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DENTSPLY SIRONA is scheduled to release second-quarter 2019 results on Aug 2. The Zacks Consensus Estimate for its adjusted EPS is pinned on 62 cents and for revenues, stands at $1.03 billion. The stock sports a Zacks Rank #1.

Teleflex is expected to release second-quarter 2019 results on Aug 1. The Zacks Consensus Estimate for its adjusted EPS is $2.59 and its top line, $636.7 million. The stock has a Zacks Rank of 2.

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