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Why Is Zimmer (ZBH) Up 7.9% 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 added about 7.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Zimmer due for a pullback? 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 catalysts.

Zimmer Biomet Gains From Strength in S.E.T. Arm in Q2

Zimmer Biomet 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).

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

Currently, Zimmer has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. 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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