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How Hard Will Coronavirus Hit Zimmer Biomet (Zbh) Q1 Earnings?

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Zimmer Biomet Holdings, Inc. (ZBH - Free Report) is set to report first-quarter 2020 results on May 11, before market open.

The company delivered a positive earnings surprise of 1.77% in the last reported quarter. The metric beat the consensus mark in each of the preceding four quarters, the average beat being 0.85%.

Let’s take a look at how things have shaped up prior to this announcement.

Factors at Play

Through the first quarter, non-elective healthcare procedures were postponed largely to prioritize coronavirus-led damage control. Hence, musculoskeletal healthcare companies like Zimmer Biomet are expected to have witnessed massive sales disruption. Further, quarantine restrictions were imposed on several nations worldwide during this period, which resulted in mass manufacturing and supply halt. Needless to say, Zimmer Biomet, which has a vast global base for its spine, CMF, dental and SET products, is expected to have seen a notable reduction in product demand, which, in turn, may have adversely impacted quarterly revenues.

Dental product volumes are expected to have declined significantly. The products were doing extremely well over the last few quarters banking on increased commercial and channel investments.

The S.E.T. business (comprising Surgical, Sports Medicine, Foot and Ankle, Extremities and Trauma), the company’s major focus area, too is expected to have registered poor performance in this quarter amid the mayhem. However, this might have been partially offset by product launches, geographic expansion and investment in specialized sales channel to capture this high-growth market. In this segment, the ROSA portfolio has been performing well, which is likely to have continued in the first half of the quarter at least, till the time the coronavirus impact was minimal.

Within the Spine & CMF (Craniomaxillofacial) business, even if we don’t consider the COVID-19 impact, Zimmer Biomet has been witnessing growth deceleration in recent quarters mainly due to unfavorable pricing.  Despite channel consolidation and  product launches, the company recorded sales decline in the last-reported quarter too. The company’s ROSA robotics platform however gained a few regulatory clearances for spine applications, which are expected to have contributed to the top line in the first quarter.

We expect the company to have registered slightly better performances within its Hips and Knees arms due to the nature of the business, which is non-elective and can be considered as emergency. Despite COVID-19 hurdles, product introductions like Avenir, supply stability and improved commercial execution are expected to have added to the Hip business in the quarter under review.

Core knee revenues may have accelerated in the first quarter, driven by Persona, including the recently launched Revision system. We also note that the ROSA Knee placements have done well, and till the last-reported quarter, it drove a little more than 50% of overall global Knee growth.

Preliminary Numbers

On Apr 6, the company came out with its preliminary unaudited numbers. Revenues are estimated to decline in the range of 9.5% to 10.5% on a year-over-year basis (down 8.5-9.5% at constant exchange rate or CER).

The company also talked about realignment of its product category from the first quarter itself.

Surgical products, previously reported in the S.E.T. (Sports Medicine, Extremities and Trauma) product category, will be included in the Other product category. Dental will be combined with Spine and CMF products into a single category and the CMF product category will be renamed to CMFT (Craniomaxillofacial and Thoracic) to reflect the Thoracic business.

Q1 Estimates

The Zacks Consensus Estimate for total revenues of $1.79 billion suggests 9.5% decline from the prior-year quarter’s reported figure. The consensus mark for earnings of $1.49 per share projects a decline of 20.3 % from the year-ago quarter's reported figure.

What Our Quantitative Model Predicts

Per our proven model, the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP increases the odds of an earnings beat. However, this is not the case here as you can see:

Earnings ESP: Zimmer Biomet has an Earnings ESP of -6.96%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank #4 (Sell).

Stocks Worth a Look

Here are a few medical stocks worth considering, as these have the right combination of elements to post an earnings beat in this reporting cycle.

Exact Sciences Corporation (EXAS - Free Report) has an Earnings ESP of +2.28% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Haemonetics Corporation (HAE - Free Report) has an Earnings ESP of +2.76% and a Zacks Rank of 3.

Aurora Cannabis Inc. (ACB - Free Report) has an Earnings ESP of +9.09% and a Zacks Rank of 3.

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